<PAGE>
As filed with the Securities and Exchange Commission on March ___, 2000
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
INSIGHT MIDWEST, L.P.
INSIGHT CAPITAL, INC.
(Exact name of registrants as specified in their charters)
Delaware 4841 13-4079232
Delaware 4841 13-4079679
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Numbers) Identification Numbers)
incorporation or
organization)
126 East 56th Street
New York, New York 10022
(212) 371-2266
(Address, including zip code, and telephone number, including
area code, of registrants' principal executive offices)
Michael S. Willner
President and Chief Executive Officer
Insight Communications Company, Inc.
126 East 56th Street
New York, New York 10022
(212) 371-2266
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Robert L. Winikoff, Esq.
Cooperman Levitt Winikoff Lester & Newman, P.C.
800 Third Avenue
New York, New York 10022
(212) 688-7000
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|________
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Title of Each Class of Securities Amount to Proposed Proposed Amount of
to be Registered be Registered Maximum Maximum Registration
Offering Price Aggregate Fee
Per Unit(1) Offering Price(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 3/4% Senior Notes due 2009 $200,000,000 100% $200,000,000 $52,800
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457 under the Securities Act of
1933.
The Registrants hereby amend this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrants shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these notes until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell
these notes and it is not soliciting an offer to buy these notes in any state
where the offer or sale is not permitted.
Subject to Completion, dated March , 2000
Preliminary Prospectus
Insight Midwest, L.P.
Insight Capital, Inc.
-------------------
Offer to Exchange $200,000,000 of our
9 3/4% Senior Notes due 2009
-------------------
The notes being offered by this prospectus are being issued in exchange
for notes sold by us in a private placement on October 1, 1999. The exchange
notes will be governed by the same indenture governing the initial notes The
exchange notes will be substantially identical to the initial notes, except the
transfer restrictions and registration rights relating to the initial notes will
not apply to the exchange notes.
o The exchange offer expires at 5:00 p.m., New York City time, on
_________, 2000, unless extended.
o No public market exists for the initial notes or the exchange notes.
We do not intend to list the exchange notes on any securities
exchange or to seek approval for quotation through any automated
quotation system.
-------------------
Before you tender your initial notes, you should consider carefully the
section entitled "Risk Factors" beginning on page 15 of this Prospectus.
-------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these notes or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
-------------------
The date of this prospectus is ____________, 2000.
<PAGE>
TABLE OF CONTENTS
Page
----
Prospectus Summary.................................................. 1
Risk Factors........................................................ 15
Use of Proceeds..................................................... 22
Pro Forma Financial Statements...................................... 23
Selected Historical and Pro Forma Financial and Other
Data of Insight Midwest, L.P.................................... 26
Selected Consolidated Historical Financial and
Other Data of Systems Contributed by Insight
Communications to Insight Indiana.............................. 28
Selected Consolidated Historical Financial and
Other Data of Systems Contributed by TCI to
Insight Indiana................................................. 31
Selected Consolidated Historical Financial and
Other Data of Insight Kentucky.................................. 33
Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 36
Industry............................................................ 42
Business............................................................ 45
Legislation and Regulation.......................................... 69
Management.......................................................... 81
Certain Transactions................................................ 86
Principal Stockholders.............................................. 87
Description of Governing Documents.................................. 88
Description of Certain Indebtedness................................. 94
Description of Notes................................................ 96
Material Federal Tax Considerations................................. 138
Exchange Offer...................................................... 143
Book-entry; Delivery and Form....................................... 155
Plan of Distribution................................................ 158
Legal Matters....................................................... 159
Experts............................................................. 159
Available Information............................................... 160
Glossary............................................................ G-1
Index to Financial Statements....................................... F-1
Industry and Market Data
In this prospectus, we rely on and refer to information and statistics
regarding the cable television industry and our market share in the sectors in
which we compete. We obtained this information and statistics from various
third-party sources, discussions with our customers and our own internal
estimates. We believe that these sources and estimates are reliable, but we have
not independently verified them and cannot guarantee their accuracy or
completeness.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights some of the information in this prospectus. It
does not contain all the information that may be important to you. For a more
complete understanding of this offering, you should read the entire prospectus,
including the risk factors and financial statements.
Our Manager
Insight Communications Company, Inc. is the 8th largest cable television
system operator in the United States based on customers served after giving
effect to previously announced industry acquisitions. Insight Communications,
which provides cable television services to approximately 935,000 customers, has
tightly grouped clusters of cable television systems with approximately 98% of
its customers concentrated in the four contiguous states of Indiana, Kentucky,
Ohio and Illinois. Upon completion of its rebuild efforts, which is expected to
occur by the end of 2000, over 96% of its customers will be served from nine
headends allowing it to more economically deliver an array of entertainment,
information and telecommunication services, including interactive digital video,
high-speed data access and telephone service products. Our manager believes that
it is very well positioned to exploit the new business opportunities available
to cable television operators.
The Issuers
Insight Midwest, L.P. is owned equally by our manager, through its
subsidiary Insight Communications Company, L.P., and AT&T Broadband, LLC,
through its indirect subsidiary TCI of Indiana Holdings, LLC. Through our
subsidiaries Insight Communications of Indiana, LLC and Insight Communications
of Kentucky, L.P., we own and operate cable television systems in Indiana and
Kentucky, which passed approximately 1.2 million homes and served approximately
748,800 customers as of December 31, 1999. We are presently rebuilding our
systems and, upon completion of the rebuild, 99% of our customers will be
served by a two-way active, 750 MHz, hybrid fiber coaxial network which will
deliver a suite of entertainment, information and telecommunication services,
including our interactive Digital Gateway service, high-speed data service and
voice transmission.
Insight Indiana is the largest operator of cable television systems in the
State of Indiana. As of December 31, 1999, the Indiana systems passed
approximately 494,900 homes and served approximately 322,500 customers. The
Indiana systems are located primarily in the university cities of Bloomington,
Evansville and Lafayette and the demographically desirable areas of suburban
Indianapolis. Upon completion of our consolidation of headends, approximately
93% of Insight Indiana's customers will be served by three headends. The rebuild
and consolidation of headends are expected to be completed by the end of 2000.
Insight Kentucky is the largest operator of cable television systems in
the State of Kentucky. As of December 31, 1999, the Kentucky systems passed
approximately 668,500 homes and served approximately 426,300 customers. Over 95%
of the Kentucky systems are located in and around four of the five largest
cities in the state: Louisville, Lexington, Covington and Bowling Green. Upon
completion of our consolidation of headends, 100% of Insight Kentucky's
customers will be served by four headends. The rebuild and consolidation of
headends are expected to be completed by the end of 2000.
1
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Business Strategy
Our business strategy is to become a competitive, full-service provider of
entertainment, information and telecommunication services. Our strategy is
centered on the development of new and enhanced products and services for the
communities served by our networks and consists of the following elements:
o Focus on operating clusters with attractive technical and
demographic profiles;
o Expeditiously rebuild our broadband cable network;
o Introduce new and enhanced products and services; and
o Leverage strong local presence to enhance customer and community
relations.
To support our business strategy, we have developed a financial strategy
to pursue value-enhancing transactions in nearby or adjacent geographies.
Our marketing strategy is to offer our customers a suite of services on a
bundled basis. By bundling our products and services, we provide our customers
with an increased choice of services at a reduced cost, which we believe will
result in higher customer satisfaction, increased use of our services and
greater customer retention. We began offering new and enhanced products and
services, such as interactive digital video and high-speed data access, during
1999 and intend to offer telecommunication services under the AT&T brand name by
the end of 2000.
We believe that the highly clustered nature of our systems will enable us
to more efficiently invest our marketing dollars and maximize our ability to
enhance customer awareness, increase use of our products and services and build
brand support. Our emphasis is on system reliability, engineering support and
superior customer satisfaction. In addition to our broad product offerings, we
also emphasize a high level of locally-focused content and customer service.
To facilitate the deployment of our enhanced products and services, we are
in the process of rebuilding almost all of our network to allow us to deliver
more information and entertainment services through our cable systems and to
provide for two-way communications capability, including telecommunication
services. We have rebuilt approximately 56% of our network miles as of December
31, 1999, and intend to have substantially all of our network rebuilt by the end
of 2000. We expect to complete our network rebuild in 2000 with a total
investment of approximately $166.8 million.
Recent Developments
Agreement in Principle with AT&T
On March 15, 2000, our manager reached an agreement in principle with AT&T
Corp. for the delivery of telephone service utilizing our cable television
systems under the "AT&T" brand name. The terms of the agreement in principle
provide that we will market, service and bill for local telephone service. AT&T
would be required to install and maintain the necessary switching equipment, and
would be the local exchange carrier of record. AT&T would pay us a fee for the
use of the local telephone lines, and will also compensate us for installation
and maintenance services at customers' residences. In addition, AT&T would pay
us commissions for sales we make to our customers. We expect to sell the
AT&T-branded local telephone service separately and as part of bundled
offerings, which would also include the sale of AT&T long-distance
2
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telephone services. The agreement in principle is subject to the negotiation and
execution of definitive agreements.
Greenwood Letter of Intent
On March 21, 2000, we entered into a letter of intent with Cable One,
Inc., a subsidiary of The Washington Post Company, for the acquisition of a
cable television system serving approximately 16,000 customers in Greenwood,
Indiana as of December 31, 1999. Due to its geographic proximity, we intend to
integrate the Greenwood system with our Central District in Indiana. Our
acquisition of the Greenwood system would occur upon completion of a proposed
trade of systems between Cable One and AT&T Broadband, LLC. The transaction is
subject to the negotiation and execution of definitive agreements.
Expansion of Insight Midwest
On March 23, 2000, Insight Communications entered into a letter of intent
with AT&T Broadband to contribute to us additional cable television systems
serving approximately 537,000 customers, nearly doubling our customer base.
Through a series of transactions, Insight Communications will contribute to us
its interests in systems serving approximately 187,000 customers, and AT&T
Broadband will contribute systems serving approximately 350,000 customers.
Initially, Insight Communications would exchange its Claremont, California
system for a system in Freeport, Illinois, subject to completion by AT&T
Broadband of its proposed acquisition of MediaOne. The Freeport system would be
integrated into Insight Communication's Rockford, Illinois system, creating a
cluster of approximately 75,000 customers in the northern part of the state.
Insight Communications would also purchase from AT&T Broadband systems serving
approximately 100,000 customers in North Central Illinois. Concurrently with
this purchase, Insight Communications would contribute to us all of its systems
not already owned by us, including its newly purchased Illinois systems, its
expanded Rockford, Illinois cluster, its interest in its Columbus, Ohio system
and its Griffin, Georgia system, as well as its systems in Indiana not already
owned by us. At the same time, AT&T Broadband would contribute to us systems
located in Central and North Central Illinois serving approximately 250,000
customers. As a result, we would increase our customer base of approximately
748,800 as of December 31, 1999 to approximately 1.3 million. AT&T Broadband
would also receive an amount of cash from Insight Communications. Upon
completion of the transactions, we would remain equally owned by Insight
Communications and AT&T Broadband, and Insight Communications would continue to
serve as general partner and manage and operate our systems. The transactions
are subject to the negotiation and execution of definitive agreements.
Principal Executive Offices
Our principal executive offices are located at 126 East 56th Street, New
York, New York 10022. Our telephone number is (212) 371-2266.
Initial Offering
The initial notes were originally issued by us on October 1, 1999, in a
private offering, in connection with the acquisition of the Kentucky systems and
the formation of Insight Midwest (the "Transactions"). We are parties to a
registration rights agreement with the initial purchasers pursuant to which we
agreed, among other things, to file a registration statement with respect to the
exchange notes on or before March 29, 2000, to use our reasonable best efforts
to have the registration statement declared effective by October 2, 2000, and
complete this exchange offer by November 13, 2000. We must pay liquidated
damages to the holders of the initial notes if we do not meet those deadlines.
3
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Ownership Structure
[OWNERSHIP STRUCTURE CHART]
4
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Summary of Exchange Offer
We are offering to exchange $200.0 million aggregate principal amount of
our exchange notes for $200.0 million aggregate principal amount of our initial
notes. To exchange your initial notes, you must properly tender them and we must
accept your tender. We will exchange all outstanding initial notes that are
validly tendered and not validly withdrawn.
Expiration Date.......................... The exchange offer will expire at 5:00
p.m., New York City time on ________,
2000, unless we extend it.
Registration Rights Agreement............ You have the right to exchange the
initial notes that you hold for
exchange notes with substantially
identical terms. This exchange offer
is intended to satisfy these rights.
Once the exchange offer is complete,
you will no longer be entitled to any
exchange or registration rights with
respect to your notes.
Accrued Interest on the Exchange
Notes and Initial Notes.................. The exchange notes will bear interest
from their issuance date. Holders of
initial notes which are accepted for
exchange will receive, in cash,
accrued interest on the initial notes
to, but not including, the issuance
date of the exchange notes. Such
interest will be paid with the first
interest payment on the exchange
notes.
Conditions to the Exchange Offer......... The exchange offer is subject to
customary conditions, which we may
waive. You should read the discussion
under "Exchange Offer - Conditions to
the Exchange Offer" for more
information regarding conditions of
the exchange offer.
Procedures for Tendering Initial Notes... If you are a holder of initial notes
and wish to accept the exchange offer,
you must either:
o complete, sign and date the
accompanying Letter of Transmittal,
or a facsimile of the Letter of
Transmittal; or
o arrange for The Depository Trust
Company to transmit required
information to the exchange agent in
connection with a book-entry
transfer.
You must mail or otherwise deliver
such documentation together with the
initial notes to the exchange agent at
the address set forth in this
prospectus under "The Exchange Offer -
Exchange Agent."
5
<PAGE>
Representation Upon Tender............... By tendering your initial notes in
this manner, you will be representing,
among other things, that:
o the exchange notes you acquire in
the exchange offer are being
acquired in the ordinary course of
your business;
o you are not participating, do not
intend to participate, and have no
arrangement or understanding with
any person to participate, in the
distribution of the exchange notes
issued to you in the exchange offer;
and
o you are not a party related to us.
Procedures for Beneficial Owners......... If you are the beneficial owner of
initial notes registered in the name
of a broker, dealer or other nominee
and you wish to tender your notes, you
should contact the person in whose
name your notes are registered and
promptly instruct the person to tender
on your behalf.
Material Federal Tax Consequences........ It is our counsel's opinion that the
exchange of initial notes for exchange
notes will not result in any gain or
loss to you for federal income tax
purposes. Your holding period for the
exchange notes will include the
holding period for the initial notes
and your adjusted tax basis of the
exchange notes will be the same as
your adjusted tax basis of the initial
notes at the time of the exchange. For
additional information, you should
read the discussion under "Material
Federal Tax Considerations."
Failure to Exchange Will Affect
You Adversely............................ Initial notes that are not tendered,
or that are tendered but not accepted,
will be subject to the existing
transfer restrictions on the initial
notes after the exchange offer. We
will have no further obligation to
register the initial notes under the
Securities Act of 1933. If you do not
participate in the exchange offer, the
liquidity of your notes could be
adversely affected.
Guaranteed Delivery Procedures........... If you wish to tender your initial
notes and time will not permit your
required documents to reach the
exchange agent by the expiration date,
or the procedure for book-entry
transfer cannot be completed on time,
you may tender your notes according to
the guaranteed delivery procedures.
For additional information, you should
read the discussion under "Exchange
Offer - Guaranteed Delivery
Procedure."
6
<PAGE>
Acceptance of Initial Notes;
Delivery of Exchange Notes............... Subject to customary conditions, we
will accept initial notes which are
properly tendered in the exchange
offer and not withdrawn, before 5:00
p.m., New York City time, on the
expiration date of the exchange offer.
The exchange notes will be delivered
as promptly as practicable following
the expiration date.
Use of Proceeds.......................... We will not receive any proceeds from
the exchange offer.
Exchange Agent........................... Harris Trust Company of New York is
the exchange agent for the exchange
offer.
7
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Summary of Terms of the Exchange Notes
The exchange notes are substantially identical to the initial notes, with
limited exceptions. The exchange notes will evidence the same debt as the
initial notes. The exchange notes are subject to the same indenture as the
initial notes. For additional information, you should read the discussion under
"Description of Notes."
Issuers ................................. Insight Midwest, L.P. and Insight
Capital, Inc.
Notes Offered............................ $200.0 million in aggregate principal
amount of 9 3/4% Senior Notes due
2009.
Maturity Date............................ October 1, 2009.
Interest Rate and Payment Dates.......... Interest on the exchange notes will
accrue at the rate of 9 3/4% per
annum, payable semiannually in cash in
arrears on April 1 and October 1 of
each year.
Optional Redemption...................... On or after October 1, 2004, we may
redeem some or all of the exchange
notes at any time at the redemption
prices described in the section
"Description of Notes" under the
heading "Optional Redemption."
Prior to October 1, 2002, we may
redeem up to 35% of the exchange notes
with the proceeds of certain offerings
of our equity at the price listed in
the section "Description of Notes"
under the heading "Optional
Redemption."
Mandatory Repurchase Offer............... If we sell certain assets or we
experience specific kinds of changes
of control, we must offer to
repurchase the exchange notes at the
prices listed in the section
"Description of Notes" under the
heading "Repurchase at the Option of
Holders." See "Risk Factors-We may not
be able to finance a change of control
offer required by the indenture."
Ranking.................................. The exchange notes constitute senior
debt. They will:
o effectively rank behind all existing
and future indebtedness and other
liabilities of our subsidiaries;
o rank equally with all of our future
unsubordinated, unsecured debt that
does not expressly provide that it
is subordinated to the exchange
notes; and
o rank ahead of all our future debts
that expressly provide that they are
subordinated to the exchange notes.
8
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As of December 31, 1999, the initial
notes were effectively subordinated to
approximately $1.1 billion of debt and
other liabilities.
Basic Covenants.......................... We will issue the exchange notes under
an indenture with Harris Trust Company
of New York, as trustee. The indenture
contains certain covenants that limit,
among other things, our ability and
the ability of our subsidiaries to:
o incur additional debt;
o pay dividends on our capital stock
or repurchase our capital stock;
o make investments;
o use assets as security in other
transactions; and
o sell certain assets or merge with or
into other companies.
For more details, see the section
"Description of Notes" under the
heading "Certain Covenants."
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SUMMARY PRO FORMA COMBINED FINANCIAL AND OTHER DATA
The following tables set forth summary pro forma combined financial and
other data of the Indiana and Kentucky systems which are systems in which we
have a significant economic interest. Such data have been adjusted to illustrate
the estimated effects of the following transactions as if they had occurred on
January 1, 1999:
o the acquisition by Insight Midwest of the Kentucky systems;
o our receipt of the net proceeds from the sale of the initial notes;
and
o the application of the net proceeds from the sale of the initial
notes to repay the subordinated term loans of Insight Kentucky.
The summary pro forma combined financial and other data do not necessarily
show what our financial position or results of operations would have been had
the above transactions been completed on the dates indicated or to project our
results of operations for any future date.
When you read this summary pro forma combined financial and other data, it
is important that you read along with it:
o the pro forma financial statements;
o the historical financial statements of Insight Midwest; and
o the historical financial statements of InterMedia Capital Partners
VI, L.P, now known as Insight Kentucky, which were the Kentucky
systems prior to September 30, 1999.
All of these financial statements are included elsewhere in this
prospectus.
Our operations consist of our:
o Indiana systems, which are the cable television systems of Insight
Indiana and which are wholly owned and operated by us; and
o Kentucky systems, which are the cable television systems of Insight
Kentucky and which are wholly owned and operated by us.
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SUMMARY PRO FORMA AND HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999
--------------------------------------------------------------------
Insight Kentucky
Midwest(1) Systems(2) Adjustments(3) Total(4)
--------- --------- -------------- ---------
(dollars in thousands, except per customer data)
------------------------------------------------
<S> <C> <C> <C> <C>
Financial Data:
Revenues ......................................... $ 201,286 $ 159,197 $ -- $ 360,483
Programming and other operating
costs ........................................ 59,587 51,924 -- 111,511
Selling, general and
administrative ............................... 44,199 41,162 130 85,491
Depreciation and amortization .................... 109,110 91,707 5,513 206,330
--------- --------- --------- ---------
Operating loss ................................... (11,610) (25,596) (5,643) (42,849)
Loss from continuing
operations ................................... (62,677) (53,301) (26,458) (142,436)
EBITDA (5) ....................................... 97,333 80,385 (15,927) 161,791
Adjusted EBITDA (6) .............................. 103,432 67,626 3,131 174,189
Adjusted EBITDA margin (7) ....................... 51.4% 42.5% -- 48.3%
Net cash provided by operating
activities ................................... $ 102,918 $ 19,541 $ (5,013) $ 117,446
Net cash (used in) investing
activities ................................... (110,441) (46,773) -- (157,214)
Net cash provided by
financing activities ......................... 21,627 25,073 -- 46,700
Average monthly revenue
per customer (8) ............................. 39.08 41.85 -- 40.12
Ratio of earnings to fixed
charges (9) .................................. -- -- -- --
</TABLE>
As of December 31, 1999
-----------------------
Balance Sheet Data:
Cash and cash equivalents ............................. $ 35,996
Fixed assets, net ..................................... 596,246
Total assets .......................................... 1,706,599
Total debt ............................................ 1,232,000
Partners' equity ...................................... 368,547
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SUMMARY TECHNICAL AND OPERATING DATA
as of December 31, 1999
<TABLE>
<CAPTION>
Indiana Kentucky Total
Systems Systems Systems
------- ------- -------
<S> <C> <C> <C>
Technical Data:
Network miles ................................................. 6,705 8,843 15,548
Number of headends ............................................ 36 20 56
Number of headends expected
as of December 31, 2000 (10) .............................. 8 4 12
Number of headends serving 95% of our
customers expected as of December
31, 2000 (10) ............................................. 3 4 7
Operating Data:
Homes passed (11) ............................................. 494,861 668,474 1,163,335
Basic customers (12) .......................................... 322,521 426,312 748,833
Basic penetration (13) ........................................ 65.2% 63.8% 64.4%
Digital customers (14) ........................................ 18,676 20,743 39,419
Premium units (15) ............................................ 224,340 329,857 554,197
Premium penetration (16) ...................................... 69.6% 77.4% 74.0%
</TABLE>
(1) The financial data of Insight Midwest represents the combination of the
results of Insight Indiana from January 1, 1999 through December 31, 1999
and Insight Kentucky from October 1, 1999 (date of inception) through
December 31, 1999.
(2) The financial data of the Kentucky systems represents the results of
InterMedia Capital Partners VI, L.P. from January 1, 1999 through
September 30, 1999.
(3) Represents the following:
o the elimination of home office expenses of InterMedia Capital
Partners VI, L.P. and the recording of management fees of 3% of
gross revenues.
o the additional depreciation and amortization related to step-up in
value of the assets of Insight Kentucky for nine months which have
been valued based on the purchase price and preliminarily allocated
between fixed and intangible assets based on management's evaluation
of each individual operating system including such factors as the
age of the cable plant, the progress of rebuilds and franchise
relations. This resulted in a step-up in the carrying values of
fixed assets of approximately $160.3 million and intangible assets
of approximately $272.1 million. Fixed assets are being depreciated
over their estimated useful lives and intangible assets are
amortized over 15 years.
o the elimination of amortization of deferred financing costs from the
retirement of the subordinated term loans of Insight Kentucky and
the recording of amortization of the estimated financing costs for
the notes.
o the net increase in interest expense related to the retirement of
approximately $178.0 million of the subordinated term loans of
Insight Kentucky and the issuance of the notes.
See "Pro Forma Financial Statements."
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<PAGE>
(4) Represents the combined results of operations of the Insight Midwest and
the Kentucky systems.
(5) Represents earnings (loss) before interest, taxes, depreciation and
amortization. Our management believes that EBITDA is commonly used in the
cable television industry to analyze and compare cable television
companies on the basis of operating performance, leverage and liquidity.
However, EBITDA is not intended to be a performance measure that should be
regarded as an alternative to, or more meaningful than, either operating
income or net income as an indicator of operating performance or cash
flows as a measure of liquidity, as determined in accordance with
generally accepted accounting principles. EBITDA, as computed by
management, is not necessarily comparable to similarly titled amounts of
other companies. See our financial statements, including the statements of
cash flows, which are included elsewhere in this prospectus.
(6) Represents EBITDA prior to management and consulting fees and excluding
any non-cash items such as gain or losses on sales or exchanges of assets
and other non-recurring income and expense items.
The following table sets forth a reconciliation of EBITDA to Adjusted
EBITDA:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999
--------------------------------------------------------------------
Insight Kentucky
Midwest Systems Adjustments Total
-------- --------- ---------- --------
(in thousands)
<S> <C> <C> <C> <C>
EBITDA ............................................... $ 97,333 $ 80,385 $(15,927) $161,791
Other (income) expense ............................... 142 1,548 -- 1,690
Loss (gain) on cable system exchange ................. 25 (15,822) 15,797 --
Management fees ...................................... 5,932 1,515 3,261 10,708
-------- -------- -------- --------
Adjusted EBITDA ...................................... $103,432 $ 67,626 $ 3,131 $174,189
======== ======== ======== ========
</TABLE>
(7) Represents Adjusted EBITDA as a percentage of revenues.
(8) Represents average monthly revenue per average customer.
(9) For purposes of this calculation, "earnings" are defined as earnings
before fixed charges. Fixed charges consist of interest expense,
amortization of deferred financing and the portion of rent expense under
operating leases considered interest. For the year ended December 31,
1999, pro forma earnings before fixed charges were insufficient to cover
fixed charges for Insight Midwest and the Kentucky systems by $62.7
million and $53.3 million and on a pro forma combined basis by $142.4
million.
(10) Represents an estimate based on our current rebuild program scheduled to
be completed by the end of 2000.
(11) Homes passed are the number of single residence homes, apartments and
condominium units passed by the cable distribution network in a cable
system's service area.
(12) Basic customers are customers of a cable television system who receive a
package of over-the-air broadcast stations, local access channels and
certain satellite-delivered cable television services, other than premium
services, and who are usually charged a flat monthly rate for a number of
channels.
13
<PAGE>
(13) Basic penetration means basic customers as a percentage of total number of
homes passed.
(14) Customers with a digital converter box.
(15) Premium units mean the number of subscriptions to premium services, which
are paid for on an individual basis.
(16) Premium penetration means premium service units as a percentage of the
total number of basic customers. A customer may purchase more than one
premium service, each of which is counted as a separate premium service
unit. This ratio may be greater than 100% if the average customer
subscribes to more than one premium service unit.
14
<PAGE>
RISK FACTORS
You should carefully consider the risk factors set forth below, as well as
the other information in this prospectus, before tendering in initial notes in
exchange for exchange notes.
Your failure to participate in the exchange offer will have adverse consequences
Holders of initial notes who do not exchange their initial notes for
exchange notes pursuant to the exchange offer will continue to be subject to the
restrictions on transfer of the initial notes as a consequence of the issuance
of the initial notes pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act. In general,
initial notes may not be offered or sold, unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. We do not anticipate
that we will register the initial notes under the Securities Act.
Because of the lack of a public market for the exchange notes, you may not be
able to sell your exchange notes at all or at an attractive price
The exchange notes are a new issue of securities with no existing trading
market. We do not intend to have the exchange notes listed on a national
securities exchange, although we expect that they will be eligible for trading
on the PORTAL system. In addition, while several financial companies have
advised us that they currently intend to make a market in the exchange notes,
they are not obligated to do so, and may discontinue market making at any time
without notice. Accordingly, we cannot assure you as to the liquidity of the
market for the exchange notes or the prices at which you may be able to sell the
exchange notes.
Risks of investing in the exchange notes
We have substantial debt and have significant interest payment
requirements
We have a substantial amount of debt. As of December 31, 1999, our
outstanding consolidated indebtedness was $1.2 billion and our consolidated
interest expense was $50.9 million for the year ended December 31, 1999.
Assuming that the Transactions occurred on January 1, 1999, our consolidated
interest expense would have been $97.9 million and our earnings would have been
inadequate to cover our fixed charges by $142.4 for the year ended December 31,
1999. Subject to restrictions in the Indiana and Kentucky credit facilities and
the indenture, we may incur significant amounts of additional debt for working
capital, capital expenditures, acquisitions and other purposes.
Our high level of combined debt could have important consequences for you,
including the following:
o We may have difficulty borrowing money for working capital, capital
expenditures, acquisitions or other purposes;
o We will need to use a large portion of our revenues to pay principal
and interest on borrowings under the Indiana and Kentucky credit
facilities and the exchange notes, which will reduce the amount of
money available to finance our operations, capital expenditures and
other activities;
o Some of our debt has a variable rate of interest, which exposes us
to the risk of increased interest rates;
o We are more vulnerable to economic downturns and adverse
developments in our business;
15
<PAGE>
o We are less flexible in responding to changing business and economic
conditions, including increased competition and demand for new
products and services; and
o We may not be able to implement our business strategy.
The exchange notes are obligations of a holding company which has no
operations and depends on its subsidiaries for cash
As a holding company, we will not hold any assets other than our
investments in and our advances to our operating subsidiaries. Consequently, our
subsidiaries conduct all of our consolidated operations and own substantially
all of our consolidated assets. Our only source of the cash we need to pay
current interest on the exchange notes and our other obligations and to repay
the principal amount of these obligations, including the exchange notes, is the
cash that our subsidiaries generate from their operations and their borrowings.
Our subsidiaries are not obligated to make funds available to us.
Our subsidiaries' ability to make payments to us will depend upon their
operating results and will be subject to applicable laws and contractual
restrictions. Our subsidiaries must make payments to Insight Communications
under their management agreements and some of their programming contracts. The
Kentucky and Indiana credit facilities permit Insight Kentucky and Insight
Indiana to distribute cash to us to pay interest on the exchange notes, but only
so long as there is no default under the credit facility. If there is a default
under the Kentucky or Indiana credit facilities, we would not have any cash to
pay interest on our obligations, including the exchange notes.
The exchange notes will be effectively subordinated to our subsidiaries'
debt
Our subsidiaries will not guarantee the exchange notes. Therefore, the
exchange notes will be effectively subordinated to all of our subsidiaries'
liabilities. Our subsidiaries' lenders will have the right to be paid before you
from any cash received or held by our subsidiaries. In the event of bankruptcy,
liquidation or dissolution of a subsidiary, following payment of its
liabilities, the subsidiary may not have assets remaining to make payments to
us. As of December 31, 1999, all of our outstanding indebtedness, other than the
notes, was incurred by our subsidiaries and totaled approximately $1.0 billion,
all of which is senior in right of payment to the exchange notes. Additionally,
the indenture permits our subsidiaries to incur additional indebtedness,
including secured indebtedness, under certain circumstances.
We and our subsidiaries may still be able to incur substantially more debt
which could exacerbate the risks described above
We and our subsidiaries may be able to incur substantial additional debt
in the future. If we or our subsidiaries do so, the risks described above could
intensify. The indenture does not fully prohibit us or our subsidiaries from
doing so. As of December 31, 1999, we had approximately $79.4 million available
for additional borrowings under the Indiana and Kentucky credit facilities. We
expect to continue to borrow under these facilities.
We may not be able to generate enough cash to service our debt
Our ability to make payments on and to refinance our debt, including the
exchange notes, and to fund planned capital expenditures will depend on our
ability to generate cash. This is subject, in part, to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control. Accordingly, we cannot assure you that our business will
generate sufficient cash flows from operations or future distributions will be
available to us in amounts sufficient to enable us to pay our indebtedness,
including the exchange notes, or to fund our other liquidity needs.
16
<PAGE>
We may need to refinance all or a portion of our indebtedness, including
the exchange notes, on or before maturity. We cannot assure you that we will be
able to refinance any of our indebtedness on commercially reasonable terms or at
all.
Our subsidiaries' credit facilities impose significant restrictions
Our subsidiaries' credit facilities contain covenants that restrict our
subsidiaries' ability to:
o distribute funds or pay dividends to us;
o incur additional indebtedness or issue additional equity;
o create liens;
o repurchase or redeem equity interests and indebtedness;
o pledge or sell assets or merge with another entity; and
o make certain capital expenditures, investments or acquisitions.
Our subsidiaries' ability to comply with these provisions may be affected
by events beyond our control. If they were to breach of any of these covenants,
they would be in default under the credit facilities and they would be
prohibited from making distributions to us. Also, lenders could elect to declare
all amounts borrowed under the credit facilities, together with accrued interest
and other fees, to be due and payable. If that occurred, our obligations under
the exchange notes could also become payable immediately. Under such
circumstances, we may not be able to repay such amounts or the exchange notes.
We may not be able to finance a change of control offer required by the
indenture
Upon a change of control over us, the indenture requires us to offer to
purchase all of the exchange notes then outstanding at 101% of their principal
amount, plus accrued interest to the date of repurchase. If a change of control
were to occur, we cannot assure you that we would have sufficient funds to
purchase the outstanding exchange notes. In fact, we expect that we would
require third-party financing, but we cannot assure you that we would be able to
obtain that financing on favorable terms or at all.
Our subsidiaries' credit facilities restrict our ability to repurchase the
exchange notes, even when we are required to do so by the indenture in
connection with a change of control. A change of control could therefore result
in a default under such credit facilities and could cause the acceleration of
other debt of our subsidiaries. The inability to repay such debt, if accelerated
and to purchase all of the tendered exchange notes, would constitute an event of
default under the indenture.
Bankruptcy or fraudulent conveyance law may interfere with the payment of
the exchange notes
The incurrence of debt by us, such as the notes, may be subject to review
under U.S. federal bankruptcy law or relevant state fraudulent conveyance laws
if a bankruptcy case or lawsuit is commenced by or on behalf of unpaid creditors
of us. Under these laws, under certain circumstances a court could avoid or
subordinate the amounts owing under the exchange notes to presently existing and
future debt of us and take other actions detrimental to you. While we believe
that the circumstances under which the exchange notes could be avoided or
further subordinated are not present, we cannot assure you that a court passing
on the same question would reach the same conclusion.
17
<PAGE>
Risks of our business
We have a history of net losses, and may not be profitable in the future
We have a history of net losses and expect to incur additional net losses
in the future. Insight Midwest reported a net loss of $62.7 million for the year
ended December 31, 1999. On a pro forma basis, had the Transactions occurred on
January 1, 1999, we would have reported a net loss of $142.4 million for the
year ended December 31, 1999.
We have and will continue to have a substantial amount of interest expense
in respect of debt incurred and depreciation and amortization expenses relating
to acquisitions of cable systems as well as expansion and rebuild programs. Such
expenses have contributed to the net losses we experienced. We expect that we
will continue to incur such non-operating expenses at increased levels as a
result of our network rebuild program and recent acquisitions, which expenses
will result in continued net losses.
We have a limited history of operating our current cable television
systems and these systems may not generate sales at or exceeding
historical levels
None of our existing customers having been served by us for greater than
eighteen months and we are still in the process of integrating our new systems.
The historical financial information of the Indiana systems and the Kentucky
systems may not fully indicate our future operating results. This makes it
difficult for you to completely evaluate our performance.
Our programming costs are substantial and they may increase, which could
result in a decrease in profitability if we are unable to pass that
increase on to our customers
In recent years the cable industry has experienced a rapid escalation in
the cost of programming, and sports programming in particular. For 1997, 1998
and 1999, programming costs for our top 20 cable programming channels, excluding
premium channels, as ranked by Nielsen Media Research, increased significantly.
Our cable programming services are dependent upon our ability to procure
programming that is attractive to our customers at reasonable rates. Programming
costs may continue to escalate and we may not be able to pass programming cost
increases on to our customers. Our financial condition and results of operations
could be negatively affected by further increases in programming costs.
Programming has been and is expected to continue to be our largest single
expense item and accounted for approximately 43.9% of the total operating
expenses for the Indiana systems and approximately 40.7% of the total operating
expenses for the Kentucky systems for the year ended December 31, 1999.
We could lose our current access to favorable programming service rates
and experience increases in programming costs as a result
Because of our relationship with AT&T Broadband, we have the right to
purchase programming services for our systems at AT&T Broadband's costs plus a
small administrative surcharge. We believe AT&T Broadband's costs for
programming services is lower than the cost to us if we purchased such
programming services independently. If affiliates of AT&T Broadband were not to
continue as significant owners and we were unable to enter into a similar
arrangement, we believe our programming costs would increase. Losing access to
programming services at such favorable rates could have a material adverse
effect on our financial condition and results of operations.
If we are unable to successfully integrate our newly acquired cable
systems our business could be adversely affected
The integration of new cable systems by us will place significant demands
on our management and our operational, financial and marketing resources. We
expect to continue to acquire and enter into swaps and joint
18
<PAGE>
ventures with respect to cable systems. Our current operating and financial
systems and controls may not be adequate. Any steps taken to improve these
systems and controls may not be sufficient to successfully integrate and manage
new cable systems in a timely manner, causing our business, financial condition
and results of operations could suffer materially.
As we introduce new and enhanced products and services, a failure to
predict and react to consumer demand or successfully integrate new
technology could adversely affect our business
The cable television industry is in the early stages of introducing new
and enhanced products and services utilizing new technology. Our inability to
effectively introduce, market and sell new and enhanced products and services or
to anticipate consumer demand for such products and services could have a
material adverse effect on our business, results of operations, prospects and
financial condition.
If our manager were to lose members of its senior management and could not
find appropriate replacements in a timely manner, our business could be
adversely affected
If any member of our manager's senior management team ceases to
participate in our business and operations, our profitability could suffer. Our
success is substantially dependent upon the retention of, and the continued
performance by, our manager's senior management, including Sidney Knafel,
Chairman of the Board of Directors, Michael Willner, President and Chief
Executive Officer, and Kim Kelly, Executive Vice President and Chief Operating
and Financial Officer. Our manager does not have an employment agreement with
any member of its senior management team.
Our manager continually needs to hire, integrate and retain personnel for
customer relations and field operations positions which require a higher level
of technical expertise and the ability to communicate technical concepts to our
customers. There is no guarantee that our manager will be able to recruit or
retain these skilled workers. Failure to do so could impair our ability to
operate efficiently and maintain our reputation for high quality service and our
ability to retain current customers and attract new customers, which could cause
our financial performance to decline.
Our equity holders own and operate other cable operations and may not be
able to devote full time to our operations
Affiliates of AT&T Broadband and Insight Communications each own 50% of
our outstanding equity interests and Insight Communications manages our
operations. Under Insight Midwest's partnership agreement, each of the
affiliates of AT&T Broadband and our manager must approve certain specified
transactions involving Insight Midwest and its subsidiaries, including
significant acquisitions and dispositions. Accordingly, each of AT&T Broadband
and our manager have the ability to veto fundamental transactions, including
approval of merger transactions involving us and sales of all or substantially
all of our assets. AT&T Broadband and our manager each own and operate other
significant cable operations and may acquire additional cable operations in the
future. There can be no assurance that the interests of our equity holders will
not conflict with the interests of the holders of the exchange notes.
Our manager and its officers and employees devote a certain amount of time
to managing systems not owned by us. As a result, our manager and such persons
have less time to devote to managing our systems, which could impair our results
of operations. Moreover, allocating our manager's time and other resources could
give rise to conflicts of interest and could adversely affect our operating
performance.
Our franchises are subject to non-renewal or termination, which could
cause us to lose our right to operate some of our systems
We operate under non-exclusive franchises granted by local authorities
that are subject to renewal, renegotiation and termination from time to time.
Our cable systems are dependent upon the retention and
19
<PAGE>
renewal of their respective local franchises. We may not be able to retain or
renew our franchises and any renewals may not be on terms favorable to us. The
non-renewal or termination of franchises with respect to a significant portion
of any of our cable systems could have a material adverse effect on our
business.
Our franchises are non-exclusive and local franchising authorities may
grant competing franchises in our markets
Our cable systems are operated under non-exclusive franchises granted by
local franchising authorities. As a result, competing operators of cable systems
and other potential competitors, such as municipal utility providers, may be
granted franchises and may build cable systems in markets where we hold
franchises. Any such competition could adversely affect our business.
System failures or miscalculations attributable to the Year 2000 issue
could disrupt our operations
The Year 2000 issue is the result of computer programs only being able to
use two digits rather than four to define a given year. Thus, date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. We believe that we have adequately addressed the Year 2000 issue, having
experienced no failure or disruptions in our internal operating systems to our
products and services or in those of our third party vendors or suppliers either
on or after January 1, 2000 to the date of this prospectus. However, it is
possible that future failure or disruptions stemming from Year 2000 issues may
yet result in our inability to process transactions, send invoices, accept
customer order or timely provide customers with products and services.
This prospectus includes forward-looking statements that may not be
accurate indicators of our future performance
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue" or similar words. You should
read statements that contain these words carefully because they:
o discuss our future expectations;
o contain projections of our future results of operations or of our
financial condition; or
o state other "forward-looking" information.
We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
accurately predict or over which we have no control. The risk factors listed in
this section, as well as any cautionary language in this prospectus, provide
examples of risks, uncertainties and events that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. Before you invest in the notes, you should be aware that the
occurrence of the events described in these risk factors and elsewhere in this
prospectus could have a material adverse effect on our business, operating
results and financial condition.
Risks of our industry
The competition we face from other cable networks and alternative service
providers may cause us to lose market share
The impact from competition, particularly from direct broadcast satellite
television systems and companies that overbuild in our market areas, has
resulted in a decrease in customer growth rates. The
20
<PAGE>
industry growth rate for basic customers for the year ended June 1999 was 1.9%
as compared to 2.3% for the year ended June 1997 while satellite penetration as
of June 1999 averaged 8.0% nationwide, up from 1.5% in June 1997. This in turn
has negatively impacted our financial performance. Increased competition may
continue to impact our financial performance. Many of our potential competitors
have substantially greater resources than us, and we cannot predict the market
share our competitors will eventually achieve, nor can we predict their ability
to develop products which will compete with our planned new and enhanced
products and services such as high-speed data access and video-on-demand.
Competition in geographic areas where a secondary franchise is obtained
and a cable network is constructed under the terms of the franchise is called
"overbuilding." For example, a joint venture which is a related party of
Southern Indiana Gas and Electric Co. is overbuilding a portion of our
Evansville, Indiana system. We cannot predict whether competition from these or
future competitors will have a material adverse effect on us and our business
and operations.
We may be required to provide access to our networks to other Internet
service providers, which could significantly increase our competition and
adversely affect our ability to provide new products and services.
The U.S. Congress and the Federal Communications Commission have
been asked to require cable operators to provide access over their cable systems
to other Internet service providers. If we are required to provide open access,
it could prohibit us from entering into or limit our existing agreements with
Internet service providers, adversely impact our anticipated revenues from
high-speed Internet access services and complicate marketing and technical
issues associated with the introduction of these services. To date, the U.S.
Congress and the Federal Communications Commission have declined to impose these
requirements. This same open access issue is also being considered by some local
franchising authorities and several courts. Franchise renewals and transfers
could become more difficult depending upon the outcome of this issue.
Our business has been and continues to be subject to extensive
governmental legislation and regulation, and changes in this legislation and
regulation could increase our costs of compliance and reduce the profitability
of our business
The cable television industry is subject to extensive legislation
and regulation at the federal and local levels, and, in some instances, at the
state level, and many aspects of such regulation are currently the subject of
judicial proceedings and administrative or legislative proposals. The rules and
regulations governing our business have at times had a material adverse effect
on our business. In addition, operating in a regulated industry increases the
cost of doing business generally. We may also become subject to additional
regulatory burdens and related increased costs. As we continue to offer
telecommunication services, we may be required to obtain federal, state and
local licenses or other authorizations to offer such services. We may not be
able to obtain such licenses or authorizations in a timely manner, or at all, or
conditions could be imposed upon such licenses and authorizations that may not
be favorable to us. Future changes in legislation or regulations could have an
adverse impact on us and our business operations.
21
<PAGE>
USE OF PROCEEDS
The exchange offer is intended to satisfy our obligations under the
registration rights agreement. We will not receive any cash proceeds from the
issuance of the exchange notes in the exchange offer.
We received net proceeds of approximately $194.0 million from the private
offering of the initial notes. We used approximately $178.0 million of the net
proceeds to repay the subordinated term loans of Insight Kentucky and we used
the remainder for general corporate purposes. The interest rates of the term
loans are based, at Insight Kentucky's option, on an alternative base rate or on
a Eurodollar rate plus an additional margin. The weighted average interest rate
of the term loans at the time of repayment was 7.2%. Funds provided by these
subordinated term loans during the 12 months prior to repayment were used to
rebuild the existing Kentucky systems and for general corporate purposes of the
Kentucky systems.
22
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
The following table sets forth selected pro forma financial information
and other data of the Indiana and Kentucky systems which have been adjusted to
illustrate the estimated effects of the following transactions as if they had
occurred on January 1, 1999:
o the acquisition by Insight Midwest of the Kentucky systems;
o our receipt of approximately $194.0 million, the net proceeds from
the sale of our 9 3/4% senior notes on October 1, 1999, which are
the initial notes referred to in this prospectus; and
o the application of the net proceeds from the sale of the initial
notes to repay the subordinated term loans of Insight Kentucky.
The pro forma statement of operations does not purport to be indicative of
what our results of operations would actually have been had the above
transactions been completed on the dates indicated or to project our results of
operations for any future date. When you read the pro forma statement of
operations, it is important that you read along with it our combined historical
financial statements and related notes, and the historical financial statements
and related notes of:
o the TCI Insight Systems, which are the systems contributed to
Insight Indiana by affiliates of AT&T Broadband
o TCI IPVI Systems, which are the Kentucky systems prior to April 30,
1998
o InterMedia Capital Partners VI, L.P., which are the Kentucky systems
from April 30, 1998 to September 30, 1999 which are included
elsewhere in this prospectus.
The data included in the pro forma statement of operations for the year
ended December 31, 1999 under the column heading "Insight Midwest" represents
the combination of the results of Insight Indiana from January 1, 1999 through
December 31, 1999 and Insight Kentucky from October 1, 1999 through December 31,
1999. The data included in the pro forma statement of operations for the year
ended December 31, 1999 under the column heading "Kentucky Systems" represents
the operating results of InterMedia Captial Partners VI, L.P. from January 1,
1999 through September 30, 1999.
23
<PAGE>
INSIGHT MIDWEST, L.P.
PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999
---------------------------------------------------------------------
Insight Kentucky
Midwest Systems Adjustments Total
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues ............................................. $ 201,286 $ 159,197 -- $ 360,483
Costs and expenses:
Programming and other operating
costs ........................................... 59,587 51,924 -- 111,511
Selling, general and
administrative .................................. 44,199 41,162 (3,131)(A) 85,491
3,261(A)
Depreciation and amortization ....................... 109,110 91,707 5,513(B) 206,330
--------- --------- --------- ---------
Operating loss ....................................... (11,610) (25,596) (5,643) (42,849)
Other income (expenses):
Gain (loss) on Cable System Exchange ................ (25) 15,822 (15,797)(C) --
Interest expense .................................... (50,900) (41,979) (424)(D) (97,897)
(4,594)(E)
Other expense ....................................... (142) (1,548) -- (1,690)
--------- --------- --------- ---------
Loss before income taxes ............................. (62,677) (53,301) (26,458) (142,436)
Income taxes ......................................... -- -- -- --
--------- --------- --------- ---------
Loss from continuing
operations ........................................... $ (62,677) $ (53,301) $ (26,458) $(142,436)
========= ========= ========= =========
</TABLE>
24
<PAGE>
Notes to Pro Forma Statement of Operations for the Year Ended December 31, 1999
(A) Eliminates Home office expenses of $3.1 million from Kentucky Systems and
the recording of incremental management fees in the amount of $3.3
million.
(B) Reflects additional deprecation and amortization related to step-up in
value of the assets of Insight Kentucky for nine months which have been
valued based on the purchase price and preliminarily allocated between
fixed and intangible assets based on management's evaluation of each
individual operating system including such factors as the age of the cable
plant, the progress of rebuilds and franchise relations. This resulted in
a step-up in the carrying values of fixed assets of approximately $160.3
million and intangible assets of approximately $272.1 million. Fixed
assets are being depreciated over their estimated useful lives and
intangible assets are amortized over 15 years.
(C) Eliminates gains and losses from cable system exchanges.
(D) Includes the elimination of amortization of deferred financing costs from
the retirement of the subordinated term loans of Insight Kentucky and the
recording of amortization of the estimated financing costs for the notes.
(E) Reflects the net increase in interest expense related to the retirement of
approximately $178.0 million of the subordinated term loans of Insight
Kentucky and the issuance of the notes.
25
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL
AND OTHER DATA OF INSIGHT MIDWEST, L.P.
In the table below, we provide you with selected historical and pro forma
financial information and other operating data of Insight Midwest, L.P. as if
the Transactions had occurred on January 1, 1999. We have prepared the pro forma
selected financial information using the pro forma financial statements on pages
23 to 25 of this prospectus for the year ended December 31, 1999. The pro forma
financial and other data does not purport to be indicative of what our results
of operations would have been had the Transactions been completed at the
beginning of the period indicated. When you read the selected pro forma
historical financial and other data, it is important that you also read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which is included in this prospectus.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999* December 31, 1999
------------------ -----------------
Historical Pro Forma
(dollars in thousands)
<S> <C> <C>
Statement of Operations Data:
Revenue ....................................................................... $ 201,286 $ 360,483
Operating Costs:
Programming and other operating costs ..................................... 59,587 111,511
Selling, general and administrative ....................................... 44,199 85,491
Depreciation and amortization ............................................. 109,110 206,330
----------- -----------
Operating loss ................................................................ (11,610) (42,849)
----------- -----------
Interest expense, net ......................................................... (50,900) (97,897)
Other expense ................................................................. (167) (1,690)
Net loss ...................................................................... $ (62,677) $ (142,436)
=========== ===========
Other Financial Data:
EBITDA(1) ..................................................................... $ 97,333 $ 161,791
Adjusted EBITDA(2) ............................................................ 103,432 174,189
Adjusted EBITDA margin(3) ..................................................... 51.4% 48.3%
Capital expenditures .......................................................... 107,901 170,389
Net cash provided by operating activities ..................................... 102,918 117,446
Net cash (used in) investing activities ....................................... (110,441) (157,214)
Net cash provided by (used in) financing activities ........................... 21,627 46,700
Ratio of earnings to fixed charges(4) ......................................... -- --
Balance Sheet Data:
Cash and cash equivalents ..................................................... $ 35,996
Fixed assets, net ............................................................. 596,246
Total assets .................................................................. 1,706,599
Total debt .................................................................... 1,232,000
Partners (deficit) equity ..................................................... 368,547
</TABLE>
* Includes the results of Insight Indiana for the twelve months ended December
31, 1999 and Insight Kentucky for the period of October 1, 1999 through December
31, 1999.
26
<PAGE>
(1) Represents earnings (loss) before interest, taxes, depreciation and
amortization. Our management believes that EBIDTA is commonly used in the
cable television industry to analyze and compare cable television
companies on the basis of operating performance, leverage and liquidity.
However, EBIDTA is not intended to be a performance measure that should be
regarded as an alternative to, or more meaningful than, either operating
income or net income as an indicator of operating performance or cash
flows as a measure of liquidity, as determined in accordance with
generally accepted accounting principles. EBIDTA, as computed by
management, is not necessarily comparable to similarly titled amounts of
other companies.
(2) Represents EBITDA prior to management and consulting fees and excluding
any non-cash items such as gains or losses on sales or exchanges of assets
and other non-recurring income and expense items. The following table sets
forth a reconciliation of EBITDA to Adjusted EBITDA:
Year ended Year ended
December 31, 1999 December 31, 1999
----------------- -----------------
Historical Pro Forma
(in thousands)
EBITDA ................................... $ 97,333 $161,791
Other (income) expense ................... 167 1,690
Management fees .......................... 5,932 10,708
-------- --------
Adjusted EBITDA .......................... $103,432 $174,189
======== ========
(3) Represents Adjusted EBITDA as a percentage of total revenues.
(4) For purposes of this calculation, "earnings" are defined as earnings
before fixed charges. Fixed charges consist of interest expense,
amortization of deferred financing and the portion of rent expense under
operating leases considered interest. For the year ended December 31,
1999, on a historical and pro forma basis, earnings before fixed charges
were insufficient to cover fixed charges by $62.7 million and $142.4
million.
27
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL AND OTHER DATA OF SYSTEMS
CONTRIBUTED BY
INSIGHT COMMUNICATIONS TO INSIGHT INDIANA
In the table below, we provide you with selected historical information
and other operating data of Insight Indiana with respect to systems contributed
to Insight Indiana by Insight Communications on October 31, 1998. We have
prepared the consolidated selected financial information using: (1) the audited
financial statements for the Noblesville, Jeffersonville, and Lafayette, Indiana
cable television systems for the year ended December 31, 1997, which includes
the Lafayette system from December 16, 1997 (date of acquisition), and for the
ten-month period ended October 31, 1998, and (2) the audited financial
statements of Insight Indiana for Insight Communications of Indiana LLC, which
includes the cable television systems contributed by Insight Communications and
the TCI Insight Systems, for the period November 1, 1998 to December 31, 1998.
In our opinion, the unaudited financial data for the years ended December 31,
1995 and 1996 have been prepared on the same basis as the audited consolidated
financial statements and includes all normal recurring adjustments and accruals
necessary for a fair presentation of such information. When you read this
selected consolidated historical financial and other data, it is important that
you also read the historical financial statements and related notes of Insight
Communications of Indiana, LLC and Noblesville, Jeffersonville and Lafayette,
Indiana cable television systems, as well as "Management's Discussion and
Analysis of Financial Condition and Results of Operations," which are included
in this prospectus.
<TABLE>
<CAPTION>
Ten-Month Two-Month
Period from Period from
January 1, November 1,
Year Ended December 31, 1998 to 1998 to
----------------------------------------- October 31, December 31,
1995 1996 1997 1998 1998
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ...................................... $ 17,762 $ 19,264 $ 22,055 $ 33,486 $ 23,925
Costs and expenses:
Programming and other
operating costs ....................... 4,426 5,064 5,852 9,028 6,206
Selling, general and
administrative ........................ 2,708 2,933 3,296 5,203 4,653
Depreciation and amortization ............. 3,225 3,941 5,498 10,790 13,998
-------- -------- -------- -------- --------
Operating income (loss) ................... 7,403 7,326 7,409 8,465 (932)
-------- -------- -------- -------- --------
Interest expense, net ......................... -- -- -- -- (5,824)
Other income (expense) ........................ (18) 5 (26) (27) (64)
-------- -------- -------- -------- --------
Net income (loss) ......................... $ 7,385 $ 7,331 $ 7,383 $ 8,438 $ (6,820)
======== ======== ======== ======== ========
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Ten-Month Two-Month
Period from Period from
January 1, November 1,
Year Ended December 31, 1998 to 1998 to
--------------------------------------------- October 31, December 31,
1995 1996 1997 1998 1998
--------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Other Financial Data:
EBITDA(1) ................................. $ 10,610 $ 11,272 $ 12,881 $ 19,228 $ 13,002
Adjusted EBITDA(2) ........................ 10,628 11,267 12,907 19,255 13,751
Adjusted EBITDA margin(3) ................. 59.8% 58.5% 58.5% 57.5% 57.5%
Capital expenditures ...................... $ 5,819 $ 6,371 $ 17,246 $ 21,432 $ 4,022
Net cash provided by operating
activities ............................ 13,339 21,605 19,770
Net cash (used in) investing
activities ............................ (25,891) (21,457) (4,595)
Net cash provided by financing
activities ............................ 12,588 -- 4,318
Ratio of earnings to fixed
charges(4) ............................ 264.7x 310.1x --
Balance Sheet Data:
Cash and cash equivalents ................. $ 47 $ 107 $ 143 $ 291 $ 19,493
Fixed assets, net ......................... 25,893 30,960 45,783 59,304 129,776
Total assets .............................. 25,137 30,193 105,289 116,386 527,332
Total debt(5) ............................. -- -- -- -- 460,000
Partners' deficit (members'
equity) ............................... 102,134 110,572 44,195
</TABLE>
(1) Represents earnings (loss) before interest, taxes, depreciation and
amortization and extraordinary items. Our management believes that EBITDA is
commonly used in the cable television industry to analyze and compare cable
television companies on the basis of operating performance, leverage and
liquidity. However, EBITDA is not intended to be a performance measure that
should be regarded as an alternative to, or more meaningful than, either
operating income or net income as an indicator of operating performance or cash
flows as a measure of liquidity, as determined in accordance with generally
accepted accounting principles. EBITDA, as computed by management, is not
necessarily comparable to similarly titled amounts of other companies.
(2) Represents EBITDA prior to management and consulting fees and excluding any
non-cash items such as gains or losses on sales or exchanges of assets and other
non-recurring income and expense items.
(Footnotes continued on next page)
29
<PAGE>
(Footnotes continued from previous page)
The following table sets forth a reconciliation of EBITDA to Adjusted EBITDA:
<TABLE>
<CAPTION>
Ten-Month Two-Month
Period from Period from
January 1, November 1,
Year Ended December 31, 1998 to 1998 to
--------------------------------------------- October 31, December 31,
1995 1996 1997 1998 1998
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
EBITDA .................................. $ 10,610 $ 11,272 $ 12,881 $ 19,228 $ 13,002
Other (income) expense .................. 18 (5) 26 27 64
Management fees ......................... -- -- -- -- 685
-------- -------- -------- -------- --------
Adjusted EBITDA ......................... $ 10,628 $ 11,267 $ 12,907 $ 19,255 $ 13,751
======== ======== ======== ======== ========
</TABLE>
(3) Represents Adjusted EBITDA as a percentage of total revenues.
(4) For purposes of this calculation, "earnings" are defined as earnings before
fixed charges. Fixed charges consist of interest expense, amortization of
deferred financing and the portion of rent expense under operating leases
considered interest. For the two-month period ended December 31, 1998, earnings
before fixed charges were insufficient to cover fixed charges by $6.8 million.
(5) Prior to the formation of Insight Indiana, the Insight Communications
systems contributed to Insight Indiana did not have any specific debt or related
interest expense allocated to their systems' operations.
30
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL AND OTHER DATA OF
SYSTEMS CONTRIBUTED BY TCI TO INSIGHT INDIANA
In the table below, we provide you with selected consolidated historical
information and other operating data of Insight Indiana with respect to systems
contributed to Insight Indiana by affiliates of AT&T Broadband. We have prepared
the consolidated selected financial information using the audited financial
statements for the TCI Insight Systems for the years ended December 31, 1996 and
1997 and for the ten month period ended October 31, 1998. In our opinion, the
unaudited financial data for the year ended December 31, 1995 has been prepared
on the same basis as the audited consolidated financial statements and includes
all normal recurring adjustments and accruals necessary for a fair presentation
of such information. When you read this selected consolidated historical
financial and other data, it is important that you also read the historical
financial statements and related notes of the TCI Insight Systems, as well as
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which are included in this prospectus.
<TABLE>
<CAPTION>
Ten-Month
Period from
January 1,
Year Ended December 31, 1998 to
------------------------------------------ October 31,
1995 1996 1997 1998
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue ..................................................... $ 78,076 $ 88,191 $ 93,543 $ 80,357
Costs and expenses:
Programming and other operating costs ................... 22,051 27,243 28,012 24,375
Selling, general and administrative ..................... 15,400 18,098 15,315 14,892
Depreciation & amortization ............................. 14,276 14,063 13,461 12,223
-------- -------- -------- --------
Operating income ............................................ 26,349 28,787 36,755 28,867
-------- -------- -------- --------
Other income (expense) ...................................... 7 (3) 96 (159)
Income from continuing operations ........................... 26,356 28,784 36,851 28,708
Income tax expense .......................................... (10,542) (10,022) (12,828) (9,969)
-------- -------- -------- --------
Net income .................................................. $ 15,814 $ 18,762 $ 24,023 $ 18,739
======== ======== ======== ========
Other Financial Data:
EBITDA(1) ................................................... $ 40,632 $ 42,847 $ 50,312 $ 40,931
Adjusted EBITDA(2) .......................................... 43,241 47,049 53,948 44,147
Adjusted EBITDA margin(3) ................................... 55.4% 53.3% 57.7% 54.9%
Capital expenditures ........................................ $ 9,612 $ 6,623 $ 5,068 $ 11,927
Net cash provided by operating activities ................... 40,479 31,059 33,870 28,718
Net cash (used in) investing activities ..................... (78,208) (5,868) (4,966) (11,884)
Net cash provided by (used in) financing activities ......... 37,076 (24,364) (29,950) (15,938)
Ratio of earnings to fixed charges(4) ....................... 70.0x 71.2x 72.0x 76.4x
</TABLE>
31
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ...................... $ 219 $ 1,046 $ -- $ 896
Fixed assets, net .............................. 63,384 60,774 56,932 60,600
Total assets ................................... 226,144 218,993 211,723 212,182
Total debt(5) .................................. -- -- -- --
Parent's investment (deficit) .................. 153,216 147,614 141,088 (85,512)
</TABLE>
(1) Represents earnings (loss) before interest, taxes, depreciation and
amortization. Our management believes that EBITDA is commonly used in the cable
television industry to analyze and compare cable television companies on the
basis of operating performance, leverage and liquidity. However, EBITDA is not
intended to be a performance measure that should be regarded as an alternative
to, or more meaningful than, either operating income or net income as an
indicator of operating performance or cash flows as a measure of liquidity, as
determined in accordance with generally accepted accounting principles. EBITDA,
as computed by management, is not necessarily comparable to similarly titled
amounts of other companies.
(2) Represents EBITDA prior to management and consulting fees and excluding any
non-cash items such as gains or losses on sales or exchanges of assets and other
non-recurring income and expense items. The following table sets forth a
reconciliation of EBITDA to Adjusted EBITDA:
<TABLE>
<CAPTION>
Ten-Month Period
from January 1,
Year Ended December 31, 1998 to
------------------------------------------------- October 31,
1995 1996 1997 1998
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
EBITDA ........................................... $ 40,632 $ 42,847 $ 50,312 $ 40,931
Other (income) expense ........................... (7) 3 (96) 159
Management fees .................................. 2,616 4,199 3,732 3,057
-------- -------- -------- --------
Adjusted EBITDA .................................. $ 43,241 $ 47,049 $ 53,948 $ 44,147
======== ======== ======== ========
</TABLE>
(3) Represents Adjusted EBITDA as a percentage of total revenues.
(4) For purposes of this calculation, "earnings" are defined as earnings before
fixed charges. Fixed charges consist of interest expense, amortization of
deferred financing costs and the portion of rent expense under operating leases
considered interest.
(5) Prior to the formation of Insight Indiana, the TCI systems, which were later
contributed to Insight Indiana, did not have any specific debt or related
interest expense allocated to their systems' operations.
32
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL AND OTHER DATA OF
INSIGHT KENTUCKY
In the table below, we provide you with selected historical information
and other operating data of Insight Kentucky. We have prepared the selected
financial information using the audited financial statements for: (1) the TCI
IPVI Systems for the years ended December 31, 1996 and 1997 and for the
four-month period ended April 30, 1998, (2) InterMedia Capital Partners VI, L.P.
for the periods April 30, 1998 to December 31, 1998 and January 1, 1999 to
September 30, 1999. In our opinion, the unaudited financial data for the year
ended December 31, 1995 have been prepared on the same basis as the audited
consolidated financial statements and include all normal recurring adjustments
and accruals necessary for a fair presentation of such information. When you
read this selected consolidated historical financial and other data, it is
important that you also read the historical financial statements and related
notes of TCI IPVI and InterMedia Capital Partners VI, L.P., as well as
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which are included in this prospectus.
<TABLE>
<CAPTION>
Nine Month
period from
January 1,
1999 through
Year Ended December 31, September
1995 1996 1997 1998(1) 30, 1999
--------- --------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue ........................................... $ 148,642 $ 170,682 $ 185,496 $ 195,507 $ 159,197
Operating costs:
Programming and other operating costs ........... 50,155 57,420 62,788 65,328 51,924
Selling, general and administrative ............. 30,300 37,057 43,906 44,416 41,162
Depreciation and amortization ................... 45,485 44,985 45,864 103,514 91,707
--------- --------- --------- --------- ---------
Operating income (loss) ........................... 22,702 31,220 32,938 (17,751) (25,596)
--------- --------- --------- --------- ---------
Other income (expense):
Gain on cable systems exchanges ................. -- -- -- -- 15,822
Interest expense ................................ (19,134) (20,414) (19,627) (45,222) (41,979)
Other income (expense) .......................... (16) 570 (65) 1,554 (1,548)
Income (loss) from continuing operations .......... 3,552 11,376 13,246 (61,419)
(53,301)
Income tax expense ................................ (2,138) (4,663) (5,565) (1,971) --
--------- --------- --------- --------- ---------
Net income (loss) ................................. $ 1,414 $ 6,713 $ 7,681 $ (63,390) $ (53,301)
========= ========= ========= ========= =========
Other Financial Data:
EBITDA(2) ......................................... $ 68,171 $ 76,775 $ 78,737 $ 87,317 $ 80,385
Adjusted EBITDA(3) ................................ 73,379 82,832 84,997 89,148 67,626
Adjusted EBITDA margin(4) ......................... 49.4% 48.5% 45.8% 45.6% 42.5%
Capital expenditures .............................. $ 78,689 $ 84,061 $ 12,859 $ 47,381 $ 62,488
Net cash provided by operating activities ......... 54,155 56,738 24,291 47,146 19,541
Net cash (used in) investing activities ........... (187,203) (84,105) (12,984) (51,069) (46,773)
Net cash provided by (used in) financing
activities ................................ 133,048 27,367 (11,307) 6,525 25,073
Ratio of earnings to fixed charges(5) ............. 1.2x 1.5x 1.6x -- --
</TABLE>
33
<PAGE>
<TABLE>
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents .................... $ -- $ -- $ -- $ 2,602 $ 443
Fixed assets, net ............................ 185,861 242,171 226,999 243,100 259,892
Total assets ................................. 820,471 861,458 830,936 904,490 867,349
Total debt ................................... 281,000 325,000 322,500 726,000 742,141
Partners' equity ............................. 271,268 261,348 260,222 126,900 73,599
</TABLE>
(1) The financial data of Insight Kentucky represents the combination of the
results of the TCI IPVI Systems from January 1, 1998 through April 30,
1998 and InterMedia Capital Partners VI, L.P. from April 30, 1998 through
December 31, 1998. The combination of the two periods is not necessarily
indicative of what the results of InterMedia Capital Partners VI, L.P. or
TCI IPVI would have been for the 1998 calendar year.
(2) Represents earnings (loss) before interest, taxes, depreciation and
amortization. Our management believes that EBITDA is commonly used in the
cable television industry to analyze and compare cable television
companies on the basis of operating performance, leverage and liquidity.
However, EBITDA is not intended to be a performance measure that should be
regarded as an alternative to, or more meaningful than, either operating
income or net income as an indicator of operating performance or cash
flows as a measure of liquidity, as determined in accordance with
generally accepted accounting principles. EBITDA, as computed by
management, is not necessarily comparable to similarly titled amounts of
other companies. See the financial statements, including the Statements of
Cash Flows, which are included later in this prospectus.
(3) Represents EBITDA prior to management and consulting fees and excluding
any non-cash items such as gains or losses on sales or exchanges of assets
and other non-recurring income and expense items. The following table sets
forth a reconciliation of EBITDA to Adjusted EBITDA:
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended
------------------------------------------------------------ September
1995 1996 1997 1998 30, 1999
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
EBITDA ..................................... $ 68,171 $ 76,775 $ 78,737 $ 87,317 $ 80,385
Other (income) expense ..................... 16 (570) 65 (1,554) 1,548
Gain on system exchange .................... -- -- -- -- (15,822)
Management fees ............................ 5,192 6,627 6,195 3,385 1,515
-------- -------- -------- -------- --------
Adjusted EBITDA ............................ $ 73,379 $ 82,832 $ 84,997 $ 89,148 $ 67,626
======== ======== ======== ======== ========
</TABLE>
(4) Represents Adjusted EBITDA as a percentage of total revenues.
34
<PAGE>
(5) For purposes of this calculation, "earnings" are defined as earnings
before fixed charges. Fixed charges consist of interest expense,
amortization of deferred financing costs and the portion of rent expense
under operating leases considered interest. For the year ended December
31, 1998 and the nine-month period ended September 30, 1999, earnings
before fixed charges were insufficient to cover fixed charges by $63.4
million and $53.3 million.
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
Because of corporate transactions completed over the past three years,
including the contribution agreement with an affiliate of AT&T Broadband with
respect to the Indiana systems and the Kentucky acquisition, we do not believe
the discussion and analysis of our historical financial condition and results of
operations below are indicative of our future performance.
On October 31, 1998 our manager exchanged its Utah systems for AT&T
Broadband's Evansville, Indiana system. Simultaneously, our manager completed a
contribution agreement with AT&T Broadband forming Insight Indiana and
contributed certain of its Indiana systems, the Noblesville, Lafayette and
Jeffersonville systems (the "Insight Contributed Systems"), as well as the
Evansville system to Insight Indiana. At the same time, AT&T Broadband
contributed most of its Indiana systems to Insight Indiana.
On October 1, 1999, our manager acquired a combined 50% interest in
InterMedia Capital Partners VI, L.P. (the "IPVI Partnership") from related
parties of Blackstone Cable Acquisition Company, LLC, related parties of
InterMedia Capital Management VI, LLC and a subsidiary and related party of AT&T
Broadband, for approximately $341.5 million (inclusive of expenses), and we
assumed debt of approximately $742.1 million.
On October 1, 1999, our manager completed an agreement with affiliates of
AT&T Broadband, pursuant to which our manager and affiliates of AT&T Broadband
each contributed their respective 50% interests in Insight Indiana and in
Insight Kentucky in exchange for a 50% interest in Insight Midwest, L.P.
General
Substantially all of the historical revenues of each of our systems were
earned from customer fees for cable television programming services including
premium and pay-per-view services and ancillary services, such as rental of
converters and remote control devices and installations, and from selling
advertising. In addition, we earned revenues from commissions for products sold
through home shopping networks.
We have generated increases in revenues and Adjusted EBITDA for each of
the past three fiscal years, primarily through internal customer growth,
increases in monthly revenue per customer and growth in advertising.
Results of Operations
As the Insight Contributed Systems are the predecessors of Insight
Midwest, the following discussion includes the results of operations of the
Insight Contributed Systems for the year ended December 31, 1997, the results of
operations for Insight Contributed Systems for the period January 1, 1998
through October 31,1998 combined with the results of operations of Insight
Indiana for the period November 1, 1998 (date of inception) through December 31,
1998; and the results of operations of Insight Indiana for the year ended
December 31, 1999 combined with the results of operations for Insight Kentucky
for the period October 1, 1999 through December 31, 1999. The following table
reflects these results of operations:
36
<PAGE>
<TABLE>
<CAPTION>
(in thousands)
Year ended December 31,
-----------------------------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Revenue .......................................................... $ 22,055 $ 57,411 201,286
Costs and expenses:
Programming and other operating costs ....................... 5,852 15,234 59,587
Selling, general and administrative ......................... 3,296 9,856 44,199
Depreciation and amortization ............................... 5,498 24,788 109,110
--------- --------- ---------
14,646 49,878 212,896
--------- --------- ---------
Operating income (loss) .......................................... 7,409 7,533 (11,610)
Adjusted EBITDA ................................................. 12,907 33,006 103,432
Interest expense ................................................ -- 5,824 50,900
Net income (loss) ............................................... 7,383 1,618 (62,677)
Net cash provided by operating activities ....................... 13,339 41,375 102,918
Net cash (used in) investing activities ......................... (25,891) (26,052) (110,441)
Net cash provided by financing activities ....................... 12,588 4,318 21,627
</TABLE>
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenues increased 250.6% to $201.3 million for the year ended December
31, 1999, as compared to the prior year. The incremental revenue generated from
AT&T Broadband's contributed systems and the Evansville system approximated
$77.4 million accounting for 53.8% of the total increase in combined revenue.
The contribution of Insight Kentucky to Insight Midwest on October 1, 1999
accounted for approximately $57.0 million or 39.6% of the revenue increase. In
addition, revenues increased as a result of internal customer growth and rate
increases. Excluding the transactions described above, revenues increased by
approximately $9.6 million due to an increase of approximately 1,800 customers
on average, and by approximately $7.6 million attributable to an increase of
approximately $5.98 in the average monthly revenue per customer. The increase in
the average monthly revenue per customer is primarily attributable to customer
rate increases as the Insight Contributed Systems turned on nodes in rebuilt
areas resulting in higher monthly basic rates.
Programming and other operating costs increased 291.1% to $59.6 million
for the year ended December 31, 1999 as compared to the prior year of which the
additional Indiana systems contributed by AT&T Broadband and the Evansville
system accounted for approximately 49.7% of the increase and the Insight
Kentucky systems accounted for approximately 42.9% of the increase. Excluding
this transaction, these costs increased by 21.4% to $18.5 million, primarily as
a result of increased programming costs and additional programming carried by
our systems.
Selling, general and administrative expenses increased 317.3% to $38.3
million for the year ended December 31, 1999 as compared to the prior year of
which the additional Indiana systems contributed by AT&T Broadband and the
Evansville system accounted for approximately 69.0% of the increase and the
Insight Kentucky systems accounted for approximately 34.5% of the increase.
Excluding these transactions, these costs decreased by 11.0% to $8.2 million.
Management fees for the year ended December 31, 1998 totaled approximately
$700,000 reflecting only two months charges to Insight Indiana compared to the
year ended December 31, 1999 which reflects charges to Insight Indiana totaling
approximately $4.3 million and charges to Insight Kentucky of approximately $1.6
million for the period October 1 through December 31, 1999.
37
<PAGE>
Depreciation and amortization expense increased 340.2% to $109.1 million
for the year ended December 31, 1999 as compared to the prior year. Of the $84.3
million increase, approximately 59.8% was attributable to the additional Indiana
systems contributed by AT&T Broadband and the Evansville system while the
Insight Kentucky systems accounted for approximately 29.7% of the increase.
Excluding these transactions, these costs increased by 35.6% to $33.6 million,
primarily due to additional capital expenditures associated with the rebuilds of
the Insight Contributed Systems.
Operating income decreased to a loss of $11.6 million for the year ended
December 31, 1999, a decrease of 254.1% as a result of the items discussed
above.
Adjusted EBITDA increased 213.4% to $103.4 million for the year ended
December 31, 1999 as compared to the prior year reflecting the additional
Indiana systems contributed by AT&T Broadband and the Evansville system in
addition to the contribution of the Insight Kentucky systems which accounted for
approximately 97.0% of the increase on a combined basis. Adjusted EBITDA
represents earnings (loss) before interest, taxes, depreciation and
amortization, extraordinary items and any non-cash items such as gains or losses
on sales or exchanges of assets and other non-recurring income and expense
items. Adjusted, EBITDA is not intended to be a performance measure that should
be regarded as an alternative to, or more meaningful than, either operating
income or net income as an indicator of operating performance or cash flows as a
measure of liquidity, as determined in accordance with generally accepted
accounting principles. Adjusted EBITDA, as computed by management, is not
necessarily comparable to similarly titled amounts of other companies.
Interest expense increased to $50.9 million for the year ended December
31, 1999 reflecting: (a) interest on the Insight Indiana credit facility
totaling approximately $34.3 million, (b) interest on the Insight Kentucky
credit facility for the period from October 1, 1999 through December 31, 1999
totaling approximately $11.9 million and (c) interest on the Insight Midwest
Senior Notes for the period from October 1, 1999 through December 31, 1999
totaling approximately $4.7 million. Interest expense increased by $45.1 million
over the prior year as 1998 reflected only two months of borrowing under the
Insight Indiana credit facility.
Net income of $1.6 million for the year ended December 31, 1998 decreased
by $64.3 million to a net loss of $62.7 million for the year ended December 31,
1999 primarily reflecting increased depreciation and amortization charges and
increased interest expense.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues increased 160.3% to $57.4 million for the year ended December 31,
1998, as compared to the prior year. The results were impacted by two
significant transactions: (a) on December 16, 1997, the Lafayette, Indiana
system was acquired in an exchange for Insight's Phoenix, Arizona system. The
Lafayette system accounted for $16.3 million of revenue during the year ended
December 31, 1998 versus $725,000 for the year ended December 31, 1997
accounting for 44.0% of the total increase in revenue, and (b) the contribution
of the Indiana systems by AT&T Broadband and the Evansville system to Insight
Indiana. The incremental revenue generated from AT&T Broadband's contributed
systems and the Evansville system approximated $15.8 million accounting for
44.7% of the total increase in combined revenue. In addition, revenues increased
as a result of internal customer growth and rate increases. Excluding the
transactions described above, revenues increased by approximately $800,000 due
to an increase of approximately 2,043 customers on average, and by approximately
$2.5 million attributable to an increase of approximately $3.69 in the average
monthly revenue per customer. The increase in the
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average monthly revenue per customer is primarily attributable to customer rate
increases as the Insight Contributed Systems began turning on nodes in rebuilt
areas resulting in higher monthly basic rates.
Programming and other operating costs increased 160.3% to $15.2 million
for the year ended December 31, 1998 as compared to the prior year. Excluding
the Lafayette exchange, the Indiana systems contributed by AT&T Broadband to
Insight Indiana and the Evansville system, these costs increased by 14.2% to
$6.7 million, primarily as a result of increased programming costs and
additional programming carried by our systems.
Selling, general and administrative expenses increased 178.2% to $9.2
million for the year ended December 31, 1998 as compared to the prior year.
Excluding the Lafayette exchange, the Indiana systems contributed by AT&T
Broadband to Insight Indiana and the Evansville system, these costs increased by
22.0% to $4.0 million, primarily reflecting increased marketing activity
associated with new product introductions.
Depreciation and amortization expense increased 350.9% to $24.8 million
for the year ended December 31, 1998 as compared to the prior year. Of the $19.3
million increase, $1.8 million was attributable to the Lafayette exchange, $7.9
million was attributable to the Indiana systems contributed by AT&T Broadband to
Insight Indiana and the Evansville system, while the remainder was primarily due
to additional capital expenditures associated with the rebuilds of the Insight
Contributed Systems.
Operating income for the year ended December 31, 1998 was $7.5 million, a
1.7% increase over the prior year, as a result of the items discussed above.
Adjusted EBITDA increased 155.7% to $33.0 million for the year ended
December 31, 1998 as compared to the prior year reflecting the Lafayette
exchange and the contribution of AT&T Broadband's cable systems and Evansville
to Insight Indiana which together accounted for $18.3 million or 91.0% of this
increase.
Interest expense increased to $5.8 million for the year ended December 31,
1998 reflecting borrowings on the Insight Indiana Credit Facility for the period
from November 1, 1998 through December 31, 1998. As there was no debt recorded
on the records of the Insight Contributed Systems, there was no interest expense
recorded for the year ended December 31, 1997. Average debt outstanding during
1998 was $460.0 million at an average interest rate of 7.6%.
Net income decreased 78.1% to $1.6 million for the year ended December 31,
1998 primarily reflecting increased depreciation and amortization charges.
Liquidity and Capital Resources
Our business requires cash for operations, debt service, capital
expenditures and acquisitions. The cable television business has substantial
ongoing capital requirements for the construction, expansion and maintenance of
networks. Expenditures have primarily been used to rebuild and upgrade our
existing cable network, and in the future will be used for plant extensions, new
services, converters and system rebuilds. Historically, we have been able to
meet our cash requirements with cash flow from operations and borrowings under
our credit facilities and we expect to continue to meet such requirements from
cash flow from operations and available borrowings under our credit facilities.
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For the year ended December 31, 1999, we spent approximately $107.9
million in capital expenditures largely to support our network rebuild, digital
converter purchases and, to a lesser extent, network extensions. For the year
ended December 31, 1999, cash from operations totaled $102.9 million which,
together with borrowing under our credit facilities, funded the above-noted
capital expenditures.
It is anticipated that during 2000, we will have approximately $192.4
million of capital expenditures exclusive of any capital expenditures required
for the deployment of telephony. Included in the planned 2000 capital
expenditures is $77.4 million for the upgrade of most of our Indiana and
Kentucky cable television systems, which will involve the wide deployment of
fiber optics and other capital projects associated with implementing our
clustering strategy. The amount of such capital expenditures for years
subsequent to 2000 will depend on numerous factors including the level of
success in deploying our new services which will impact the amount of capital we
will need for digital converters and other network service infrastructure to
support demand for new products and services.
As of December 31, 1999, we had indebtedness of approximately $1.2
billion, including $1.0 billion outstanding under senior bank credit facilities.
The senior credit facilities consisted of:
o $550.0 million reducing revolving credit/term loan facility maturing
in December 2006, which supports our Indiana systems, of which
$470.0 million was outstanding; and
o $675.0 million reducing revolving credit/term loan facility maturing
in October 2006, which supports our Kentucky systems, of which
$562.0 million was outstanding.
The weighted average interest rates for amounts outstanding under
the senior credit facilities at December 31, 1999 were 8.13% and 8.52% for
Insight Indiana and Insight Kentucky, respectively. The facilities contain
covenants restricting, among other things, our ability to make capital
expenditures, acquire or dispose of assets, incur additional debt, pay dividends
or other distributions, create liens on assets, make investments and engage in
transactions with related parties. The facilities also require compliance with
certain financial ratios, require us to enter into interest rate protection
agreements and contain customary events of default.
On October 1, 1999, in connection with our formation, we completed an
offering of $200.0 million principal amount of our 9 3/4% senior notes due 2009.
The net proceeds of the offering were used to repay certain outstanding debt of
the Kentucky systems. Interest on the notes is payable on April 1 and October 1
of each year, commencing April 1, 2000. The indenture relating to the senior
notes imposes certain limitations on our ability to, among other things, incur
debt, make distributions, make investments and sell assets.
Quantitative and Qualitative Disclosure About Market Risk
Our revolving credit and term loan agreements bear interest at floating
rates. Accordingly, we are exposed to potential losses related to changes in
interest rates. We do not enter into derivatives or other financial instruments
for trading or speculative purposes; however, in order to manage our exposure to
interest rate risk, we enter into derivative financial instruments, typically
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interest rate swaps and collars. The counterparties to our swap and collar
agreements are major financial institutions.
As of December 31, 1999, we had hedged approximately $190 million, or
40.4%, of our borrowings under our Insight Indiana credit facility. Accordingly,
a hypothetical 100 basis point increase in interest rates along the entire
interest rate yield curve would increase our annual interest expense by
approximately $2.84 million. Our interest rate swap and collar agreements expire
in varying amounts through 2002.
As of December 31, 1999, we had hedged approximately $500 million, or 89%,
of our borrowings under our Insight Kentucky credit facility. Accordingly, a
hypothetical 100 basis point increase in interest rates along the entire
interest rate yield curve would increase our annual interest expense by
approximately $620,000. Our interest rate swap and collar agreements expire in
varying amounts through 2003.
The fair market value of our long-term debt approximates its carrying
value as it bears interest at floating rates of interest. As of December 31,
1999, the estimated fair value of our interest rate swap and collar agreements
for Indiana and Kentucky were approximately $7.1 million. These amounts
represent the amount required to enter into offsetting contracts with similar
remaining maturities, based on quoted market prices.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities." ("SFAS
No. 133"), which as amended by SFAS 137 is effective for fiscal years beginning
after June 15, 2000. We adopted the new statement effective January 1, 2000. The
statement will require Insight Midwest to recognize all derivatives on the
balance sheet at fair value. Although management has not completed its
assessment of the impact of SFAS No. 133 on its results of operations and
financial position, management does not anticipate that the adoption of this
statement will be material.
Inflation and Changing Prices
Our systems' costs and expenses are subject to inflation and price
fluctuations. Although changes in costs can be passed through to customers, such
changes may be constrained by competition. We do not expect inflation to have a
material effect on our results of operations.
Year 2000 Compliance
To date, costs incurred that were directly related to addressing the Year
2000 problem have not been material. We reviewed our cable systems to inventory
our equipment and sent letters to our programming suppliers and other vendors.
We did not use a consultant but worked closely with AT&T Broadband, adopting its
Year 2000 program and to a large extent utilizing its independent
certifications. In addition, we tested our billing system by entering years such
as 2001 and determined it to be working properly.
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INDUSTRY
The following section and other parts of this prospectus contain cable
industry terms which readers of this prospectus may find unfamiliar. We have
therefore included a glossary in this prospectus beginning on page G-1 to assist
you.
Unless otherwise specified, all cable television industry statistical data
in this prospectus are from Paul Kagan & Associates, a leading cable television
industry publisher.
Overview
As of December 31, 1999, approximately 96.6 million U.S. households had
access to, or were passed by, cable television. In the aggregate, these cable
systems serve approximately 67.3 million customers, representing a penetration
of 69.7% of the homes passed. The cable industry has grown steadily from
approximately 57.2 million basic customers in the United States in 1993 to
approximately 67.3 million as of December 31, 1999, with a projected growth to
73.7 million basic customers by the end of 2009, representing a compound annual
growth rate of 1.1%. It is estimated that the annual revenues received from U.S.
cable customers exceeded $36.9 billion in 1999.
Cable television continues to evolve. The enactment in February 1996 of
the sweeping telecommunications reform law, the first comprehensive revision of
the federal telecommunications laws since 1934, is having a dramatic impact on
the industry's development. As the new law opens up local telephone markets to
competition for the first time and brings regulatory relief and flexibility to
cable companies, we believe the new law will continue to facilitate growth of
the cable industry. Significant investments in new infrastructure and services
are being made as cable companies enter new businesses in addition to the
conventional cable business.
Many cable operators are rebuilding their infrastructure to deliver new
technologies, products and services to provide their customers with greater
value and choices in the face of growing competition in their core businesses.
Modern network architecture now can connect customers to a broadly enhanced
range of video, voice and high-speed data communication possibilities, as well
as improved signal reliability, better quality and superior two-way transmission
capability. Cable operators spent over $20 billion from 1996 to 1998, including
$7.7 billion in 1998 alone, to rebuild their network in order to create new
capability for the delivery of more channels, digital and high definition
television programming and two-way interactive services. It is estimated that
86% of cable homes are passed by activated two-way plant, with 53% of such homes
passed by systems with 750 MHz or higher capacity.
According to the 1999 FCC Report on Competition, as of October 1999, 64.2%
of all cable subscribers were served by systems with more than 54 channels and
4.8% of subscribers received greater than 91 channels. As cable continues to
expand its channel capacity, we expect that the industry's competitive position
relative to direct broadcast satellite television systems and other multichannel
video providers should be further enhanced.
The core businesses of cable television are subject to increasing
competition. Satellite, wireless and wireline competitors are increasing their
market share in the delivery of multichannel programming. During the past five
years, alternative providers have increased their share of the
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multichannel market to nearly 15.0% of the total number of households with
televisions. During this period, cable television has increased its penetration
to 69.7% of the homes passed from 63.1% as the overall market has increased due
to population growth as well as increased awareness of multichannel
distribution. Meanwhile, cable operators are rebuilding their networks in order
to begin competing in other telecommunications and entertainment services. A
brief explanation of some of the major new businesses under development is
described below.
Digital Video
Cable companies are using their rebuilt digital networks to offer a wide
array of new broadband video services to customers. Through the use of
compressed digital video technology, which converts, on average, one analog
channel into a digital format and compresses such signal into 8 to 12 digital
channels, cable operators are able to greatly increase their channel offerings.
The digitally compressed signal is uplinked to a satellite, which sends the
signal back down to a cable system's headend to be distributed, via optical
fiber and coaxial cable, to the customer's home. At the home, a set-top video
terminal converts the digital signal back into analog channels that can be
viewed on a normal television set. We believe the implementation of digital
technology will significantly enhance the quantity and quality of channel
offerings, allowing the cable operator to offer video-on-demand, premium
services, incremental special interest programming and interactive informational
services.
As of December 31, 1999, an estimated 5.1 million homes subscribed to a
digital cable service. The number of digital service customers is expected to
increase approximately 100% to 10.6 million homes by the end of 2000,
representing a penetration of 10.9% of the homes passed, and to approximately
50.1 million homes by 2009, representing a penetration of 47.2% of the homes
passed.
High-Speed Data
The broad bandwidth of cable network enables data to be transmitted up to
100 times faster than traditional telephone-based modem technologies, and the
cable connection does not interfere with normal telephone activity or usage. For
example, cable's on-line customers can download large files from the Internet in
a fraction of the time it takes when using any widely available telephone modem
technology. Moreover, surfing the Internet on a high-speed network removes the
long delays for Web pages to fully appear on the computer screen, allowing the
experience to more closely approximate the responsiveness of changing channels
on a television set. In addition, the cable modem is always on and does not
require the customer to dial into an Internet service provider and await
authorization. We believe that these factors of speed and easy accessibility
will increase the use and impact of the Internet among our customers. Although
other high-speed alternatives are being developed to compete with cable, we
believe that the cable platform currently is best able to deliver these
services.
In 1998, cable companies delivered Internet services into over 100 markets
throughout the United States. At December 31, 1999, approximately 19.0 million
homes were passed by cable systems offering high-speed, residential cable
Internet services, which is projected to increase to approximately 39.0 million
homes by the end of 2000, and to more than 67 million homes by 2005.
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Over 1.6 million cable customers currently subscribe to cable access to
the Internet. The number of cable high-speed data service customers is expected
to increase more than 100% to approximately 3.3 million homes by the end of
2000, representing a penetration of 4.9% of basic customers that will have been
marketed this service. It is further expected that data service customers will
increase to approximately 18.6 million homes by the end of 2009, representing a
penetration of 25.2% of basic customers that will have been marketed this
service.
The cable industry also has developed standards so that inter-operable,
non-proprietary cable modems were made available in retail outlets beginning in
the second half of 1999. Such availability allows customers to use their modems
in different systems while decreasing our need to maintain an inventory of such
equipment. In March 1998, the Data Over Cable Service Interface Specifications
created by Cable Television Laboratories, Inc. and others was approved by the
International Telecommunications Union as an international standard for
transmitting data over cable systems. CableLabs also established a formal
certification process for cable modem equipment suppliers to obtain a compliance
certificate for their data delivery devices based on this standard.
Telecommunications
During the last several years, the cable industry has been developing the
capability to provide telecommunication services. At least seven of the nation's
largest cable operators now offer residential and/or commercial phone service in
more than 25 markets overall and cable companies have reached interconnection
agreements in 40 states and the District of Columbia. At December 31, 1999, it
is estimated that there were 230,000 cable telephony customers, representing a
penetration of 8.0% of the homes that have been marketed this service.
Recent developments, including AT&T's purchase of TCI and the proposed
joint ventures between AT&T and Insight and Time Warner, and AT&T's pending
acquisition of MediaOne, will likely accelerate the pace of development of the
voice telecommunication business. The number of cable telephony customers is
expected to be approximately 620,000 homes by the end of 2000, representing a
penetration of 9.0% of the homes that will have been marketed this service and
approximately 25.4 million homes by 2009, representing a penetration of 38.0% of
the homes that will have been marketed this service.
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BUSINESS
Our Manager
Insight Communications is the 8th largest cable television system operator
in the United States based on customers served after giving effect to previously
announced industry acquisitions. Insight Communications, which provides cable
television services to approximately 935,000 customers, has tightly grouped
clusters of cable television systems with approximately 98% of its customers
concentrated in the four contiguous states of Indiana, Kentucky, Ohio and
Illinois. Upon completion of its rebuild efforts, which is expected occur by the
end of 2000, over 96% of its customers will be served from seven headends
allowing it to more economically deliver an array of entertainment, information
and telecommunication services, including interactive digital video, high-speed
data access and telephone service products. Our manager believes that it is very
well positioned to exploit the new business opportunities available to cable
television operators.
The Issuers
Insight Midwest, L.P. is owned equally by our manager, through its
subsidiary Insight Communications Company, L.P., and AT&T Broadband, LLC,
through its indirect subsidiary TCI of Indiana Holdings, LLC. Through our
subsidiaries Insight Indiana and Insight Kentucky we own and operate cable
television systems in Indiana and Kentucky, which passed approximately 1.2
million homes and served approximately 748,800 customers as of December 31,
1999. We are presently rebuilding our systems and, upon completion of the
rebuild, 99% of our customers will be served by a two-way active, 750 MHz,
hybrid fiber coaxial network which will deliver a suite of entertainment,
information and telecommunication services, including our interactive Digital
Gateway service, high-speed data service and voice transmission.
Insight Indiana is the largest operator of cable television systems in the
State of Indiana. As of December 31, 1999, the Indiana systems passed
approximately 494,900 homes and served approximately 322,500 customers. The
Indiana systems are located primarily in the university cities of Bloomington,
Evansville and Lafayette and the demographically desirable areas of suburban
Indianapolis. Upon completion of our consolidation of headends, approximately
93% of Insight Indiana's customers will be served by three headends. The rebuild
and consolidation of headends are expected to be completed by the end of 2000.
Insight Kentucky is the largest operator of cable television systems in
the State of Kentucky. As of December 31, 1999, the Kentucky systems passed
approximately 668,500 homes and served approximately 426,300 customers. Over 95%
of the Kentucky systems are located in and around four of the five largest
cities in the state: Louisville, Lexington, Covington and Bowling Green. Upon
completion of our consolidation of headends, 100% of Insight Kentucky's
customers will be served by four headends. The rebuild and consolidation of
headends are expected to be completed by the end of 2000.
Our marketing strategy is to offer our customers a suite of services on a
bundled basis. By bundling our products and services, we provide our customers
with an increased choice of services at a reduced cost, which we believe will
result in higher customer satisfaction, increased use of our services and
greater customer retention. We began offering new and enhanced products and
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services, such as interactive digital video and high-speed data access, during
1999 and intend to offer telecommunication services under the AT&T brand name by
the end of 2000.
We believe that the highly clustered nature of our systems will enable us
to more efficiently invest our marketing dollars and maximize our ability to
enhance customer awareness, increase use of our products and services and build
brand support. Our emphasis is on system reliability, engineering support and
superior customer satisfaction. In addition to our broad product offerings, we
also emphasize a high level of locally-focused content and customer service.
To facilitate the deployment of our enhanced products and services, we are
in the process of rebuilding almost all of our network to allow us to deliver
more information and entertainment services through our cable systems and to
provide for two-way communications capability, including telecommunication
services. Approximately 56% of our network miles had been rebuilt as of December
31, 1999. We intend to complete our network rebuild in 2000 with a total
investment of approximately $166.8 million.
Recognizing the opportunities presented by newly available products and
services, the strength of our market characteristics and favorable changes in
the regulatory environment, we developed and executed a strategy to become a
competitive, full service provider of entertainment, information and
telecommunication services for the communities served by our networks. We intend
to capitalize on our highly clustered cable television systems to economically
rebuild the technological capabilities of our broadband networks in order to
deploy enhanced new services.
We believe that an integrated package of existing multi-channel video, new
and enhanced products and services, such as interactive digital video, including
video-on-demand or near video-on-demand, high-speed Internet access and
telephone services, coupled with our commitment to locally focused customer
service, will enhance our ability to acquire and retain customers in a
competitive environment while increasing revenues per customer. To augment this
growth, we will continue to seek strategic acquisitions that fit our clustering
and operating strategy.
Business Strategy
Our business strategy is to become a competitive, full-service provider of
entertainment, information and telecommunication services. Our strategy is
centered on the development of new and enhanced products and services for the
communities served by our networks and consists of the following elements:
Focus on operating clusters with attractive technical and demographic
profiles
We operate highly clustered systems, most of which have attractive
technical and demographic profiles. Our systems are characterized by high
housing densities and high ratios of customers to headends. As a result, the
amount of capital necessary to deploy new and enhanced products and services is
significantly reduced on a per home basis because of the large number of
customers served by a single headend. We believe that the highly clustered
nature of our systems enables us to more efficiently invest our marketing
dollars and maximize our ability to establish customer awareness, increase
penetration and build brand support. Our demographic profile is characterized by
strong new housing growth and low unemployment in rapidly growing
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communities, most of which are centered around large universities and/or major
commercial enterprises. We believe that households with our demographic profile
are more likely to subscribe to these new and enhanced products and services
than the national average demographic profile.
Expeditiously rebuild our cable network
We have committed to rebuild our cable network expeditiously in order to
provide new and enhanced products and services, increase the programming and
telecommunication choices for our customers, improve our competitive position
and increase overall customer satisfaction. We are in the process of rebuilding
almost all of our network to provide at least 750 MHz bandwidth and two-way
active capability. The result will be a significant increase in network
capacity, quality and reliability which facilitates the delivery of new and
enhanced products and services and reduced operating costs. Our aggressive
investment in our broadband cable network rebuild will allow us to expeditiously
offer these services to substantially all of our customers.
By the end of 2000, we expect that substantially all of our customers will
be served by systems with at least 750 MHz bandwidth and two-way active
capability. As each system's rebuild progresses, we will deploy new and enhanced
products and services. In 1999, we invested approximately $49.8 million and $9.9
million in the Indiana systems and the Kentucky systems, and we plan to invest
approximately $48.3 million and $29.1 million more to rebuild the Indiana
systems and the Kentucky systems by the end of 2000.
Introduce new and enhanced products and services
Our marketing strategy is to offer our customers an array of
entertainment, information and telecommunication services on a bundled basis. We
believe by bundling our products and services our customers will have an
increased choice at a reduced cost resulting in higher customer satisfaction,
higher penetration and reduced churn. We have conducted research and held
numerous focus group sessions in our local markets, which lead us to believe
that these services will have high customer appeal. We expect that our ability
to provide bundled services will provide us with a strong competitive advantage
over alternative video providers, such as direct broadcast satellite television
systems, and incumbent telephone companies. To accelerate the deployment of
these services, our manager has entered into arrangements with several industry
leaders, including: (1) an agreement in principle with AT&T to provide
telecommunication services; (2) an agreement with Excite@Home to provide
high-speed data services; (3) an agreement with DIVA Systems Corporation to
provide video-on-demand; and (4) an agreement with Liberate Technologies to
utilize their software platform for the deployment of interactive television
services.
Leverage strong local presence to enhance customer and community relations
Excellent customer service is a key element of our business strategy. We
are dedicated to quality customer service and seek a high level of customer
satisfaction by employing localized customer care, extensively using market
research and providing customers with an attractively priced product offering. A
significant number of our customers visit their local office on a monthly basis
providing us the opportunity to demonstrate and sell our new and enhanced
products and services. Our localized customer care initiatives create
substantial marketing and promotion opportunities, which we believe will be
effective in the deployment of interactive and high-speed data products.
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In addition, we are dedicated to fostering strong relations in the
communities we serve. We sponsor local charities and community causes through
staged events and promotional campaigns, including the industry's Cable in the
Classroom program. Our emphasis on customer service and strong community
involvement has led to higher customer satisfaction, reduced customer churn and
excellent franchise relationships. To further strengthen community relations and
differentiate us from direct broadcast satellite television systems and other
multichannel video providers, we provide locally produced and oriented
programming that offers, among other things, community information, local
government proceedings and local specialty interest shows. In some of our
markets, we are the only broadcaster of local college and high school sporting
events, which allows us to provide important programming that builds customer
loyalty.
To support our business strategy, we have developed a financial strategy
to pursue value-enhancing transactions in nearby or adjacent geographies. To
augment our internal customer growth, we will seek acquisitions that
strategically fit our clustering and operating strategy. We do not currently
have any binding agreements for any future acquisitions. There is no assurance
that any additional acquisitions will be completed.
Technical Overview
We believe that in order to achieve consistently high levels of customer
service, reduce operating costs, maintain a strong competitive position and
deploy important new technologies, we will need to install and maintain a
state-of-the-art technical platform. The deployment of fiber optics, an increase
in the bandwidth to 750 MHz or higher, the activation of a two-way
communications network and the installation of digital equipment will allow us
to deliver new and enhanced products and services, including interactive digital
video, high-speed data services and telecommunication services.
As of December 31, 1999, our systems were comprised of approximately
15,500 miles of network passing approximately 1,163,300 homes resulting in a
density of approximately 75 homes per mile. As of that date, our systems were
made up of an aggregate of 56 headends. We intend to continue our strategy of
consolidating headends by eliminating approximately 44 headends by December 31,
2000, at which point 100% of our customers will be served by 12 headends. As of
December 31, 1999, approximately 28% of our network was less than 450 MHz,
approximately 14% of our network was greater than or equal to 450 MHz and less
than 750 MHz and approximately 58% of our network was at 750 MHz. After
completion of our rebuild which is scheduled to be completed by the end of 2000,
99% of our customers will be served by 750MHz.
Our network design calls for a digital two-way active network with a fiber
optic trunk system carrying signals to nodes within our customers'
neighborhoods. The signals are transferred to coaxial network at the node for
delivery to our customers. For example, at December 31, 1999, an average of
approximately 729 homes were being served by each fiber node of the Indiana
systems and 727 homes were being served by each fiber node of the Kentucky
systems. We have designed the fiber system to be capable of subdividing the
nodes if traffic on the network requires additional capacity.
We believe that active use of fiber optic technology as a supplement to
coaxial cable will play a major role in expanding channel capacity and improving
the performance of our systems. Fiber optic strands are capable of carrying
hundreds of video, data and voice channels over
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extended distances without the extensive signal amplification typically required
for coaxial cable. We will continue to deploy fiber optic cable to further
reduce amplifier cascades while improving picture quality and system
reliability.
A direct result of this extensive use of fiber optics is an improvement in
picture quality and a reduction of outages because system failures will be both
significantly reduced and will impact far fewer customers when they do occur.
Our design allows our systems to have the capability to run multiple separate
channel line-ups from a single headend and to insert targeted advertisements
into specific neighborhoods based on node location.
The following chart outlines the status of the network capacities
currently and as planned, based on our current rebuild program:
<TABLE>
<CAPTION>
Percent of Network Miles
-----------------------------------------------------------------
Greater than or Percent of
Equal to 450 MHz Network
Less than and less than Two-Way
450 MHz 750 MHz 750 MHz Capable
--------- ---------------- ------- -----------
<S> <C> <C> <C> <C>
As of December 31, 1999 ............................ 28.4% 13.6% 58.0% 72.4%
As of December 31, 2000* ........................... -- -- 99.0% 99.0%
</TABLE>
* Estimate based on our current rebuild program. There can be no assurance
that our current rebuild program will be achieved.
Products and Services
Traditional cable television services
We offer our customers a full array of traditional cable television
services and programming offerings. We tailor both our basic line-up and our
additional channel offerings to each regional system in response to
demographics, programming preferences, competition and local regulation. We
offer a basic level of service which includes up to 25 channels of television
programming. Approximately 90.5% of our customers choose to pay an additional
amount to receive additional channels under our "Classic" or "expanded" service.
Premium channels, which are offered individually or in packages of several
channels, are optional add-ons to the basic service or the classic service. As
of December 31, 1999, premium units as a percentage of basic subscribers was
approximately 74.0%.
Our cable television service offering includes the following:
o Basic Service. All of our customers receive the basic level of service,
which generally consists of local broadcast television and local community
programming, including government and public access, and may include a
limited number of satellite programs.
o Classic Service or Expanded Service. This expanded level of service
includes a group of satellite-delivered or non-broadcast channels such as
ESPN, CNN, Discovery Channel and Lifetime.
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o Premium Channels. These channels provide unedited, commercial-free movies,
sports and other special event entertainment programming such as HBO,
Cinemax, Starz! and Showtime. We offer subscriptions to these channels
either individually or in premium channel packages.
o Pay-Per-View. These analog channels allow customers with addressable set
top boxes to pay to view a single showing of a recently released movie or
a one-time special sporting event or music concert on an unedited,
commercial-free basis.
New and enhanced products and services
As rebuilds are activated, we will deploy new and enhanced products and
services in most of our markets, including interactive digital video and
high-speed data services. In addition, we intend to deploy telecommunication
services under the AT&T brand during 2000.
Interactive Digital Video
The implementation of interactive digital technology significantly
enhances and expands the video and service offerings we provide to our
customers. Most digital launches by other cable operators have been limited to
simply offering more channels as a defensive move against competition from
direct broadcast satellite television systems. Because of the significantly
increased bandwidth and two-way transmission capability of our state-of-the-art
technical platform, which continues to be built in conjunction with our digital
launches, we have the capacity to design a more extensive digital product that
is rich in program offerings and highly interactive with our customers. For
example, we offer a video-on-demand service in selected markets that allows our
customers significantly more viewing options. Our interactive digital services
also allow us to offer customized information for our customers that is rich in
local content and targeted to a specific system or community. Our systems also
continue to be activated with two-way communication network capability, enabling
us to provide truly interactive and locally based Internet-style products and
services.
Our manager has conducted numerous focus groups and commissioned research
studies, the findings of which have helped to develop our interactive digital
strategy. We believe that our digital penetration will increase as a result of
our differentiated services such as a graphically rich local information network
and video-on-demand pay-per-view with full VCR functionality.
In most of our digital launches, we are providing a package of digital
services, known as "Digital Gateway." For $6.95 per month, our customers can
purchase Digital Gateway and receive the following services:
o A digital converter box;
o An interactive navigational program guide for all analog and digital
channels;
o A local, interactive Internet-style service;
o A significant multiplexing of premium channels for customers who
separately subscribe to premium channels, such as HBO and Showtime;
o Pay-per-view video-on-demand; and
o A digital 40-channel audio music service.
SourceSuite, LLC, an equally owned joint venture between our manager and
Source Media, Inc., provides its interactive program guide known as SourceGuide
in our Digital Gateway.
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SourceGuide enables customers to navigate through program lists, as opposed to
viewing a scrolling screen, and delivers other interactive functions such as
ordering pay-per-view. SourceSuite's LocalSource product is designed to allow us
to provide our customers with an Internet type experience on a television
platform using only a TV remote control. With the LocalSource product, we are
able to deliver interactive programming that is both informative and
entertaining, and we expect to provide extensive communications tools to support
interaction between customers, advertisers, sponsors, merchants and direct
marketers resulting in multimedia addressable advertising opportunities for both
local and national advertisers. The service is divided into four sub-categories:
o "Your Community Today" provides both current local information as well as
national updates on topics such as news, weather, sports, business,
horoscopes, soaps and lotteries;
o LocalGuide is a source for current community information such as a Dining
Guide, Cinema Guide, Events Guide, Kidzone and Games;
o My Neighborhood provides information on local topics such as schools,
religion, town hall and transportation; and
o QuickSource is an on-demand library of useful facts on a range of subjects
from health to legal to car care or insurance.
We believe that LocalSource is a compelling introduction to cable's
broadband capability which will stimulate early demand for data services and
make cable a more essential service for the customer, resulting in increased
customer satisfaction and penetration and reduced churn.
Our manager has entered into an agreement with Liberate Technologies that
enables us to utilize the Liberate software platform for the deployment of
interactive television services. The Liberate software includes a wide range of
products and services, including Liberate TV Navigator and Liberate TV Connect.
The acquisition by Liberate of the VirtualModem technology from SourceSuite
extends the Liberate software to a broader range of cable television set-top
boxes. With the addition of VirtualModem, the Liberate software will provide us
with an interactive software platform for our existing base of limited-memory
customer set-top boxes as well as the new generation of set-top boxes, in each
case supporting our interactive applications such as LocalSource.
Our manager has also entered into an agreement with DIVA Systems
Corporation, which has allowed us to become the first cable operator to offer
DIVA's video-on-demand services as part of a digital tier package. DIVA provides
a true video-on-demand service over the cable television infrastructure.
Customers receive the movies electronically over the network and have full VCR
functionality, including pause, play, fast forward and rewind. The movies are
delivered with a high quality digital picture and digital sound. DIVA is
designed to provide movies at prices comparable to those charged for videotape
rentals, pay-per-view and near video-on-demand movies but with far greater
convenience and functionality.
In addition to the Digital Gateway service, customers can select
additional digital packages, each of which includes a number of popular cable
networks. These packages allow viewers to customize the types of service they
receive and fit individual interests. The packages will be generally developed
but tailored to satisfy the tastes and needs of the specific local market and
will be generally available for an additional $4.95 each per month. Currently,
we offer three core programming packages in all of our digital markets and
provide a discount by allowing customers
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to purchase all three packages for the price of two. The packages may include
the following:
o The Family Pak, which is comprised of networks such as Discovery, BBC
America, Much Music and the Sci-Fi Channel;
o The Movie Pak, which is comprised of specialty movie networks such as six
Encore theme channels, Turner Classic Movies, the Independent Film Channel
and Romance Classics; and
o The Sports Pak, which consists of several ESPN channels, The Golf Channel,
Fox Sports World and Classic Sports.
In addition to these core programming packages, we have developed
additional niche packages, such as Spanish channels or music video channels,
reflective of local customer tastes.
Our manager recently launched its Digital Gateway service in one of its
other systems in Rockford, Illinois. In addition to the core digital product,
our manager added LocalSource in the Rockford system in May 1999 and launched
the video-on-demand application in the Rockford system in November 1999. The
Rockford, Illinois system was the first cable television system in the United
States to offer video-on-demand service as part of its digital platform.
As the rebuilds of the Indiana systems are completed during 2000, we will
migrate the AT&T Broadband digital product to our interactive digital product.
Additionally, in 2000, we expect to convert the Kentucky systems from the
existing InterMedia Capital Partners VI, L.P. digital product to our interactive
digital product. While the AT&T Broadband and InterMedia Capital Partners VI,
L.P. digital products were targeted to fill programming voids and compete with
direct broadcast satellite television systems, our Digital Gateway service is
designed to provide our customers with an Internet style experience as well as
enhanced programming choices, which we believe will result in higher penetration
and customer satisfaction and reduced churn. Therefore, we expect to achieve
improved penetration in the Indiana systems and the Kentucky systems with our
Digital Gateway service from the 10% to 15% penetration that the AT&T Broadband
digital products currently achieve within two years of launch. Within twelve
months of our manager's launch of the Digital Gateway in its Rockford, Illinois
system, several of the activated areas have achieved 18% digital penetration,
with incremental revenue per digital customer of $24.00 per month.
High-Speed Data
We plan to introduce high-speed data service for personal computers over
our network in all of our rebuilt systems. Our manager has signed a distribution
agreement with Excite@Home to launch high-speed data service in all of our
markets. As of December 31, 1999, Excite@Home served 2,336 of our customers in
the Indiana systems and 6,000 of our customers in the Kentucky systems.
The broad bandwidth of our cable network enables data to be transmitted up
to 100 times faster than traditional telephone-based modem technologies, and the
cable connection does not interfere with normal telephone activity or usage. For
example, cable's on-line customers can download large files from the Internet in
a fraction of the time it takes when using any widely available telephone modem
technology. Moreover, surfing the Internet on a high-speed network removes the
long delays for Web pages to fully appear on the computer screen, allowing the
experience to more closely approximate the responsiveness of changing channels
on a television
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set. In addition, the cable modem is always on and does not require the customer
to dial into an Internet service provider and await authorization. We believe
that these factors of speed and easy accessibility will increase the use and
impact of the Internet. Although other high-speed alternatives are being
developed to compete with cable, we believe that the cable platform currently is
best able to deliver these services.
In addition to being an Internet service provider, Excite@Home offers its
own content. Excite@Home aggregates high quality web sites for customers to
explore and also offers various chat rooms, newsgroups, on-line stores, gaming
channels, on demand Fox News, NBA and MTV video clips, and easy to use search
engines and tip wizards. We expect to offer our customers content of local
interest, including community information, local news, sports, entertainment,
and weather, through our local home page.
Our Insight@Home service offers unlimited access to the Internet. The
service includes three e-mail addresses and 15 megabytes of space with which to
create a personal web site. We are offering the Insight@Home service to cable
customers at a price of $29.95 per month plus $10 to $15 to lease the cable
modem. Customers may also purchase the cable modem. Non-cable customers are
charged an additional $10 per month for the service. Both cable and non-cable
customers are charged a $150 installation fee, which we may, at our discretion,
discount to promote usage of cable modems. Insight@Home also provides several
additional services, such as the ability to dial-up away from the customer's
home, multiple computer access and Internet fax services, which should provide
additional revenue potential. In addition to customer fees, we expect to
generate advertising and e-commerce revenue by selling advertisers and retailers
space on our local home pages in exchange for a fee or a share of the revenues.
Telecommunications
On March 15, 2000, our manager reached an agreement in principle with AT&T
Corp. for the delivery of telephone service utilizing our cable television
systems under the "AT&T" brand name. The terms of the agreement in principle
provide that we will market, service and bill for local telephone service. AT&T
would be required to install and maintain the necessary switching equipment, and
would be the local exchange carrier of record. AT&T would pay us a fee for the
use of the local telephone lines, and will also compensate us for installation
and maintenance services at customers' residences. In addition, AT&T would pay
us commissions for sales we make to our customers. We expect to sell the
AT&T-branded local telephone service separately and as part of bundled
offerings, which would also include the sale of AT&T long-distance telephone
services. The agreement in principle is subject to the negotiation and execution
of definitive agreements.
Business Background of Our Manager
Insight Communications was co-founded in 1985 as a limited partnership
under the name Insight Communications Company, L.P. by Sidney R. Knafel and
Michael S. Willner after a previous association with one another at Vision Cable
Communications where Mr. Knafel was co-founder and Chairman and Mr. Willner held
various operating positions, ultimately holding the position of Executive Vice
President and Chief Operating Officer. Vision Cable was sold to The Newhouse
Group Inc. in 1981 and Mr. Willner remained there to run the cable operations
until 1985 when he and Mr. Knafel formed Insight Communications.
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Between 1985 and 1988, our manager assembled a group of systems that
reflected its focused acquisition criteria of high housing growth in markets
with attractive demographics. As a result of this strategy, our manager owned
largely suburban systems in high growth corridors of major metropolitan areas.
Through housing growth and increased basic penetration in the five years ended
December 31, 1997, Insight Communications' systems achieved growth rates for
homes passed and customers of 4.8% and 5.9%, respectively, over twice the
national average and one of the highest internal growth rates in the industry.
In addition to many years of conventional cable television experience,
Insight Communications' management team has been involved in the development and
deployment of full service telecommunications networks since 1989. Through a
then-related entity, Insight Communications Company UK, L.P., Insight
Communications' management and related parties of Insight Communications entered
the cable television market in the United Kingdom, where today modern hybrid
fiber-coaxial networks are widely deployed. Messrs. Knafel and Willner remain on
the board of NTL Incorporated, the publicly traded successor to the former
Insight UK related entity. NTL is currently the largest operator of local
broadband communications systems in the United Kingdom, after giving effect to
previously announced transactions.
As a result of its management's British experience, Insight Communications
recognized that the technology and products developed in the United Kingdom
would migrate to the United States in similar form. Insight Communications
focused on planning to rebuild its network promptly after it became clear that
the 1996 Telecom Act would encourage competition in the telecommunications
industries. Insight Communications understood, however, that the new products
and services available with new technology were best deployed in markets which
provided for efficiencies for branding and technical investment. Insight
Communications' original acquisition strategy, which focused on customer growth,
was very successful. However, Insight Communications' management team recognized
the opportunity to evolve from its role as a cable television operator providing
only home video entertainment into a full service alternative telecommunications
network providing not only standard video services, but also interactive digital
video, high-speed data access and voice telecommunication products and services.
Recognizing the opportunities presented by newly available products and
services and favorable changes in the regulatory environment, Insight
Communications executed a series of asset swaps, acquisitions and entered into
several joint ventures that resulted in Insight Communications' current
composition. The largest of these transactions were the 50/50 joint ventures
formed with AT&T Broadband and it affiliates in October 1998 with respect to the
Indiana systems and in October 1999 with respect to the Kentucky systems. As of
December 31, 1997, Insight Communications' systems had approximately 180,000
customers with the two largest concentrations in Utah and Indiana, which
together represented less than half of its customers. Insight Communications
believes that it has successfully transformed its assets so that today it owns,
operates and manages a cable television network serving approximately 935,000
customers with approximately 98% of its customers clustered in the contiguous
states of Illinois, Indiana, Ohio and Kentucky. Insight Communications' current
assets are reflective of its strategy to own systems that have high ratios of
customers to headends.
In July 1999, the holders of the partnership interests of Insight
Communications Company, L.P. exchanged their respective partnership interests
for common stock of Insight
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Communications. As a result, Insight Communications Company, L.P. became a
wholly-owned subsidiary of Insight Communications. Simultaneous with the
exchange, Insight Communications consummated an initial public offering of
26,450,000 shares of its Class A common stock, raising an aggregate of
approximately $650.0 million. Insight Communications is currently listed on the
Nasdaq National Market under the symbol "ICCI."
Our Systems
The Indiana and Kentucky systems serve approximately 748,800 customers and
represent approximately 80% of our manager's total customers. We are the largest
operator of cable systems in both states. We receive tangible and intangible
benefits from our partnership with affiliates of AT&T Broadband including (a)
substantial programming discounts and (b) participation in AT&T Broadband
affiliate meetings, which affords us in-depth knowledge and understanding about
the principal and material issues and challenges facing the cable television
industry.
We are able to realize significant operational synergies due to the size
of the clusters in these states and the demographic proximity of all of our
systems. In both states we are in the process of rebuilding our system
infrastructures to enable us to deliver new technologies, products and services
to provide our customers with greater value and choices in the face of growing
competition. The highly clustered nature of our systems will enable us to (a)
more efficiently invest our marketing dollars and maximize our brand awareness,
(b) more economically introduce new and enhanced services and (c) reduce our
overall operating and maintenance costs as a result of our ability to deploy
fiber and reduce the number of headends we use throughout our systems. As a
result, we believe we will be able to achieve improved operating performance on
both a combined and system wide basis.
The Indiana Systems
General
As of December 31, 1999, the Indiana systems passed approximately 494,900
homes and served approximately 322,500 customers. The Indiana systems are owned
by Insight Indiana, which is the largest cable operator in the state. Insight
Indiana, which was capitalized on October 31, 1998, was a 50/50 joint venture
between Insight Communications and an affiliate of AT&T Broadband until the
contribution of its equity interests on October 1, 1999 into Insight Midwest,
L.P. Insight Communications Company, L.P., our manager, serves as manager of the
Indiana systems.
We believe that further rebuilding of the Indiana systems will yield
opportunities for cash flow growth. We have increased our capital investments in
the Indiana systems, with initial emphasis on rebuilding the network, activating
two-way transmission and combining headends. By the end of 2000, we expect that
93% of our customers in Indiana will be served by three headends. Upon
implementation of our state-of-the-art technical platform, we will be deploying
new services based on our marketing strategy of bundling products. In addition,
we believe that there are additional opportunities to augment our position in
the state through additional acquisitions and swaps.
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The Indiana systems are organized in five management districts:
The Central District
As of December 31, 1999, the Central District passed approximately 77,800
homes and served approximately 60,000 customers, principally in the community of
Bloomington. The City of Bloomington, located 45 miles south of Indianapolis, is
the home of Indiana University. Besides the University, major employers include
United Technology and General Electric. The median household income for the area
is approximately $37,000 per year, while the median family income is
approximately $47,500 per year. Household income differs from family income by
including income from all persons in all households, including persons living
alone and other non-family households.
Interactive digital video was launched in Bloomington by AT&T Broadband
prior to the formation of Insight Indiana. Upon completion of our rebuild, we
will migrate the Bloomington digital customers to our interactive Digital
Gateway service. The Bloomington system began deploying the Insight@Home service
during the first quarter of 2000. Bloomington and parts of Monroe County are
expected to be rebuilt to 750 MHz during the second quarter of 2000, with the
remainder of the district projected to be rebuilt to 750 MHz by the end of 2000.
The Southwest District
At December 31, 1999, the Southwest District passed approximately 120,000
homes and served approximately 67,000 customers, principally in the communities
of Evansville and Jasper. The median household income for the area is
approximately $36,500 per year, while the median family income is approximately
$47,000 per year.
A related party of Southern Indiana Gas and Electric Co. is overbuilding a
portion of our Southwest system. Southern Indiana Gas and Electric Co. has
obtained franchises to provide cable television service in the City of
Evansville and neighboring areas and commenced service in April 1999. We believe
Southern Indiana Gas and Electric Co. is currently offering cable service to an
estimated 20,000 homes in our service area and is expected to make the service
available to additional homes, and has commenced offering telephone and data
service. We responded to this competition by rebuilding the network to 750 MHz
and have introduced our interactive Digital Gateway service, including DIVA's
video-on-demand service and the LocalSource interactive information service. We
have also launched the Insight@Home service in Evansville.
The Evansville system recently won a competitive bid to supply a data
network to the Evansville school system. We are working with TCI Network
Solutions to supply this data network and have signed a five-year contract to
connect 42 K-12 schools to the data network. Our share of the revenues from this
contract will be $500,000 over the life of the contract.
The Jeffersonville District
As of December 31, 1999, the Jeffersonville District passed approximately
45,600 homes and served approximately 26,500 customers, principally in the
community of Jeffersonville. The Jeffersonville District is in the Louisville,
Kentucky metropolitan area, but our Louisville, Kentucky system was not part of
our Jeffersonville District as of December 31, 1999.
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Jeffersonville's economy is largely influenced by Louisville, Kentucky's largest
city, which has developed a diverse economy by adding major service companies
such as UPS and Columbia Healthcare to its strong manufacturing base whose major
employers include General Electric and Ford Motor Company. The median household
income for the area is approximately $36,800 per year, while the median family
income is approximately $44,900 per year. Due to its geographic proximity, we
intend to integrate the Jeffersonville District with our Louisville, Kentucky
system in the spring of 2000 to achieve operational synergies.
We launched Insight@Home in the Jeffersonville District in April
1999. We have rebuilt the network to 750MHz and plan to introduce our
interactive Digital Gateway service with the LocalSource product and the DIVA
video-on-demand service upon the integration of the Jeffersonville headend into
the Louisville headend in the spring of 2000.
The Northwest District
As of December 31, 1999, the Northwest District passed approximately
115,300 homes and served approximately 79,600 customers, principally in the
communities of Lafayette, Kokomo, Fowler and Hartford City. The City of
Lafayette is the home of Purdue University. Besides the University, major
employers include Great Lakes Chemical, Lafayette Life Insurance, General Motors
and Delco Remy. The median household income for the area is approximately
$39,900 per year, while the median family income is approximately $51,600 per
year.
Most of the Lafayette, Kokomo, Fowler and Hartford City systems have been
rebuilt to 750 MHz, with a few areas being finished in 2000. We launched the
Insight@Home service in all of the markets. AT&T Broadband launched a digital
service in the Kokomo market in late 1998. We plan to migrate those customers to
our digital service in 2000, simultaneously with the launch throughout the
district of our interactive Digital Gateway service, including the LocalSource
product and DIVA's video-on-demand service.
The Northeast District
As of December 31, 1999, the Northeast District passed approximately
154,200 homes and served approximately 100,000 customers, principally in the
suburban communities near Indianapolis, including Anderson, Richmond and
Noblesville. Indianapolis is the state capital of Indiana and is the twelfth
largest city in the United States. Major employers include General Motors, Eli
Lily and Belden Wire and Cable. The median household income for the area is
approximately $46,700 per year, while the median family income is approximately
$56,300 per year.
The Northeast District is expected to be rebuilt to 750 MHz by the summer
of 2000. We have launched the Insight@Home service throughout the district. AT&T
Broadband launched digital service in several of the markets in 1998, and we
plan to migrate those customers to our interactive Digital Gateway service
during 2000, simultaneously with the launch throughout the district of our
Digital Gateway service, including the LocalSource product and DIVA's
video-on-demand service.
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The Kentucky Systems
General
As of December 31, 1999, the Kentucky systems passed approximately 668,500
homes and served approximately 426,300 customers. The Kentucky systems are owned
by Insight Kentucky Partners II, L.P., which is the largest cable operator in
the state. Our manager acquired a combined 50% interest in Insight Kentucky's
parent on October 1, 1999, with related parties of AT&T Broadband holding the
other 50% interest. Simultaneous with this acquisition, all of the equity
interests were contributed into Insight Midwest. Insight Communications Company,
L.P., our manager, serves as manager of the Kentucky systems.
Over 95% of the Kentucky systems are located in and around four of the
five largest cities in the state: Louisville, Lexington, Covington, and Bowling
Green. Upon completion of the rebuild, 100% of Insight Kentucky's customers will
be served by a two-way active, 750 MHz, hybrid fiber coaxial network.
Additionally, following the consolidation of headends, 100% of the systems'
customers will be served by four headends. The rebuild and consolidation of
headends are expected to be completed by the end of 2000.
Summary statistics for the Kentucky systems are as follows:
Louisville
As of December 31, 1999, the Louisville system passed approximately
373,900 homes and served approximately 235,600 customers. Louisville is
Kentucky's largest city and is located in the northern region of the state,
bordering Indiana. Louisville is located within a day's drive of nearly 50% of
the United States population, which makes it an important crossroads for trade
and business. Major employers in the Louisville metropolitan area include
Humana, UPS, General Electric and Ford. The median household income for the area
is approximately $40,000 while the median family income is approximately
$48,500.
The Louisville system is currently undergoing a rebuild and we intend to
serve all of its customers with two-way 750 MHz hybrid fiber coaxial cable by
December 31, 2000. The system is also in the process of interconnecting six
headends, which will allow the entire system to be served from a single headend.
In addition, we plan to integrate the Jeffersonville, Indiana District into the
Louisville system by the spring of 2000.
InterMedia Capital Partners VI, L.P. launched its digital service in
Louisville in November 1998. The service already has approximately 12,400
customers in Kentucky. We plan to migrate these customers to our interactive
Digital Gateway service, including the LocalSource product and the DIVA
video-on-demand service concurrent with the integration of the Jeffersonville
District by the spring of 2000. The Louisville system recently launched the
Insight@Home service.
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Lexington
As of December 31, 1999, the Lexington system passed approximately 118,800
homes and served approximately 83,900 customers from a single headend. Lexington
is Kentucky's second largest city, located in the Blue Grass region, in the
central part of the state. Major employers in the Lexington area include the
University of Kentucky, Toyota and Lexmark International. The median household
income for the area is approximately $44,000, while the median family income is
approximately $56,000.
The Lexington system is currently undergoing a rebuild and we intend to
serve all of its customers with two-way 750 MHz hybrid fiber coaxial cable by
September 30, 2000. InterMedia Capital Partners VI, L.P. launched its digital
service in Lexington in October of 1998 and achieved penetration levels of
approximately 16% in the areas where digital is available. We plan to migrate
these customers to our interactive Digital Gateway service, including the
LocalSource product and the DIVA video-on-demand service, by mid-year 2000. The
Lexington system has launched the Insight@Home service.
Covington
As of December 31, 1999, the Covington system passed approximately 126,700
homes and served approximately 73,300 customers from a single headend. Covington
is Kentucky's fifth largest city. Major employers in the Covington area include
Delta, Toyota, Citicorp and DHL. The median household income for the area is
approximately $44,500, while the median family income is approximately $53,800.
The Covington system is currently undergoing a rebuild and is expected to
serve all of its customers with two-way 750 MHz hybrid fiber coaxial cable by
September 30, 2000. The Covington system recently launched the Insight@Home
service. Digital service is also available in Covington. We plan to migrate the
customers of this digital service to our interactive Digital Gateway service,
including the LocalSource product and the DIVA video-on-demand service, by
mid-year 2000.
Bowling Green
As of December 31, 1999, the Bowling Green system passed approximately
33,400 homes and served approximately 22,500 customers from a single headend.
Bowling Green is located 120 miles south of Louisville, 110 miles southwest of
Lexington and 70 miles north of Nashville, Tennessee. Bowling Green is the
fourth largest city in Kentucky and is the economic center for Southcentral
Kentucky and is the home of Western Kentucky University. Major employers in the
Bowling Green area include Fruit of the Loom, Camping World, Desa International
and Holley Replacement Parts. The median household income for the area is
approximately $36,500, while the median family income is approximately $45,400.
The Bowling Green system is fully rebuilt to two-way 750 MHz hybrid fiber
coaxial cable. Recently, digital and Insight@Home services have been launched in
Bowling Green. We plan to migrate the customers of this digital service to our
interactive Digital Gateway service, including the LocalSource product and the
DIVA video-on-demand service, by late 2000.
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Carrollton
As of December 31, 1999, the Carrolton system passed approximately 4,500
homes and served approximately 2,500 customers from a single headend. Major
employers in the Carrollton area include Dow Corning, Elf-Atochem, Meritor,
North American Stainless, and Celotex. The median household income for the area
is approximately $27,000, while the median family income is approximately
$32,900.
The Carrollton system is currently undergoing a rebuild and is expected to
serve all of its customers with two-way 750 MHz hybrid fiber coaxial cable by
year end 2000.
Customer Rates
Rates charged to customers vary based on the market served and service
selected. As of December 31, 1999, the average monthly fee was approximately
$12.46 for basic service and an additional monthly fee of approximately $15.17
for Classic service for the Indiana systems and approximately $11.49 for basic
service and an additional monthly fee of approximately $16.64 for Classic
service for the Kentucky systems. As of December 31, 1999, the weighted average
revenue, including special promotions, for our monthly combined basic and
classic service was approximately $27.98. The national average was $28.92 for
the same services as of December 31, 1999, as reported by Paul Kagan &
Associates.
A one-time installation fee, which we may reduce during promotional
periods, is charged to new customers, as well as reconnected customers. We
charge monthly fees for set top boxes and remote control devices. We also charge
administrative fees for delinquent payments for service. Customers are free to
discontinue service at any time without additional charge and may be charged a
reconnection fee to resume service. Commercial customers, such as hotels, motels
and hospitals, are charged negotiated monthly fees and a non-recurring fee for
the installation of service. Multiple dwelling unit accounts may be offered a
bulk rate in exchange for single-point billing and basic service to all units.
Sales and Marketing
We seek to increase customer penetration levels for our basic service,
Classic service, premium channels and enhanced products and services through a
variety of marketing, branding and promotional strategies. We also seek to
maximize our revenue per customer through the use of packaging strategies to
market premium services and to develop and promote niche programming services.
We regularly use targeted telemarketing, cross channel TV spots and direct mail
campaigns to sell these packages and services to our existing customer base. Our
customer service representatives are trained and given the support to use their
daily contacts with customers as opportunities to sell our new service
offerings.
Due to the nature of the communities we serve, we are able to market our
services in ways not typically used by urban cable operators. We can market
products and services to our customers at our local offices where many of our
customers pay their cable bills in person. Examples of our in-store marketing
include the promotion of premium services as well as point-of-purchase displays
that will allow customers to experience our high-speed Internet service and
digital products. We
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aggressively promote our services utilizing both broad and targeted marketing
tactics, including outdoor billboards, outbound telemarketing, retail
partnerships, direct mail, door-to-door sales, cross-channel promotion, print
and broadcast.
We build awareness of the Insight Communications' brand through
advertising campaigns and strong community relations. As a result of our
branding efforts and consistent service standards, we believe we have developed
a reputation for quality and reliability. We also believe that our marketing
strategies are particularly effective due to our regional clustering, and market
significance which enables us to reach a greater number of both current and
potential customers in an efficient, uniform manner.
Prior to the introduction of telecommunication service though our
manager's proposed agreement with AT&T, we intend to aggressively pursue
co-marketing campaigns with AT&T. We launched a campaign in Evansville, Indiana
where customers subscribing to the digital service who are also AT&T long
distance customers realize savings off of their cable and long distance bills.
We expect to rollout similar programs in other systems until we are able to
provide the complete package of entertainment, information and telecommunication
products on a bundled basis.
Programming Supply
Most cable companies purchase their programming product directly from the
program networks by entering into a contractual relationship with the program
supplier. The vast majority of these program suppliers offer the cable operator
license fee rate cards with size-based volume discounts and other financial
incentives, such as launch and marketing support and cross-channel advertising.
Currently there are over 130 cable networks competing for carriage on our
analog and digital platforms. We have continued to leverage both our systems'
analog rebuilds and newly deployed digital packages as an incentive to our
suppliers to secure long term programming deals with reasonable price structures
and other creative financial arrangements to offset license fee increases.
Because of our relationship with AT&T Broadband, we have the right to
purchase programming services for our systems directly through AT&T Broadband's
programming supplier Satellite Services, Inc. We believe that Satellite Services
has attractive programming costs. Additionally, given the clustering of our
systems in the Midwest, we have been successful in affiliating with regionally
based programming products, such as sports and news, at lower than average
license fees.
Commitment to Community Relations
We believe that maintaining strong community relations will continue to be
an important factor in ensuring our long-term success. Our community-oriented
initiatives include educational programs and the sponsorship of programs and
events recognizing outstanding local citizens. In addition, members of our
management team host community events for political and business leaders as well
as representatives of the local media where they discuss the operations of our
manager and recent developments in the telecommunications industry. We have
received numerous awards recognizing our ongoing community relations. We believe
that our ongoing community
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relations initiatives result in consumer and governmental goodwill and name
recognition, which have increased customer loyalty and will likely facilitate
any future efforts to provide new telecommunications services.
We encourage all of our local management teams to take leadership roles in
community and civic activities. Over the years, our systems have received
numerous awards in recognition of their efforts to support local causes and
charities as well as programs that encourage a better way of life in the
communities they serve. Awards have been received from such diverse
organizations as the Epilepsy Foundation, the YMCA Black Achievers, the Domestic
Violence Center and Project Welcome Home, which provides assistance to less
fortunate people in the community.
Cable industry recognition and awards for excellence in marketing and
programming have been received by several of our systems including the
Lafayette, Indiana system.
All of our systems provide ongoing support for Cable in the Classroom, an
industry initiative that earns recognition both locally and nationally for its
efforts in furthering the education of children.
One of the advantages a local cable operator has over nationally
distributed competitors is its ability to develop local programming. To further
strengthen community relations and differentiate us from direct broadcast
satellite television systems and other multichannel video providers, we provide
locally produced and oriented programming. Several of our systems have full
production capabilities, with in-house and/or mobile production studios to
create local content. To attract viewers, we offer a broad range of local
programing alternatives, including community information, local government
proceedings and local specialty interest shows. In some of our markets, we are
the exclusive broadcaster of local college and high school sporting events,
which we believe provides unique programming and builds customer loyalty. We
believe that our emphasis on local programming creates significant opportunities
for increased advertising revenues. Locally originated programming will also
play an integral role in the deployment of our new and enhanced products and
services. Customized local content will be available to our customers through
our digital cable and high-speed data services, as users will be able to access
local information, such as weather reports, school closings and community event
schedules on demand.
Franchises
Cable television systems are constructed and operated under fixed-term
non-exclusive franchises or other types of operating authorities that are
granted by either local governmental or centralized state authorities. These
franchises typically contain many conditions, such as:
o Time limitations on commencement and completion of construction;
o Conditions of service, including the number of channels, the
provision of free service to schools and other public institutions;
o The maintenance of insurance and indemnity bonds; and
o The payment of fees to communities.
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These local franchises are subject to limits imposed by federal law.
As of December 31, 1999, we held 327 franchises in the aggregate,
consisting of 139 in the Indiana systems and 188 in the Kentucky systems. Many
of these franchises require the payment of fees to the issuing authorities of 3%
to 5% of gross revenues, as defined by each franchise agreement, from the
related cable system. The 1984 Cable Act prohibits franchising authorities from
imposing annual franchise fees in excess of 5% of gross annual revenues and also
permits the cable television system operator to seek renegotiation and
modification of franchise requirements if warranted by changed circumstances
that render performance commercially impracticable.
The following table summarizes information relating to the year of
expiration of our franchises as of December 31, 1999:
<TABLE>
<CAPTION>
Percentage of Number of Percentage
Number of Total Basic Total Basic
Year of Franchise Expiration Franchises Franchises Customers Customers
- ---------------------------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Expired* ..................................... 1 0.3% 2,571 0.3%
2000 ......................................... 18 5.5 26,509 3.5
2001 ......................................... 7 2.1 5,242 0.7
2002 ......................................... 15 4.6 44,604 6.0
2003 ......................................... 22 6.7 18,676 2.5
After 2003 ................................... 264 80.8 651,231 87.0
------- ----- ------- -----
Total ........................................ 327 100.0% 748,833 100.0%
======= ===== ======= =====
</TABLE>
* This franchise is currently operating under an overlapping system's
franchise agreement. Formal consolidation is currently underway.
The Cable Act provides, among other things, for an orderly franchise
renewal process which limits a franchising authority's ability to deny a
franchise renewal if the incumbent operator follows prescribed renewal
procedures. In addition, the Cable Act established comprehensive renewal
procedures which require, when properly elected by an operator, that an
incumbent franchisee's renewal application be assessed on its own merits and not
as part of a comparative process with competing applications.
We believe that our cable systems generally have good relationships with
their respective franchise authorities. We never had a franchise revoked or
failed to have a franchise renewed.
Competition
Cable systems face increasing competition from alternative methods of
receiving and distributing their core video business. Both wireline and wireless
competitors have made inroads in competing against incumbent cable operators.
The extent to which a cable operator is competitive depends, in part, upon its
ability to provide to customers, at a reasonable price, a greater variety of
programming and other communications services than are available off-air or
through alternative delivery sources and upon superior technical performance and
customer service.
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Congress has enacted legislation and the FCC has adopted regulatory
policies providing a more favorable operating environment for new and existing
technologies, in particular direct broadcast satellite television systems
operators, that have the potential to provide increased competition to cable
systems. Recently enacted legislation permits direct broadcast satellite
companies to retransmit local television signals, eliminating one of the
objections of consumers about switching to satellites.
The 1996 Telecom Act makes it easier for local exchange telephone
companies and others to provide a wide variety of video services competitive
with services provided by cable systems. Various local exchange telephone
companies currently are providing video services within and outside their
telephone service areas through a variety of distribution methods, including the
deployment of broadband cable networks and the use of wireless transmission
facilities. Local exchange telephone companies in various states have either
announced plans, obtained local franchise authorizations or are currently
competing with our cable communications systems. Currently, our most significant
wireline competition is from a related party of Southern Indiana Gas and
Electric Co., which has been awarded cable franchises in the Evansville, Indiana
metropolitan area that are currently served by us as the incumbent cable
operator. Local exchange telephone companies and other companies also provide
facilities for the transmission and distribution to homes and businesses of
interactive computer-based services, including the Internet, as well as data and
other non-video services. The ability of local exchange telephone companies to
cross-subsidize video, data and telecommunication services also poses some
threat to cable operators.
Franchised cable systems compete with private cable systems for the right
to service condominiums, apartment complexes and other multiple unit residential
developments. The operators of these private systems, known as satellite master
antenna television systems, often enter into exclusive agreements with apartment
building owners or "homeowners" associations that preclude franchised cable
television operators from serving residents of such private complexes. However,
the 1984 Cable Act gives franchised cable operators the right to use existing
compatible easements within their franchise areas on nondiscriminatory terms and
conditions. Accordingly, where there are preexisting compatible easements, cable
operators may not be unfairly denied access or discriminated against with
respect to access to the premises served by those easements. Conflicting
judicial decisions have been issued interpreting the scope of the access right
granted by the 1984 Cable Act, particularly with respect to easements located
entirely on private property.
The 1996 Telecom Act may exempt some of our competitors from regulation as
cable systems. The 1996 Telecom Act amends the definition of a "cable system"
such that providers of competitive video programming are only regulated and
franchised as "cable systems" if they use public rights-of-way. Thus, a broader
class of entities providing video programming, including operators of satellite
master antenna television systems, may be exempt from regulation as cable
television systems under the 1996 Telecom Act. This exemption may give these
entities a competitive advantage over us.
Direct broadcast television systems use digital video compression
technology to increase the channel capacity of their systems. Direct broadcast
satellite television system programming is currently available to individual
households, condominiums and apartment and office complexes through
conventional, medium and high-power satellites. High-power direct broadcast
satellite television system service is currently being provided by DIRECTV,
Inc., and EchoStar
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Communications Corporation, and medium-power service is being provided by
PrimeStar, Inc. DIRECTV recently acquired PrimeStar's medium-power direct
broadcast satellite business and United States Satellite Broadcasting. These and
other recently announced transactions have resulted in DIRECTV and EchoStar
obtaining additional high-power channel capacity of direct broadcast satellite
television systems through the acquisition of other direct broadcast satellite
television system facilities and channel capacity. DIRECTV and EchoStar have
thereby significantly increased the number of channels on which they can provide
programming to customers. Direct broadcast satellite television systems have
some advantages over cable systems that were not rebuilt, such as greater
channel capacity and digital picture quality. In addition, legislation has
recently been enacted which permits direct broadcast satellite television
systems to deliver television stations in their local markets. The disadvantages
of direct broadcast satellite television systems currently include expensive
up-front customer equipment and installation costs and a lack of local
programming and service.
Several telephone companies are introducing digital subscriber line
technology, which allows Internet access over traditional phone lines at data
transmission speeds greater than those available by modem. Although these
transmission speeds are not as great as the transmission speeds of a cable
modem, we believe that the transmission speeds of digital subscriber line
technology are sufficiently high that such technology will compete with cable
modem technology. The FCC is currently considering its authority to promulgate
rules to facilitate the deployment of these services and regulate areas
including high-speed data and interactive Internet services. We cannot predict
the outcome of any FCC proceedings, or the impact of that outcome on the success
of our Internet access services or on our operations.
Cable operators also compete with wireless program distribution services
such as analog and digital multichannel, multipoint distribution service, which
use microwave frequencies to transmit video programming over-the-air to
customers. There are operators of multipoint multichannel distribution systems
who are authorized to provide or are providing broadcast and satellite
programming to customers in areas served by our cable systems.
Additionally, the FCC adopted regulations allocating frequencies in the 28
GHz band for a new service called local multipoint distribution service that can
be used to provide video services similar to multipoint multichannel
distribution systems. The FCC held spectrum auctions for local multipoint
distribution service licenses in 1998 and 1999.
As we expand our offerings to include local telephone services, we will be
subject to competition from existing providers, including both local exchange
telephone companies and long-distance carriers. The telecommunications industry
is highly competitive and many telephone service providers may have greater
financial resources than we have, or have established relationships with
regulatory authorities. We cannot predict the extent to which the presence of
these competitors will influence customer penetration in our local telephone
service areas.
Other new technologies may become competitive with services that cable
communications systems can offer. Advances in communications technology, as well
as changes in the marketplace and the regulatory and legislative environment are
constantly occurring. Thus, we cannot predict the effect of ongoing or future
developments on the cable communications industry or on our operations.
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The most competitive alternatives to the incumbent cable operator are
operators of direct broadcast satellite systems, operators of multipoint
distribution systems and direct wireline overbuilders.
o Direct broadcast satellite television systems have more channels and
better picture and sound quality over cable operators who have not rebuilt
their systems nor added digital. However, direct broadcast satellite
television systems have a limited ability to offer locally produced
programming, and do not have a significant local presence in the
community. In addition, direct broadcast satellite television systems are
more expensive than cable, especially if it is desired to be on more than
one TV in the household. Finally, direct broadcast satellite television
systems do not have the same full two-way capability, which we believe
will limit its ability to compete in a meaningful way in high-speed data
and voice telecommunication.
o Multipoint multichannel distribution systems offers a lower cost
alternative to direct broadcasting satellite television systems, but
serious transmission limitations caused by the need to have line of sight
access to customers have hampered its growth. Multipoint multichannel
distribution systems are also not currently capable of delivering a fully
two-way alternative to cable's high-speed data and has no immediate plans
to deliver voice telecommunication. Hybrid platforms, using the telephone
for upstream, have speed and technical limitations when compared to a
broadband network.
Cable television systems are operated under non-exclusive franchises
granted by local authorities thereby allowing more than one cable system to be
built in the same area. Although the number of municipal and commercial
overbuild cable systems is small, the potential profitability of a cable system
is adversely affected if the local customer base is divided among multiple
systems. Additionally, constructing a competing cable system is a capital
intensive process which involves a high degree of risk. We believe that in order
to be successful, a competitor's overbuild would need to be able to serve the
homes in the overbuilt area on a more cost-effective basis than we can. Any such
overbuild operation would require either significant access to capital or access
to facilities already in place that are capable of delivering cable television
programming.
Employees
As of December 31, 1999, we employed 1,346 full-time employees and 71
part-time employees. In addition to our current employees, we also receive
assistance and management expertise for our systems from the employees of our
manager. We consider our relations with our employees to be good. Other than 21
employees, none of our employees is subject to a collective bargaining
obligation. Such 21 employees are represented by Local 4900 of the
Communications Workers of America, AFL-CIO-CLC. Their union contract expired on
October 30, 1998 and we are currently negotiating a new contract.
Properties
A cable television system consists of three principal operating
components:
o The first component, the signal reception processing and originating
point, called a "headend," receives television, cable programming
service, radio and data signals that are transmitted by means of
off-air antennas, microwave relay systems and
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satellite earth systems. Each headend includes a tower, antennae or
other receiving equipment at a location favorable for receiving
broadcast signals and one or more earth stations that receives
signals transmitted by satellite. The headend facility also houses
the electronic equipment which amplifies, modifies and modulates the
signals, preparing them for passage over the system's network of
cables;
o The second component of the system, the distribution network,
originates at the headend and extends throughout the system's
service area. A cable system's distribution network consists of
microwave relays, coaxial or fiber optic cables placed on utility
poles or buried underground and associated electronic equipment;
o The third component of the system is a "drop cable," which extends
from the distribution network into each customer's home and connects
the distribution system to the customer's television set.
We own and lease parcels of real property for signal reception sites which
house our antenna towers and headends, microwave complexes and business offices
which includes our principal executive offices. In addition, we own our cable
systems' distribution networks, various office fixtures, test equipment and
service vehicles. The physical components of our cable systems require
maintenance and periodic rebuilding to keep pace with technological advances. We
believe that our properties, both owned and leased, are in good condition and
are suitable and adequate for our business operations as presently conducted and
as proposed to be conducted.
Legal Proceedings
Certain of the Insight Indiana and Insight Kentucky systems were named in
class actions in which the plaintiffs generally alleged that late fees charged
by the systems were not reasonably related to the costs incurred by the cable
systems as a result of the late payment. Plaintiffs sought compensation from the
systems for late fees charged in past periods. These actions were settled in
March 2000 pursuant to a settlement agreement entered into with the defendants
and their attorneys.
Various local franchising authorities in the Kentucky systems filed basic
service rate orders requiring us to cease collecting state and local property
taxes from customers. We have announced that certain of our Kentucky systems
will grant a one-time credit to customers as a result of settlement agreements
with local franchising authorities. However, the Telecommunications Board of
Northern Kentucky has commenced administrative proceedings relating to such rate
order which we are vigorously defending. There can be no assurance that we will
enter into a similar settlement agreement in Northern Kentucky. As part of the
settlements, AT&T Broadband has agreed to reimburse the Kentucky systems for
rate refunds payable to customers in those communities subject to rate orders.
Insight Kentucky and certain prior owners of the Kentucky systems,
including affiliates of AT&T Broadband, have been named in class actions
generally alleging that the Kentucky systems have improperly passed through
state and local property tax charges to customers. The plaintiffs in these
actions seek monetary damages and the enjoinment of the collection of such
taxes. Such class actions are (i) Alfred P. Sykes, Jr., Charles Pearl, Linda
Pearl vs. InterMedia Partners of Kentucky, L.P. and TCI TKR of Jefferson County,
Inc., which was filed on March 26, 1999 in Jefferson County
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Circuit Court and consolidated with James F. Dooley vs. TCI TKR of Jefferson
County and InterMedia Partners of Kentucky, L.P., which was filed on March 24,
1999 in Jefferson County Circuit Court, and (ii) Charles Shaw and Loretta Shaw
vs. TCI TKR of Northern Kentucky, Inc. TCI TKR of Southern Kentucky, Inc., TCI
Cablevision of North Central Kentucky, Inc., TCI Cablevision of Kentucky, Inc.
and InterMedia Partners of Kentucky, L.P., which was filed on June 4, 1999 in
the Franklin County Circuit Court. The classes have been certified in these
actions and we are defending these actions vigorously. Plaintiff's counsel filed
an additional class action lawsuit in Boone County Circuit Court entitled R.
Stafford Johnson v. Insight Kentucky Partners II, L.P., TCI/TKR of Northern
Kentucky, Inc. et. al. on October 27, 1999, making the same allegations as the
other filed actions. This lawsuit was dismissed on January 21, 2000, due to the
existence of Franklin County case which was held to be a superior action with
identical issues. We believe that the Kentucky systems have substantial and
meritorious defenses to these claims, especially claims by customers that reside
in the communities that have entered into settlement agreements with the
Kentucky systems, as described above. We have filed motions to dismiss both the
Jefferson County and Franklin County actions. The Franklin County court has
denied such motion, and the denial order is currently under reconsideration. The
Jefferson County Court has yet to issue an order with respect to such motion to
dismiss. On April 30, 1999, InterMedia Capital Partners VI, L.P. submitted a
request for indemnity to affiliates of AT&T Broadband for certain losses arising
out of these matters pursuant to the contribution agreement dated October 30,
1997 under which these systems were contributed to InterMedia Capital Partners
VI, L.P.
We believe there are no other pending or threatened legal proceedings
that, if adversely determined, would have a material adverse effect on us.
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LEGISLATION AND REGULATION
The cable television industry is regulated by the FCC, some state
governments and the applicable local governments. In addition, various
legislative and regulatory proposals under consideration from time to time by
Congress and various federal agencies have in the past, and may in the future,
materially affect us and our manager. The following is a summary of federal laws
and regulations materially affecting the growth and operation of the cable
television industry and a description of certain state and local laws. We
believe that the regulation of the cable television industry remains a matter of
interest to Congress, the FCC and other regulatory authorities. There can be no
assurance as to what, if any, future actions such legislative and regulatory
authorities may take or the effect thereof on us and our manager.
Federal Legislation
The principal federal statute governing the cable television industry is
the Communications Act. As it affects the cable television industry, the
Communications Act has been significantly amended on three occasions, by the
1984 Cable Act, the 1992 Cable Act and the 1996 Telecom Act. The 1996 Telecom
Act altered the regulatory structure governing the nation's telecommunications
providers. It removed barriers to competition in both the cable television
market and the local telephone market. Among other things, it also reduced the
scope of cable rate regulation. In addition, the 1996 Telecom Act required the
FCC to undertake a number of rulemakings to implement the legislation, some of
which have yet to be completed.
Federal Regulation
The FCC, the principal federal regulatory agency with jurisdiction over
cable television, has adopted regulations covering such areas as cross-ownership
between cable television systems and other communications businesses, carriage
of television broadcast programming, cable rates, consumer protection and
customer service, leased access, indecent programming, programmer access to
cable television systems, programming agreements, technical standards, consumer
electronics equipment compatibility, ownership of home wiring, program
exclusivity, equal employment opportunity, consumer education and lockbox
enforcement, origination cablecasting and sponsorship identification, children's
programming, signal leakage and frequency use, maintenance of various records,
and antenna structure notification, marking and lighting. The FCC has the
authority to enforce these regulations through the imposition of substantial
fines, the issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate certain transmission facilities often used in connection with cable
operations. A brief summary of certain of these federal regulations as adopted
to date follows.
Rate Regulation
The 1984 Cable Act codified existing FCC preemption of rate regulation for
premium channels and optional non-basic program tiers. The 1984 Cable Act also
deregulated basic cable rates for cable television systems determined by the FCC
to be subject to effective competition. The 1992 Cable Act substantially changed
the previous statutory and FCC rate regulation standards. The 1992 Cable Act
replaced the FCC's old standard for determining effective
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competition, under which most cable television systems were not subject to rate
regulation, with a statutory provision that resulted in nearly all cable
television systems becoming subject to rate regulation of basic service. The
1996 Telecom Act expands the definition of effective competition to cover
situations where a local telephone company or its affiliate, or any multichannel
video provider using telephone company facilities, offers comparable video
service by any means except direct broadcast satellite television systems.
Satisfaction of this test deregulates all rates.
For cable systems not subject to effective competition, the 1992 Cable Act
required the FCC to adopt a formula for franchising authorities to assure that
basic cable rates are reasonable; allowed the FCC to review rates for cable
programming service tiers, other than per-channel or per-program services, in
response to complaints filed by franchising authorities and/or cable customers;
prohibited cable television systems from requiring basic customers to purchase
service tiers above basic service in order to purchase premium services if the
system is technically capable of compliance; required the FCC to adopt
regulations to establish, on the basis of actual costs, the price for
installation of cable service, remote controls, converter boxes and additional
outlets; and allowed the FCC to impose restrictions on the retiering and
rearrangement of cable services under certain limited circumstances. The 1996
Telecom Act limited the class of complainants regarding cable programming
service tier rates to franchising authorities only, after first receiving two
rate complaints from local customers, and ended FCC regulation of cable
programming service tier rates on March 31, 1999. The 1996 Telecom Act also
relaxes existing uniform rate requirements by specifying that such requirements
do not apply where the operator faces effective competition, and by exempting
bulk discounts to multiple dwelling units, although complaints about predatory
pricing may be lodged with the FCC.
The FCC's implementing regulations contain standards for the regulation of
basic service rates. Local franchising authorities and the FCC, respectively,
are empowered to order a reduction of existing rates which exceed the maximum
permitted level for basic services and associated equipment, and refunds can be
required. The FCC adopted a benchmark price cap system for measuring the
reasonableness of existing basic service rates. Alternatively, cable operators
have the opportunity to make cost-of-service showings which, in some cases, may
justify rates above the applicable benchmarks. The rules also require that
charges for cable-related equipment, converter boxes and remote control devices,
for example, and installation services be unbundled from the provision of cable
service and based upon actual costs plus a reasonable profit. The regulations
also provide that future rate increases may not exceed an inflation-indexed
amount, plus increases in certain costs beyond the cable operator's control,
such as taxes, franchise fees and increased programming costs. Cost-based
adjustments to these capped rates can also be made in the event a cable
television operator adds or deletes channels. There is also a streamlined
cost-of-service methodology available to justify a rate increase on the basic
tier for "significant" system rebuilds or upgrades.
As a further alternative, in 1995 the FCC adopted a simplified
cost-of-service methodology which can be used by "small cable systems" owned by
"small cable companies." A "small system" is defined as a cable television
system which has, on a headend basis, 15,000 or fewer basic customers. A "small
cable company" is defined as an entity serving a total of 400,000 or fewer basic
customers that is not affiliated with a larger cable television company, that is
to say that a larger cable television company does not own more than a 20
percent equity share or exercise de jure control. This small system rate-setting
methodology almost always results in rates which exceed those produced by the
cost-of-service rules applicable to larger cable television operators.
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Once the initial rates are set they can be adjusted periodically for inflation
and external cost changes as described above. When an eligible "small system"
grows larger than 15,000 basic customers, it can maintain its then current rates
but it cannot increase its rates in the normal course until an increase would be
warranted under the rules applicable to systems that have more than 15,000
customers. When a "small cable company" grows larger than 400,000 basic
customers, the qualified systems it then owns will not lose their small system
eligibility. If a small cable company sells a qualified system, or if the
company itself is sold, the qualified systems retain that status even if the
acquiring company is not a small cable company. Our manager was a "small cable
company" prior to the October 30, 1998 completion of the AT&T Broadband joint
venture relating to our Indiana systems, but it no longer enjoys this status
and, as a result, we are no longer entitled to this benefit. However, as noted
above, the systems with less than 15,000 customers owned by us prior to the
completion of the AT&T Broadband transaction remain eligible for "small system"
rate regulation.
Finally, there are regulations which require cable television systems to
permit customers to purchase video programming on a per channel or a per program
basis without the necessity of subscribing to any tier of service, other than
the basic service tier, unless the cable television system is technically
incapable of doing so. Generally, this exemption from compliance with the
statute for cable television systems that do not have such technical capability
is available until a cable television system obtains the capability, but not
later than December 2002.
Carriage of Broadcast Television Signals
The 1992 Cable Act contains signal carriage requirements which allow
commercial television broadcast stations that are "local" to a cable television
system, that is to say that the system is located in the station's area of
dominant influence, to elect every three years whether to require the cable
television system to carry the station, subject to certain exceptions, or
whether the cable television system will have to negotiate for "retransmission
consent" to carry the station. The next election between must-carry and
retransmission consent will be October 1, 2002. A cable television system is
generally required to devote up to one-third of its activated channel capacity
for the carriage of local commercial television stations whether pursuant to
mandatory carriage requirements or the retransmission consent requirements of
the 1992 Cable Act. Local non-commercial television stations are also given
mandatory carriage rights, subject to certain exceptions, within the larger of:
(a) a 50 mile radius from the station's city of license; or (b) the station's
Grade B contour, a measure of signal strength. Unlike commercial stations,
noncommercial stations are not given the option to negotiate retransmission
consent for the carriage of their signal. In addition, cable television systems
have to obtain retransmission consent for the carriage of all "distant"
commercial broadcast stations, except for certain "superstations," which are
commercial satellite-delivered independent stations such as WGN. To date,
compliance with the "retransmission consent" and "must carry" provisions of the
1992 Cable Act has not had a material effect on us, although this result may
change in the future depending on such factors as market conditions, channel
capacity and similar matters when such arrangements are renegotiated. The FCC
has initiated a rulemaking proceeding on the carriage of television signals in
high definition and digital formats. The outcome of this proceeding could have a
material effect on the number of services that a cable operator will be required
to carry.
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Deletion of Certain Programming
Cable television systems that have 1,000 or more customers must, upon the
appropriate request of a local television station, delete the simultaneous or
nonsimultaneous network programming of a distant station when such programming
has also been contracted for by the local station on an exclusive basis. FCC
regulations also enable television stations that have obtained exclusive
distribution rights for syndicated programming in their market to require a
cable television system to delete or "black out" such programming from other
television stations which are carried by the cable television system.
Franchise Fees
Although franchising authorities may impose franchise fees under the 1984
Cable Act, such payments cannot exceed 5% of a cable television system's annual
gross revenues. Under the 1996 Telecom Act, franchising authorities may not
exact franchise fees from revenues derived from telecommunications services,
although they may be able to exact some additional compensation for the use of
public rights-of-way. Franchising authorities are also empowered, in awarding
new franchises or renewing existing franchises, to require cable television
operators to provide cable-related facilities and equipment and to enforce
compliance with voluntary commitments. In the case of franchises in effect prior
to the effective date of the 1984 Cable Act, franchising authorities may enforce
requirements contained in the franchise relating to facilities, equipment and
services, whether or not cable-related. The 1984 Cable Act, under certain
limited circumstances, permits a cable operator to obtain modifications of
franchise obligations.
Renewal of Franchises
The 1984 Cable Act and the 1992 Cable Act establish renewal procedures and
criteria designed to protect incumbent franchisees against arbitrary denials of
renewal and to provide specific grounds for franchising authorities to consider
in making renewal decisions, including a franchisee's performance under the
franchise and community needs. Even after the formal renewal procedures are
invoked, franchising authorities and cable television operators remain free to
negotiate a renewal outside the formal process. Nevertheless, renewal is by no
means assured, as the franchisee must meet certain statutory standards. Even if
a franchise is renewed, a franchising authority may impose new and more onerous
requirements such as rebuilding facilities and equipment, although the
municipality must take into account the cost of meeting such requirements.
Similarly, if a franchising authority's consent is required for the purchase or
sale of a cable television system or franchises, such authority may attempt to
impose burdensome or onerous franchise requirements in connection with a request
for such consent. Historically, franchises have been renewed for cable
television operators that have provided satisfactory services and have complied
with the terms of their franchises. At this time, we are not aware of any
current or past material failure on our part to comply with our franchise
agreements. We believe that we have generally complied with the terms of our
franchises and have provided quality levels of service.
The 1992 Cable Act makes several changes to the process under which a
cable television operator seeks to enforce its renewal rights which could make
it easier in some cases for a franchising authority to deny renewal. Franchising
authorities may consider the "level" of programming service provided by a cable
television operator in deciding whether to renew. For
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alleged franchise violations occurring after December 29, 1984, franchising
authorities are no longer precluded from denying renewal based on failure to
substantially comply with the material terms of the franchise where the
franchising authority has "effectively acquiesced" to such past violations.
Rather, the franchising authority is estopped if, after giving the cable
television operator notice and opportunity to cure, it fails to respond to a
written notice from the cable television operator of its failure or inability to
cure. Courts may not reverse a denial of renewal based on procedural violations
found to be "harmless error."
Channel Set-Asides
The 1984 Cable Act permits local franchising authorities to require cable
television operators to set aside certain television channels for public,
educational and governmental access programming. The 1984 Cable Act further
requires cable television systems with thirty-six or more activated channels to
designate a portion of their channel capacity for commercial leased access by
unaffiliated third parties to provide programming that may compete with services
offered by the cable television operator. The 1992 Cable Act requires leased
access rates to be set according to a formula determined by the FCC.
Ownership
The 1996 Telecom Act repealed the statutory ban against local exchange
carriers providing video programming directly to customers within their local
exchange telephone service areas. Consequently, the 1996 Telecom Act permits
telephone companies to compete directly with operations of cable television
systems. Under the 1996 Telecom Act and FCC rules adopted to implement the 1996
Telecom Act, local exchange carriers may provide video service as broadcasters,
common carriers, or cable operators. In addition, local exchange carriers and
others may also provide video service through "open video systems," a regulatory
regime that may give them more flexibility than traditional cable television
systems. Open video system operators, including local exchange carriers, can,
however, be required to obtain a local cable franchise, and they can be required
to make payments to local governmental bodies in lieu of cable franchise fees.
In general, open video system operators must make their systems available to
programming providers on rates, terms and conditions that are reasonable and
nondiscriminatory. Where carriage demand by programming providers exceeds the
channel capacity of an open video system, two-thirds of the channels must be
made available to programmers unaffiliated with the open video system operator.
The 1996 Telecom Act generally prohibits local exchange carriers from
purchasing any ownership interest in a cable television system exceeding 10%
located within the local exchange carriers telephone service area, prohibits
cable operators from purchasing local exchange carriers whose service areas are
located within the cable operator's franchise area, and prohibits joint ventures
between operators of cable television systems and local exchange carriers
operating in overlapping markets. There are some statutory exceptions, including
a rural exemption that permits buyouts in which the purchased cable television
system or local exchange carrier serves a non-urban area with fewer than 35,000
inhabitants, and exemptions for the purchase of small cable television systems
located in non-urban areas. Also, the FCC may grant waivers of the buyout
provisions in certain circumstances.
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The 1996 Telecom Act makes several other changes to relax ownership
restrictions and regulations of cable television systems. The 1996 Telecom Act
repeals the 1992 Cable Act's three-year holding requirement pertaining to sales
of cable television systems. The statutory broadcast/cable cross-ownership
restrictions imposed under the 1984 Cable Act have been eliminated, although the
FCC's regulations prohibiting broadcast/cable common-ownership currently remain
in effect. The FCC's rules also generally prohibit cable operators from offering
satellite master antenna service separate from their franchised systems in the
same franchise area, unless the cable operator is subject to "effective
competition" there.
The 1996 Telecom Act amends the definition of a "cable system" under the
Communications Act so that competitive providers of video services will be
regulated and franchised as "cable systems" only if they use public
rights-of-way. Thus, a broader class of entities providing video programming may
be exempt from regulation as cable television systems under the Communications
Act.
Pursuant to the 1992 Cable Act, the FCC has imposed limits on the number
of cable television systems which a single cable television operator can own. In
general, no cable television operator can have an attributable interest in cable
television systems which serve more than 30% of all multi-channel video
programming distributors nationwide. Attributable interests for these purposes
include voting interests of 5% or more, non-voting interests of 33% or more of
the total assets (debt plus equity), officerships, directorships and general
partnership interests. The FCC has stayed the effectiveness of its horizontal
ownership rules pending the outcome of the appeal from the U.S. District Court
decision holding the multiple ownership limit provision of the 1992 Cable Act
unconstitutional.
The FCC has also adopted rules which limit the number of channels on a
cable television system which can be occupied by national video programming
services in which the entity which owns the cable television system has an
attributable interest. The limit is 40% of the first 75 activated channels.
The 1996 Telecom Act provides that registered utility holding companies
and subsidiaries may provide telecommunications services, including cable
television, notwithstanding the Public Utilities Holding Company Act of 1935, as
amended. Electric utilities must establish separate subsidiaries known as
"exempt telecommunications companies" and must apply to the FCC for operating
authority. Due to their resources, electric utilities could be formidable
competitors to traditional cable television systems.
Access to Programming
The 1992 Cable Act imposed restrictions on the dealings between cable
operators and cable programmers. Of special significance from a competitive
business posture, the 1992 Cable Act precludes video programmers affiliated with
cable companies from favoring their affiliated cable operators over competitors
and requires such programmers to sell their programming to other multichannel
video distributors. This provision limits the ability of vertically integrated
cable programmers to offer exclusive programming arrangements to cable
companies.
Privacy
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The 1984 Cable Act imposes a number of restrictions on the manner in which
cable television operators can collect and disclose data about individual system
customers. The statute also requires that the system operator periodically
provide all customers with written information about its policies regarding the
collection and handling of data about customers, their privacy rights under
federal law and their enforcement rights. In the event that a cable television
operator was found to have violated the customer privacy provisions of the 1984
Cable Act, it could be required to pay damages, attorneys' fees and other costs.
Under the 1992 Cable Act, the privacy requirements were strengthened to require
that cable television operators take such actions as are necessary to prevent
unauthorized access to personally identifiable information.
Franchise Transfers
The 1992 Cable Act requires franchising authorities to act on any
franchise transfer request submitted after December 4, 1992 within 120 days
after receipt of all information required by FCC regulations and by the
franchising authority. Approval is deemed to be granted if the franchising
authority fails to act within such period.
Technical Requirements
The FCC has imposed technical standards applicable to all classes of
channels which carry downstream National Television System Committee video
programming. The FCC also has adopted additional standards applicable to cable
television systems using frequencies in the 108 to 137 MHz and 225 to 400 MHz
bands in order to prevent harmful interference with aeronautical navigation and
safety radio services and has also established limits on cable television system
signal leakage. Periodic testing by cable television operators for compliance
with the technical standards and signal leakage limits is required and an annual
filing of the results of these measurements is required. The 1992 Cable Act
requires the FCC to periodically update its technical standards to take into
account changes in technology. Under the 1996 Telecom Act, local franchising
authorities may not prohibit, condition or restrict a cable television system's
use of any type of customer equipment or transmission technology.
The FCC has adopted regulations to implement the requirements of the 1992
Cable Act designed to improve the compatibility of cable television systems and
consumer electronics equipment. These regulations, among other things, generally
prohibit cable television operators from scrambling their basic service tier.
The 1996 Telecom Act directs the FCC to set only minimal standards to assure
compatibility between television sets, VCRs and cable television systems, and to
rely on the marketplace. Pursuant to the 1992 Cable Act, the FCC has adopted
rules to assure the competitive availability to consumers of customer premises
equipment, such as converters, used to access the services offered by cable
television systems and other multichannel video programming distributors.
Pursuant to those rules, consumers are given the right to attach compatible
equipment to the facilities of their multichannel video programming distributors
so long as the equipment does not harm the network, does not interfere with the
services purchased by other customers and is not used to receive unauthorized
services. As of July 1, 2000, multichannel video programming distributors, other
than operators of direct broadcast satellite television systems, are required to
separate security from non-security functions in the customer premises equipment
which they sell or lease to their customers and offer their customers the option
of using component security modules obtained from the multichannel video
programming distributors with set-top units purchased or leased from retail
outlets. As of January 1, 2005, multichannel video
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programming distributors will be prohibited from distributing new set-top
equipment integrating both security and non-security functions to their
customers.
Pursuant to the 1992 Cable Act, the FCC has adopted rules implementing an
emergency alert system. The rules require all cable television systems to
provide an audio and video emergency alert system message on at least one
programmed channel and a video interruption and an audio alert message on all
programmed channels. The audio alert message is required to state which channel
is carrying the full audio and video emergency alert system message. The FCC
rules permit cable television systems either to provide a separate means of
alerting persons with hearing disabilities of emergency alert system messages,
such as a terminal that displays emergency alert system messages and activates
other alerting mechanisms or lights, or to provide audio and video emergency
alert system messages on all channels. Cable television systems with 10,000 or
more basic customers per headend were required to install emergency alert system
equipment capable of providing audio and video emergency alert system messages
on all programmed channels by December 31, 1998. Cable television systems with
5,000 or more but fewer than 10,000 basic customers per headend will have until
October 1, 2002 to comply with that requirement. Cable television systems with
fewer than 5,000 basic customers per headend will have a choice of providing
either a national level emergency alert system message on all programmed
channels or installing emergency alert system equipment capable of providing
audio alert messages on all programmed channels, a video interrupt on all
channels, and an audio and video emergency alert system message on one
programmed channel. This must be accomplished by October 1, 2002.
Inside Wiring; Customer Access
In a 1997 order, the FCC established rules that require an incumbent cable
operator upon expiration of a multiple dwelling unit service contract to sell,
abandon, or remove "home run" wiring that was installed by the cable operator in
a multiple dwelling unit building. These inside wiring rules are expected to
assist building owners in their attempts to replace existing cable operators
with new programming providers who are willing to pay the building owner a
higher fee, where such a fee is permissible. Additionally, the FCC has proposed
to restrict exclusive contracts between building owners and cable operators or
other multichannel video programming distributors. The FCC has also recently
issued an order preempting state, local and private restrictions on over-the-air
reception antennas placed on rental properties in areas where a tenant has
exclusive use of the property, such as balconies or patios. However, tenants may
not install such antennas on the common areas of multiple dwelling units, such
as on roofs. This new order may limit the extent to which multiple dwelling unit
owners may enforce certain aspects of multiple dwelling unit agreements which
otherwise would prohibit, for example, placement of direct broadcast satellite
television systems television receiving antennae in multiple dwelling unit
areas, such as apartment balconies or patios, under the exclusive occupancy of a
renter.
Pole Attachments
The FCC currently regulates the rates and conditions imposed by certain
public utilities for use of their poles unless state public service commissions
are able to demonstrate that they adequately regulate the rates, terms and
conditions of cable television pole attachments. A number of states and the
District of Columbia have certified to the FCC that they adequately regulate the
rates, terms and conditions for pole attachments. Illinois and Kentucky, states
in which we operate, have made such a certification. In the absence of state
regulation, the FCC administers such pole
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attachment and conduit use rates through use of a formula which it has devised.
Pursuant to the 1996 Telecom Act, the FCC has adopted a new rate formula for any
attaching party, including cable television systems, which offers
telecommunications services. This new formula will result in higher attachment
rates than at present, but they will apply only to cable television systems
which elect to offer telecommunications services. Any increases pursuant to this
new formula will not begin until 2001, and will be phased in by equal increments
over the five ensuing years. The FCC recently ruled that the provision of
Internet services will not, in and of itself, trigger use of the new formula.
The FCC has also initiated a proceeding to determine whether it should adjust
certain elements of the current rate formula. If adopted, these adjustments
could increase rates for pole attachments and conduit space.
Other FCC Matters
FCC regulation pursuant to the Communications Act also includes matters
regarding a cable television system's carriage of local sports programming;
restrictions on origination and cablecasting by cable television operators;
rules governing political broadcasts; equal employment opportunity; deletion of
syndicated programming; registration procedure and reporting requirements;
customer service; closed captioning; obscenity and indecency; program access and
exclusivity arrangements; and limitations on advertising contained in
nonbroadcast children's programming.
Copyright
Cable television systems are subject to federal copyright licensing
covering carriage of broadcast signals. In exchange for making semi-annual
payments to a federal copyright royalty pool and meeting certain other
obligations, cable television operators obtain a statutory license to retransmit
broadcast signals. The amount of this royalty payment varies, depending on the
amount of system revenues from certain sources, the number of distant signals
carried, and the location of the cable television system with respect to
over-the-air television stations. Any future adjustment to the copyright royalty
rates will be done through an arbitration process to be supervised by the U.S.
Copyright Office. Cable television operators are liable for interest on
underpaid and unpaid royalty fees, but are not entitled to collect interest on
refunds received for overpayment of copyright fees.
Various bills have been introduced into Congress over the past several
years that would eliminate or modify the cable television compulsory license.
Without the compulsory license, cable television operators would have to
negotiate rights from the copyright owners for all of the programming on the
broadcast stations carried by cable television systems. Such negotiated
agreements would likely increase the cost to cable television operators of
carrying broadcast signals. The 1992 Cable Act's retransmission consent
provisions expressly provide that retransmission consent agreements between
television broadcast stations and cable television operators do not obviate the
need for cable operators to obtain a copyright license for the programming
carried on each broadcaster's signal.
Copyrighted music performed in programming supplied to cable television
systems by pay cable networks, such as HBO, and basic cable networks, such as
USA Network, is licensed by the networks through private agreements with the
American Society of Composers and Publishers, generally known as ASCAP, and BMI,
Inc., the two major performing rights organizations in the
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United States. Both the American Society of Composers and Publishers and BMI
offer "through to the viewer" licenses to the cable networks which cover the
retransmission of the cable networks' programming by cable television systems to
their customers.
Licenses to perform copyrighted music by cable television systems
themselves, including on local origination channels, in advertisements inserted
locally on cable television networks, and in cross-promotional announcements,
must be obtained by the cable television operator from the American Society of
Composers and Publishers, BMI and/or SESAC, Inc.
State and Local Regulation
Cable television systems generally are operated pursuant to nonexclusive
franchises, permits or licenses granted by a municipality or other state or
local government entity. The terms and conditions of franchises vary materially
from jurisdiction to jurisdiction, and even from city to city within the same
state, historically ranging from reasonable to highly restrictive or burdensome.
Franchises generally contain provisions governing fees to be paid to the
franchising authority, length of the franchise term, renewal, sale or transfer
of the franchise, territory of the franchise, design and technical performance
of the system, use and occupancy of public streets and number and types of cable
television services provided. The terms and conditions of each franchise and the
laws and regulations under which it was granted directly affect the
profitability of the cable television system. The 1984 Cable Act places certain
limitations on a franchising authority's ability to control the operation of a
cable television system. The 1992 Cable Act prohibits exclusive franchises, and
allows franchising authorities to exercise greater control over the operation of
franchised cable television systems, especially in the area of customer service
and rate regulation. The 1992 Cable Act also allows franchising authorities to
operate their own multichannel video distribution system without having to
obtain a franchise and permits states or local franchising authorities to adopt
certain restrictions on the ownership of cable television systems. Moreover,
franchising authorities are immunized from monetary damage awards arising from
regulation of cable television systems or decisions made on franchise grants,
renewals, transfers and amendments. The 1996 Telecom Act prohibits a franchising
authority from either requiring or limiting a cable television operator's
provision of telecommunications services.
Various proposals have been introduced at the state and local levels with
regard to the regulation of cable television systems, and a number of states
have adopted legislation subjecting cable television systems to the jurisdiction
of centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. To date, none of the states in
which we currently operate has enacted state level regulation.
The foregoing describes all material present and proposed federal, state
and local regulations and legislation relating to the cable television industry.
Other existing federal regulations, copyright licensing and, in many
jurisdictions, state and local franchise requirements, currently are the subject
of a variety of judicial proceedings, legislative hearings and administrative
and legislative proposals which could change, in varying degrees, the manner in
which cable television systems operate. Neither the outcome of these proceedings
nor their impact upon the cable television industry or us can be predicted at
this time.
Internet Access Service
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We offer a service which enables consumers to access the Internet at high
speeds via high capacity broadband transmission facilities and cable modems. We
compete with many other providers of Internet access services which are known as
Internet service providers. Internet service providers include such companies as
America Online and Mindspring Enterprises as well as major telecommunications
providers, including AT&T and local exchange telephone companies. Recently,
several Internet service providers asked the FCC as well as local authorities to
require cable companies offering Internet access services over their broadband
facilities to allow access to those facilities on an unbundled basis to other
Internet service providers. In a recent report on the deployment of advanced
telecommunications capability under Section 706 of the 1996 Telecom Act, the FCC
declined to convene a proceeding to consider whether to impose such an access
requirement on cable companies. However, the FCC indicated that it would
continue to monitor the issue of broadband deployment. Also, the FCC denied
requests by certain Internet service providers that it condition its approval of
the merger of AT&T and TCI, now known as AT&T Broadband, LLC, on a requirement
that those companies allow access by Internet service providers to their
broadband facilities. Several local jurisdictions also are reviewing this issue.
Recently, a U.S. District Court in Oregon upheld a requirement, imposed by a
local franchising authority in the context of a franchise transfer, that the
cable operator, if it chooses to provide Internet service, must provide open
access to its system for other Internet service providers. That decision has
been appealed. In the wake of this opinion, several other communities have begun
to consider whether to impose a similar requirement.
There are currently few laws or regulations which specifically regulate
communications or commerce over the Internet. Section 230 of the Communications
Act, added to that act by the 1996 Telecom Act, declares it to be the policy of
the United States to promote the continued development of the Internet and other
interactive computer services and interactive media, and to preserve the vibrant
and competitive free market that presently exists for the Internet and other
interactive computer services, unfettered by federal or state regulation. One
area in which Congress did attempt to regulate content over the Internet
involved the dissemination of obscene or indecent materials. The provisions of
the 1996 Telecom Act generally referred to as the Communications Decency Act
were found to be unconstitutional by the United States Supreme Court in 1997.
Local Telecommunications Services
The 1996 Telecom Act provides that no state or local laws or regulations
may prohibit or have the effect of prohibiting any entity from providing any
interstate or intrastate telecommunications service. States are authorized,
however, to impose "competitively neutral" requirements regarding universal
service, public service, public safety and welfare, service quality and consumer
protection. State and local governments also retain their authority to manage
the public rights-of-way and may require reasonable, competitively neutral
compensation for management of the public rights-of-way when cable operators
provide telecommunications service.
We may in the future allow our cable infrastructure to be used for the
provision of local telecommunications services to residential and business
consumers. Local telecommunications service is subject to regulation by state
utility commissions. Use of local telecommunications facilities to originate and
terminate long distance services, a service commonly referred to as "exchange
access," is subject to regulation both by the FCC and by state utility
commissions. As a provider of local exchange service, we would be subject to the
requirements imposed upon local
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exchange carriers by the 1996 Telecom Act. These include requirements governing
resale, telephone number portability, dialing parity, access to rights-of-way
and reciprocal compensation. Our ability to successfully offer local
telecommunications service will be dependent, in part, on the opening of local
telephone networks by incumbent local telephone companies as required of them by
the 1996 Telecom Act. In January 1999, the United States Supreme Court reversed
and vacated in part an earlier decision of a federal court of appeals striking
down portions of the FCC's 1996 rules governing local telecommunications
competition. The Supreme Court held that the FCC has authority under the
Communications Act to establish rules to govern the pricing of facilities and
services provided by incumbent local exchange carriers to open their local
networks to competition. Also, as a result of that Supreme Court decision, the
FCC must determine what network elements of incumbent local exchange carriers
must be made available to other providers and under what circumstances those
elements must be made available. How the FCC resolves those questions will
impact our ability to provide local telecommunications service in competition
with incumbent local exchange telephone companies.
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MANAGEMENT
Insight Communications Company, L.P. is the sole general partner of
Insight Midwest. Insight Communications is the sole general partner of Insight
Communications Company, L.P. The following table sets forth certain information,
with respect to the executive officers of Insight Capital and Insight
Communications. Insight Communications, through Insight Communications Company,
L.P., serves as manager of Insight Midwest. See "Prospectus Summary - Ownership
Structure." The table also includes the members of the Advisory Committee of
Insight Midwest.
The executive officers of Insight Capital and our manager and members of
the Advisory Committee of Insight Midwest are:
Name Age Position
- ---- --- --------
Sidney R. Knafel.............69 Chairman of the Board of Insight Capital
and Insight Communications and
Chairman of the Advisory Committee
Michael S. Willner...........48 President and Chief Executive Officer of
Insight Capital and Insight
Communications and Member of the
Advisory Committee
Kim D. Kelly.................43 Executive Vice President, Chief
Operating and Financial Officer and
Secretary of Insight Capital and Insight
Communications and Member of the
Advisory Committee
William R. Fitzgerald........43 Member of the Advisory Committee
Derek Chang..................32 Member of the Advisory Committee
Key employees of our manager who provide assistance and management
expertise to our systems include:
Name Age Position
- ---- --- --------
Elliot Brecher ..............34 Senior Vice President and General
Counsel
E. Scott Cooley..............40 Senior Vice President, Insight
Communications of Indiana
Charles E. Dietz.............53 Senior Vice President of Engineering
Lori Urias Gehris............40 Vice President of Training
William Gilbert..............49 Vice President of Advertising Sales
Elizabeth M. Grier...........39 Vice President of Administration
Pamela Euler Halling.........53 Senior Vice President of Marketing and
Programming
Charles King.................53 Regional Director
Daniel Mannino...............41 Senior Vice President and Controller
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Susane Newell.................39 Vice President of Programming
Judy Poole....................53 Senior Vice President of Human
Resources
Colleen Quinn.................47 Senior Vice President of Corporate
Relations
Mary Rhodes...................50 Vice President of Customer Service
Administration
Steven E. Sklar...............36 Senior Vice President of Finance and
Business Development
James A. Stewart..............48 Senior Vice President of Operations
Heather Wright................32 Vice President of Strategic Marketing
Sidney R. Knafel, a director of Insight Communications, has been Chairman
of the Board of Insight Communications since 1985. He was the founder, Chairman
and an equity holder of Vision Cable Communications, Inc. from 1971 until its
sale in 1981. Mr. Knafel is presently the managing partner of SRK Management
Company, a private investment company, and also serves as Chairman of
BioReliance Corporation, a biological testing company. He is a director of NTL
Incorporated, CoreComm Limited, General American Investors Company, Inc., IGENE
Biotechnology, Inc. and Source Media, Inc., as well as several private
companies. Mr. Knafel is a graduate of Harvard College and Harvard Business
School.
Michael S. Willner, a director of Insight Communications, co-founded and
has served as President and Chief Executive Officer of Insight Communications
since 1985. Previously, Mr. Willner served as Executive Vice President and Chief
Operating Officer of Vision Cable from 1979 through 1985, Vice President of
Marketing for Vision Cable from 1977 to 1979 and General Manager of Vision
Cable's Bergen County, New Jersey cable television system from 1975 to 1977.
Currently, Mr. Willner is a director of NTL Incorporated. He is also a director
of Source Media, Inc. He serves on the board of C-SPAN and the National Cable
Television Association where he is a member of the Executive Committee and
serves as Treasurer. Mr. Willner is a graduate of Boston University's College of
Communication and serves on the school's Executive Committee.
Kim D. Kelly, a director of Insight Communications, has been Executive
Vice President and Chief Financial Officer of Insight Communications since 1990.
Ms. Kelly has also been Chief Operating Officer of Insight Communications since
January 1998. Prior thereto, she served from 1982 to 1990 with Marine Midland
Bank, becoming its Senior Vice President in 1988, with primary responsibility
for media lending activities. Ms. Kelly serves as a member of the National Cable
Television Association Subcommittee for Telecommunications Policy, as well as
the National Cable Television Association Subcommittees for Accounting. She also
serves as a director of Bank of New York Hamilton Funds and Source Media, Inc.
and serves on the boards of Community Antenna Television Association, Cable in
the Classroom and Cable Advertising Bureau. Ms. Kelly is a graduate of George
Washington University.
William R. Fitzgerald has served as the Executive Vice President and Chief
Operating Officer of AT&T Broadband since November 1998. Prior to this
appointment and the merger of Tele-Communications, Inc. with AT&T Corp. in 1999,
Mr. Fitzgerald served as Executive Vice President of Corporate Development and
Partnership Relations and Senior Vice President of Corporate Development from
1996 to 1999 at TCI Communications. Prior to that, Mr. Fitzgerald
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was Senior Vice President and a partner at Daniels & Associates, a leading
brokerage and investment banking firm to the communications industry, from 1988
to 1996. Mr. Fitzgerald is a graduate of the Indiana University School of
Business and the Kellogg School of Business at Northwestern University.
Derek Chang has served as Executive Vice President of Corporate
Development and Partnership Relations for AT&T Broadband since 1999. Prior to
this appointment and the merger of Tele-Communications, Inc. with AT&T Corp. in
1999, Mr. Chang was Assistant to Leo J. Hindery, Jr., the President and Chief
Executive Officer of Tele-Communications. Prior to joining TCI Communications in
1997, Mr. Chang served as Treasurer of InterMedia Partners, L.P. from 1994 to
1997. He is a member of the National Association of Minorities in
Communications. Mr. Chang is a graduate of Yale University and Stanford
University's Graduate School of Business.
Elliot Brecher has served as the Senior Vice President and General Counsel
of Insight Communications since January 2000. He is of counsel to the law firm
Cooperman Levitt Winikoff Lester & Newman, P.C., which has served as Insight
Communications' legal counsel for over the past 15 years. He joined that firm in
February 1994 and served as a partner from January 1996 until joining Insight
Communications. Prior to that, he was an associate of the law firm Rosenman &
Colin from October 1988. Mr. Brecher received his law degree from Fordham
University.
E. Scott Cooley joined Insight Communications in 1998 as Senior Vice
President of Operations with responsibility for Insight Communications' Indiana
systems. Formerly, Mr. Cooley was an employee of TCI Communications for 18
years, having worked in the areas of technical operations and purchasing and as
general manager of the Bloomington system. In 1994, he was appointed area
manager of TCI Communications' southern Indiana, Illinois and Missouri systems
serving 260,000 customers. In 1997, he received TCI Communications' Manager of
the Year award. Mr. Cooley serves as a member of the Indiana Cable Television
Association and its subcommittee for public relations.
Charles E. Dietz joined Insight Communications as Senior Vice President,
Engineering in 1996. From 1973 to 1995, Mr. Dietz was employed by Vision Cable
Communications serving as Vice President of Technical Operations from 1988
through 1991, becoming Vice President of Operations in 1991.
Lori Urias Gehris joined Insight Communications as the National Training
Director in 1991 and has since become Vice President of Training. Her previous
experience includes three years as Regional Training Manager for Comcast Cable
and from 1981 to 1985 she was employed as an Account Executive and Telemarketing
Trainer for Mountain Bell.
William Gilbert has served as Vice President of Advertising Sales at
Insight Media Advertising since 1998. From 1988 to 1998, Mr. Gilbert served as
Vice President Advertising Sales and New Business for Coaxial Communications in
Columbus. Prior to joining Coaxial Communications, he spent several years with
Warner-Amex Cable both in its corporate office and at the system level. Mr.
Gilbert has 19 years of advertising sales, marketing and financial experience in
the cable television industry.
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Elizabeth M. Grier joined Insight Communications in 1989 and became Vice
President of Administration in May of 1994. Previously, Ms. Grier served as
Legal Affairs Manager. Prior to joining Insight Communications, Ms. Grier was
employed by Microband Wireless Cable Company.
Pamela E. Halling joined Insight Communications as Vice President,
Marketing in 1988 and has since become Senior Vice President of Marketing and
Programming. Prior to joining Insight Communications, she had served since 1985
as Director of Consumer Marketing for the Disney Channel. Previously, she was
Vice President of Affiliate Marketing for Rainbow Programming Holdings, Inc. and
a marketing consultant for TCI. She began her cable television career in 1973
with Continental Cablevision.
Charles F. King has been Regional Director of Insight Kentucky since 1999.
He was the Regional Director of Intermedia's Western Kentucky Region, which
services approximately 260,000 customers, from 1987 to 1999. Prior to that, Mr.
King was Director of Operations of Rollins Communications from 1985 to 1987 and
Vice President and General Manager of Summit Communications from 1981 to 1985.
Mr. King is a member of the Board of Directors of the Kentucky Cable Television
Association and a member of the Society of Cable Television Engineers.
Daniel Mannino joined Insight Communications as Controller in 1989 and
became Vice President and Controller in 1991 and Senior Vice President in 1999.
Previously, Mr. Mannino was employed by Vision Cable from 1983 to 1989, becoming
its Controller in 1986. Mr. Mannino is a certified public accountant.
Susane Newell has served as Vice President of Programming for Insight
Communications since 1998. Prior to joining Insight Communications, Ms. Newell
served as Corporate Director of Programming for Century Communications from 1995
to 1998. From 1991 to 1994 she served as Corporate Programming Manager for
TeleCable Corporation. Ms. Newell is an attorney and has also served as Director
of New Business Development for Bellcore and station manager for an independent
broadcast station.
Judy Poole joined Insight Communications in 1998 as Vice President of
Human Resources and became Senior Vice President of Human Resources in 1999.
Prior to joining Insight Communications, Ms. Poole spent 13 years at Cablevision
Systems, most recently as Corporate Director of Employee Relations.
Colleen Quinn joined Insight Communications as Senior Vice President of
Corporate Relations in 1999. Prior to joining Insight Communications, Ms. Quinn
was the Senior Vice President, Government Affairs, of the New York City
Partnership and Chamber of Commerce from 1997 to April 1999. She has also held
positions at MacAndrews & Forbes Holdings, Inc. and the Revlon Foundation as
Vice President from 1996 to 1997 and at Pacific Telesis Group as Executive
Director and Director of Government Relations from 1993 to 1996.
Mary Rhodes joined Insight Communications in 1986 and became Vice
President of Customer Service Administration in 1996. Ms. Rhodes previously
served as general manager of our Jeffersonville, Indiana and Sandy, Utah cable
systems.
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Steven E. Sklar joined Insight Communications in 1998 as Senior Vice
President of Finance and Business Development. From 1996 through 1998, Mr. Sklar
was with Encore Media Group, most recently as Division Vice President. He
previously held the position of Vice President-International Business
Development at Encore. Mr. Sklar was with Home Box Office from 1992-1996 where
he held various positions, most recently serving as Director of International
Operations. He was also employed by Marine Midland Bank, where he served as
Assistant Vice President for the Media/Commercial Lending Division.
James A. Stewart joined Insight Communications in 1987 as a Vice
President, and now serves as Senior Vice President of Operations with
responsibility for Insight Communications' systems outside of the Indiana
cluster. Formerly, Mr. Stewart was Operations Manager for National Guardian
Security Services. He was also employed by Viacom International, Inc.'s cable
television division for eight years, where he ultimately became Vice President
and General Manager of Viacom Cablevision's Nashville, Tennessee system.
Heather Wright joined Insight Communications in 1997 as the Director of
Strategic Marketing and became Vice President of Strategic Marketing in 1999.
Prior to joining Insight Communications, Ms. Wright was employed by The Walt
Disney Company from 1993 to 1997, most recently as National Account Manager for
The Disney Channel.
Except as described in this prospectus, there are no arrangements or
understandings between any Member of the Advisory Committee or executive officer
and any other person pursuant to which that person was elected or appointed to
his or her position.
Advisory Committee
The Partnership Agreement of Insight Midwest provides for a five member
Advisory Committee. Insight Communications, through Insight Communications
Company, L.P., is entitled to designate three of the members of the Advisory
Committee. The remaining members are designated by AT&T Broadband, through TCI
of Indiana Holdings. Insight Communications' designees are Sidney R. Knafel,
Michael S. Willner and Kim D. Kelly. AT&T Broadband's designees are William
Fitzgerald and Derek Chang. The Advisory Committee serves in an advisory
capacity only. Insight Communications Company, L.P. is the general partner of
Insight Midwest and has the exclusive authority to manage the business,
operations and affairs of Insight Midwest, subject to certain approval rights of
AT&T Broadband. See "Description of Governing Documents-Partnership Agreement"
for a description of the Partnership Agreement.
Executive and Advisory Committee Compensation
None of the executive officers of Insight Capital are compensated for
their services as such officers. Rather, executive management personnel of
Insight Capital will receive compensation from Insight Communications. None of
the members of the Advisory Committee of Insight Midwest are compensated for
their services as such members, but are entitled to reimbursement for travel
expenses.
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CERTAIN TRANSACTIONS
On November 17, 1999, our manager formed a joint venture with Source
Media, Inc., to conduct all lines of business of Source Media relating to its
VirtualModem and Interactive Channel products and businesses. Our manager
capitalized the joint venture with $13.0 million in exchange for its 50% equity
interest. As part of the transaction, our manager's subsidiary acquired 842,105
shares of Source Media's common stock for $12.0 million and warrants to purchase
up to an additional 4,596,786 shares at an exercise price of $20 per share.
Our manager is entitled to designate three members of the board of
directors of Source Media. Our manager's designees are Sidney R. Knafel,
Chairman of the Board and a director of our manager, Michael S. Willner, the
President, Chief Executive Officer and a director of our manager, and Kim D.
Kelly, Executive Vice President, Chief Operating and Financial Officer and a
director of our manager.
Our manager is currently providing the joint venture's interactive
services to customers of its systems under a letter of intent entered into on
July 29, 1998. Pursuant to the letter of intent, we pay Interactive Channel a
monthly license fee for the right to distribute LocalSource in an amount that is
based on the number of digital customers as adjusted for penetration. We share
50% of all revenues, other than advertising revenues, generated by LocalSource.
On March 3, 2000, our manager and Source Media sold all of the joint
venture's Virtual Modem business to Liberate Technologies in exchange for the
issuance to each of our manager's subsidiary and Source Media of 886,000 shares
of Liberate common stock. The joint venure continues to own and operate its
programming assets, LocalSource and SourceGuide, and has entered into preferred
content and programming services agreements with Liberate.
Our manager, Insight Communications Company, L.P., receives a management
fee for each twelve-month period equal to 3% of substantially all revenue
arising out of or in connection with the operations of the Indiana and Kentucky
systems. Our manager owns 50% of the partnership interests of Insight Midwest
and Insight Midwest owns 100% of the common stock of Insight Capital. In
addition, Sidney Knafel, Michael Willner and Kim Kelly, who are each executive
officers of our manager, are members of and collectively constitute a majority
of Insight Midwest's advisory committee.
Under a distribution agreement with Excite@Home, Insight Kentucky provides
high-speed Internet access to customers over its distribution network in certain
of its cable television systems. In January 1999, Insight Kentucky and certain
of its affiliates entered into related agreements with Excite@Home for the
issuance to Insight Kentucky of warrants to purchase shares of Excite@Home's
Series A Common Stock ("Excite@Home Stock") at an exercise price of $5.25 per
share, as adjusted for a two-for-one stock split which occurred on June 17,
1999. Under the provisions of the agreements, Insight Kentucky estimates that it
may purchase up to 459,200 shares of Excite@Home Stock. The warrants become
vested and exercisable, subject to certain forfeiture and other conditions,
based on operational targets which include offering the Excite@Home service by
Insight Kentucky in its service areas and obtaining specified numbers of
Excite@Home customers over the remaining six-year term of the Excite@Home
distribution agreement.
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PRINCIPAL STOCKHOLDERS
Insight Capital is a wholly-owned subsidiary of Insight Midwest.
The following table sets forth information with respect to the beneficial
ownership of Insight Midwest's partnership interests:
<TABLE>
<CAPTION>
Percent of
Partnership
Name and Address of Beneficial Owner Type of Interest Interests
------------------------------------ ---------------- ---------
<S> <C> <C>
Insight Communications Company, L.P. (1) ................................................ General Partner 50%
TCI of Indiana Holdings, LLC (2) ........................................................ Limited Partner 50%
</TABLE>
(1) Insight Communications Company, L.P. is a wholly-owned subsidiary of
Insight Communications, a corporation whose Class A common stock is quoted
on The Nasdaq National Market. The management of Insight Communications,
which includes Sidney R. Knafel, Michael S. Willner and Kim D. Kelly,
through their ownership of Insight Communications' Class B common stock,
have approximately 41% of Insight Communications' voting power.
(2) TCI of Indiana Holdings is an indirect wholly-owned subsidiary of AT&T, a
publicly held company.
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DESCRIPTION OF GOVERNING DOCUMENTS
Partnership Agreement
Organization and Duration
Insight Midwest was formed as a Delaware limited partnership in order to
consolidate the Indiana systems and the Kentucky systems under one holding
company. Unless sooner terminated in accordance with the terms of the
Partnership Agreement, Insight Midwest will continue until October 2011.
General Partner and Limited Partner
Insight Communications Company, L.P. is the general partner of Insight
Midwest, and TCI of Indiana Holdings, a subsidiary of AT&T Broadband LLC, is the
limited partner. Other than with respect to certain partnership matters that
require the approval of AT&T Broadband LLC, Insight Communications, through
Insight Communications Company, L.P., has the exclusive authority to manage the
business, operations and affairs of Insight Midwest and the exclusive right to
exercise all rights incident to the ownership of all partnership or corporate
interests held by Insight Midwest, including the Indiana systems and the
Kentucky systems, subject to certain approval rights of AT&T Broadband LLC.
Insight Communications, through Insight Communications Company, L.P., manages
the Indiana Systems and the Kentucky Systems controlled by Insight Midwest
pursuant to separate Management Agreements between Insight Communications
Company, L.P. and each of Insight Indiana and Insight Kentucky.
Advisory Committee
The Partnership Agreement provides for an Advisory Committee consisting of
five individual representatives of the partners, three of whom are appointed by
Insight Communications, through Insight Communications Company, L.P., and two of
whom are appointed by AT&T Broadband LLC, through TCI of Indiana Holdings.
Insight Communications has appointed Sidney Knafel, Michael Willner and Kim
Kelly as its initial representatives; and AT&T Broadband LLC has appointed
William Fitzgerald and Derek Chang as its initial representatives.
The Advisory Committee serves in an advisory capacity only. Insight
Communications Company, L.P. is the general partner of Insight Midwest and has
the exclusive authority to manage the business, operations and affairs of
Insight Midwest, subject to certain approval rights of AT&T Broadband LLC.
Approval Rights of AT&T Broadband LLC
The Partnership Agreement prohibits Insight Communications Company, L.P.
and Insight Communications from causing Insight Midwest or its subsidiaries from
taking certain actions without the approval of AT&T Broadband LLC. The following
is a summary of certain material actions or events that require AT&T Broadband
LLC's approval:
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o selling or disposing of assets that would result in the allocation
of income or gain to AT&T Broadband pursuant to Internal Revenue
Code Section 704(c) with certain permitted exceptions;
o incurring any indebtedness or consummating any asset acquisition,
such that immediately after the incurrence of such indebtedness or
consummation of such asset acquisition, Insight Midwest's Operating
Cash Flow Ratio would exceed 7.0 to 1.0;
o entering into any agreement evidencing indebtedness or any amendment
to an agreement governing indebtedness that includes any borrower
other than Insight Midwest or its subsidiaries or that provides that
Insight Midwest may be deemed in default thereunder as a result of a
default by Insight Communications Company, L.P. or its affiliates;
o entering into any amendment to, or refinancing of, any indebtedness
that would affect any keepwell or guarantee issued by AT&T
Broadband;
o consummating one or more asset dispositions in any consecutive
twelve-month period having an aggregate value in excess of $25.0
million with certain permitted exceptions;
o engaging in any merger, consolidation, recapitalization or other
reorganization, with certain permitted exceptions;
o entering into any transaction with Insight Communications Company,
L.P. or AT&T Broadband or their affiliates, with certain permitted
exceptions;
o selecting a new general partner of Insight Midwest;
o liquidating or dissolving except in accordance with the provisions
of the Partnership Agreement;
o issuing or redeeming any partnership interest or convertible
interest, with certain permitted exceptions;
o admitting any additional partners;
o converting Insight Midwest to corporate form or changing the
partnership tax classification of Insight Midwest;
o commencing any bankruptcy or insolvency proceedings;
o commencing, instituting or settling any lawsuit on behalf of Insight
Midwest for any amount in excess of $3,000,000;
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o engaging in new lines of business not described in the Partnership
Agreement or acquiring cable television systems other than in
Kentucky and specific parts of Indiana;
o calling for additional capital contributions;
o making any distribution to the partners other than distributions
permitted pursuant to the Partnership Agreement;
o amending Insight Midwest's Management Incentive Plan or either of
the Management Agreements with Insight Communications;
o entering into, conducting or participating in the business of
providing or engaging in any Internet backbone service;
o changing Insight Midwest's public accountants; or
o transferring, issuing or redeeming any subsidiary equity interest.
Capital Contributions and Distributions
Other than the contribution of the Indiana and Kentucky systems formerly
owned by affiliates of Insight Communications and AT&T Broadband, which
contribution occurred in October 1999, neither partner will be required to make
any capital contributions to Insight Midwest.
All distributions by Insight Midwest will be made in proportion to the
partners' percentage interests. Distributions prior to the liquidation of
Insight Midwest must be approved by AT&T Broadband and Insight Communications
Company, L.P., except that Insight Midwest will be required to make quarterly
distributions of cash, subject to contractual restrictions on distributions by
Insight Midwest, to Insight Communications Company, L.P. to the extent of the
estimated tax liabilities of Insight Communications Company, L.P. as a result of
the allocation to Insight Communications Company, L.P. of Insight Midwest's
income and gain and pro rata distributions to AT&T Broadband.
Partner Liquidity-Buy/Sell Rights
At any time after October 2004, other than at certain times specified in
the Partnership Agreement, either AT&T Broadband LLC or Insight Communications
Company, L.P. (the "Initiating Partner") will have the right to commence the
buy/sell process described below by delivering a notice to the other partner
(the "Non-Initiating Partner"). The Initiating Partner will be required to
specify its estimate of the fair market value of Insight Midwest's assets and
the resulting amount that would be distributed to the partners if Insight
Midwest were liquidated in accordance with the Partnership Agreement following a
sale of the assets at the specified value, subject to certain assumptions (the
"Offer Price"). The Non-Initiating Partner will have the right to postpone the
buy/sell process one time only for a period of six months, subject to certain
restrictions in the Partnership Agreement.
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If AT&T Broadband is the Non-Initiating Partner, AT&T Broadband will have
the right to purchase Insight Communications Company, L.P.'s partnership
interest at the Offer Price or to elect to sell AT&T Broadband's interest to
Insight Communications Company, L.P. at the Offer Price or exit the partnership
pursuant to an alternative tax-advantaged structure. If AT&T Broadband elects to
exit the partnership by negotiating an alternative structure, the parties will
be required to negotiate in good faith and use commercially reasonable efforts
for a period not to exceed sixty days to agree on an alternative structure. If
an alternative structure cannot be agreed upon, AT&T Broadband will have the
right to sell its partnership interest to Insight Communications Company, L.P.
at the Offer Price or to terminate the buy/sell process, subject in the latter
case to Insight Communications Company, L.P.'s right to require AT&T Broadband
to purchase Insight Communications Company, L.P.'s partnership interest at the
Offer Price.
If Insight Communications Company, L.P. is the Non-Initiating Partner,
Insight Communications Company, L.P. will have the right to sell its interest to
AT&T Broadband at the Offer Price, or to purchase AT&T Broadband's interest at
the Offer Price. If Insight Communications Company, L.P. elects to purchase AT&T
Broadband's interest, AT&T Broadband will have the right to sell its partnership
interest to Insight Communications Company, L.P. at the Offer Price, or to exit
the partnership by negotiating an alternative tax-advantaged structure. If AT&T
Broadband elects to exit the partnership by negotiating an alternative
structure, the parties will be required to negotiate in good faith and use
commercially reasonable efforts for a period not to exceed sixty days to agree
on an alternative structure. If an alternative structure cannot be agreed upon,
AT&T Broadband will have the right to require Insight Communications Company,
L.P. to purchase its partnership interest at the Offer Price or to terminate the
buy/sell process, subject in the latter case to Insight Communications Company,
L.P.'s right to require AT&T Broadband to purchase Insight Communications
Company, L.P.'s partnership interest at the Offer Price.
If either of Insight Communications Company, L.P. or AT&T Broadband
becomes obligated to purchase the partnership interest of the other partner
pursuant to the terms of the Partnership Agreement but defaults in its
obligation, then the non-defaulting Partner will have the right either to
purchase the partnership interest of the defaulting Partner for a cash price
equal to 95% of the Offer Price, to cause the partnership to be liquidated or
dissolved in accordance with the liquidation provisions of the Partnership
Agreement, or to terminate the buy/sell process and continue the partnership.
Limitations on the Activities of Insight Midwest
The Partnership Agreement prohibits Insight Midwest and its subsidiaries
from engaging in any business involving the provision of multipoint distribution
systems, multichannel multipoint distribution systems, direct-to-home satellite
systems or Internet backbone services without the consent of both partners.
Admission of Additional Partners and Amendments
Insight Midwest may issue additional equity interests in Insight Midwest,
and admit new persons as additional partners of Insight Midwest, only with the
approval of Insight Communications Company, L.P. and AT&T Broadband. The
Partnership Agreement may be
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amended only with the approval of Insight Communications Company, L.P. and AT&T
Broadband.
Removal of Insight Communications Company, L.P. as General Partner
Under certain limited circumstances specified in the Partnership Agreement
where Insight Communications Company, L.P.'s conduct has resulted in material
harm to Insight Midwest or AT&T Broadband, AT&T Broadband will have the right to
replace Insight Communications Company, L.P. as general partner or purchase all
of Insight Communications Company, L.P.'s partnership interest in Insight
Midwest at fair market value and, upon consummation of such purchase, remove
Insight Communications Company, L.P. as a partner.
Withdrawal of Partners and Assignment of Partnership Interests
Without AT&T Broadband's consent, the Partnership Agreement prohibits
Insight Communications Company, L.P. from withdrawing as general partner of
Insight Midwest. Subject to certain permitted exceptions, the Partnership
Agreement also prohibits Insight Communications Company, L.P. from assigning its
partnership interest without the approval of AT&T Broadband and will prohibit
AT&T Broadband from assigning its partnership interest without the approval of
Insight Communications Company, L.P.
Dissolution and Liquidation
The principal events upon which Insight Midwest will dissolve are:
o the withdrawal of Insight Communications Company, L.P. as general
partner unless AT&T Broadband continues the partnership;
o the expiration of the term of Insight Midwest;
o an election to liquidate or dissolve the partnership made by a
non-defaulting partner pursuant to the terms of the buy/sell
provisions of the Partnership Agreement, see "-Partner
Liquidity-Buy/Sell Rights;"
o the sale or disposition of all or substantially all the assets of
Insight Midwest; or
o the agreement of Insight Communications Company, L.P. and AT&T
Broadband LLC.
Management Agreements
Insight Communications, through Insight Communications Company, L.P.,
manages the Indiana and Kentucky systems pursuant to separate Management
Agreements with each of Insight Indiana and Insight Kentucky. Insight
Communications Company, L.P. has full and exclusive authority to manage the day
to day operations and conduct the business of the Indiana and Kentucky systems.
Insight Indiana and Insight Kentucky remain responsible for all expenses and
liabilities relating to the construction, development, operation, maintenance,
repair and ownership of the systems.
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Management Fee
As compensation to Insight Communications Company, L.P. for the
performance of its services, Insight Indiana and Insight Kentucky will each pay
to Insight Communications Company, L.P. a management fee for each twelve-month
period equal to 3% of all revenue arising out of or in connection with the
operation of the business of the Indiana and Kentucky systems, excluding
proceeds from the sale of assets or from extraordinary or non-recurring items
and all interest, dividend and royalties and other types of investment income
that do not arise from the operation of the business of the Indiana and Kentucky
systems in the ordinary course. Insight Communications Company, L.P. will also
be entitled to the reimbursement of all expenses necessarily incurred in its
capacity as manager.
Termination
The Management Agreements with respect to Insight Indiana or Insight
Kentucky will terminate automatically upon the termination of the applicable
entity, and will also be terminable as follows:
o with respect to the Indiana systems Management Agreement, by either
Insight Indiana or Insight Communications Company, L.P. upon a sale
or distribution of all the assets of Insight Indiana;
o with respect to the Kentucky systems Management Agreement, by either
Insight Kentucky or Insight Communications Company, L.P. upon a sale
or distribution of all the assets of Insight Kentucky;
o with respect to either of the Management Agreements, upon the
removal of Insight Communications Company, L.P. as general partner
of Insight Midwest pursuant to the terms of the Partnership
Agreement, other than in connection with the transfer by Insight
Communications Company, L.P. of its partnership interest to an
affiliate;
o with respect to the Indiana systems Management Agreement, by either
Insight Indiana or Insight Communications Company, L.P. should the
other party breach any agreement or covenant contained in the
Management Agreement and that breach continues for a period of
ninety days; and
o with respect to the Kentucky systems Management Agreement, by either
Insight Kentucky or Insight Communications Company, L.P. should the
other party breach any agreement or covenant contained in the
Management Agreement and that breach continues for a period of
ninety days.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Financings of Insight Indiana and Insight Kentucky are currently effected
through stand-alone credit facilities, each having a separate lending group. The
credit facilities of Insight Indiana and Insight Kentucky are non-recourse to us
and none of the credit facilities has any cross-default provisions relating
directly to each other. Each credit facility has different revolving credit and
term periods and contains separately negotiated, specifically tailored
covenants.
Indiana Credit Facility
On October 31, 1998, Insight Indiana entered into a senior credit facility
with a group of banks and other financial institutions led by The Bank of New
York. The Insight Indiana credit facility provides for term loans of $300
million and for revolving credit loans of up to $250 million, including a letter
of credit subfacility of up to $25 million. Loans under the Insight Indiana
credit facility may be used to finance acquisitions, capital expenditures and
for working capital and general company purposes. The Insight Indiana credit
facility matures in December 2006, with quarterly reductions in the amount of
outstanding loans and commitments commencing in March 2001. Obligations under
the Insight Indiana credit facility are secured by the membership interests of
Insight Indiana owned by us and any amounts payable by Insight Indiana to us.
Loans under the Insight Indiana credit facility bear interest, at Insight
Indiana's option, at an alternate base or Eurodollar rate, plus an additional
margin tied to Insight Indiana's ratio of total debt to adjusted annualized
operating cash flow, in the case of alternate base loans ranging in increments
from 0.75% when such ratio equals or exceeds 6.0:1.0 and zero when such ratio is
less than 5.0:1.0, and, in the case of Eurodollar loans, ranging in increments
from 2.0% when such ratio equals or exceeds 6.0:1.0 and 0.75% when such ratio is
less than 3.5:1.0.
The Insight Indiana credit facility contains a number of covenants that,
among other things, restricts the ability of Insight Indiana to make capital
expenditures, acquire or dispose of assets, enter into mergers, incur additional
indebtedness, pay dividends or other distributions, create liens on assets, make
investments, and engage in transactions with related parties. In addition, the
Insight Indiana credit facility requires compliance with certain financial
ratios, requires Insight Indiana to enter into interest rate protection
agreements covering at least 40% of its total indebtedness and also contains
customary events of default. To date, the proceeds of term and revolving credit
borrowings under the Insight Indiana credit facility have been used primarily to
repay indebtedness secured by or relating to the cable system assets transferred
to Insight Indiana by Insight Communications and TCI and for general corporate
activities. As of December 31, 1999, there was approximately $470 million
outstanding under the Insight Indiana credit facility.
The Insight Indiana credit facility has been amended to permit the
distribution to us of amounts equal to the interest then due and owing on the
notes, assuming that the maturity of the notes has not been accelerated and,
before and after giving effect to such payment, no default exists under the
facility.
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Kentucky Credit Facility
Effective October 1, 1999, Insight Kentucky amended its senior credit
facility with a group of banks and other financial institutions led by Toronto
Dominion (Texas), Inc. The Kentucky credit facility, as amended, provides for
two term loans of $100.0 million and $250.0 million and for revolving credit
loans of up to $325.0 million. Loans under the Kentucky credit facility may be
used to refinance debt, finance acquisitions, capital expenditures and for
working capital and general corporate purposes as permitted by the agreement.
The term loans will mature in September and December 2007 and the revolving
credit loans will mature in October 2006, with quarterly reductions in the
amount of outstanding revolving credit loans and commitments commencing in June
2001. Obligations under the Kentucky credit facility are guaranteed by Insight
Kentucky and Insight Kentucky Partners II, L.P. and are secured by all of the
partnership interests of Insight Kentucky and its subsidiaries and any
intercompany notes made in favor of Insight Kentucky and its subsidiaries.
Revolving loans under the Kentucky credit facility bear interest, at Insight
Kentucky's option, at an alternate base or Eurodollar rate, plus an additional
margin tied to Insight Kentucky's ratio of total debt to annualized cash flow,
in the case of alternate base revolving loans ranging from 1.0% when such ratio
exceeds 6.0:1.0 and zero when such ratio is less than or equal to 4.5:1.0, and,
in the case of Eurodollar revolving loans, ranging from 2.0% when such ratio
exceeds 6.0:1.0 and 0.75% when such ratio is less than or equal to 4.0:1.0. The
term loans under the Kentucky credit facility also bear interest, at Insight
Kentucky's option, at an alternate base or Eurodollar rate, plus an additional
margin tied to Insight Kentucky's. ratio of total debt to annualized cash flow.
The Kentucky credit facility contains a number of covenants that, among
other things, restrict the ability of Insight Kentucky to make capital
expenditures, acquire or dispose of assets, enter into mergers, incur additional
indebtedness, pay dividends or other distributions, create liens on assets, make
investments, and engage in transactions with related parties. The Kentucky
credit facility permits the distribution to us of amounts equal to the interest
then due and owing on the notes, assuming that the maturity of the notes has not
been accelerated and, before and after giving effect to such payment, no default
exists under the facility. In addition, the Kentucky credit facility requires
compliance with certain financial ratios, requiring Insight Kentucky to enter
into interest rate protection agreements covering at least 50%, subject to
increase to 60% under certain circumstances, of its total indebtedness and also
contains customary events of default. To date, the proceeds of term and
revolving credit borrowings under the Insight Kentucky credit facility have been
used primarily to repay indebtedness secured by or relating to the cable system
assets transferred to Insight Kentucky by Insight Communications and AT&T
Broadband and for general corporate activities. As of December 31, 1999, there
was approximately $562 million outstanding under the $675.0 million Kentucky
credit facility.
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DESCRIPTION OF NOTES
The initial notes were issued and the exchange notes will be issued under
an indenture among us and Harris Trust Company of New York, as trustee. The
terms of the notes include those stated in the indenture and those made part of
the indenture by reference to the Trust Indenture Act.
The form and terms of the exchange notes are the same in all material
respects as the form and terms of the initial notes, except that the exchange
notes will have been registered under the Securities Act and therefore will not
bear legends restricting their transfer. The initial notes have not been
registered under the Securities Act and are subject to transfer restrictions.
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because it, and not this description, define your rights as
holders of these notes. Copies of the indenture are available as set forth below
under "-Additional Information." Certain defined terms used in this description
but not defined below under "-Certain Definitions" have the meanings assigned to
them in the indenture.
The registered holder of a note will be treated as the owner of it for all
purposes. Only registered holders will have rights under the indenture.
Brief Description of the Notes
The Notes
The notes:
o are our general unsecured obligations;
o are senior in right of payment to any of our existing and future
subordinated Indebtedness;
o are equal in right of payment to all of our existing and future
unsubordinated, unsecured Indebtedness; and
o are effectively subordinated in right of payment to all of our
future secured Indebtedness to the extent of the value of the assets
securing such Indebtedness.
Substantially all of our operations are conducted through Insight
Midwest's Subsidiaries and, therefore, we are dependent upon the cash flow of
Insight Midwest's Subsidiaries to meet our obligations, including our
obligations under the notes. Any right of ours to receive assets of any of
Insight Midwest's Subsidiaries will be effectively subordinated to the claims of
that Subsidiary's creditors, including trade creditors. As of December 31, 1999,
the aggregate amount of Indebtedness and other obligations of our Subsidiaries,
including Capital Lease Obligations, trade payables and borrowings under the
Amended Kentucky Credit Facility and the Amended Indiana Credit Facility, that
would effectively rank senior in right of payment to our obligations under the
notes was approximately $1.1 billion. Both the Amended Kentucky Credit Facility
and the Amended Indiana Credit Facility permit the payment of dividends to us to
permit us to pay interest
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on the notes in the absence of a default under such credit facilities. See "Risk
Factors-We have substantial debt and have significant interest payment
requirements" and "Risk Factors-The notes are obligations of a holding company
which has no operations and depends on its subsidiaries for cash."
All of our subsidiaries are "Restricted Subsidiaries." However, under the
circumstances described below under the subheading "-Certain
Covenants-Designation of Restricted and Unrestricted Subsidiaries," we will be
permitted to designate certain of our subsidiaries as "Unrestricted
Subsidiaries." Our Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants in the indenture.
Principal, Maturity and Interest
The indenture provides for the issuance by us of notes with a maximum
aggregate principal amount outstanding at any time of $400.0 million. The
initial notes have an aggregate principal amount of $200.0 million. We may issue
additional notes (the "Additional Notes") from time to time after this offering.
Any offering of Additional Notes is subject to the covenant described below
under the caption "-Certain Covenants-Incurrence of Indebtedness and Issuance of
Preferred Stock." The notes and any Additional Notes subsequently issued under
the indenture would be treated as a single class for all purposes under the
indenture, including, without limitation, waivers, amendments, redemptions and
offers to purchase. We will issue notes in denominations of $1,000 and integral
multiples of $1,000. The notes will mature on October 1, 2009.
Interest on the notes will accrue at the rate of 9 3/4% per annum and will
be payable semi-annually in arrears on April 1 and October 1, commencing on
April 1, 2000. We will make each interest payment to the holders of record on
the immediately preceding March 15 and September 15.
Interest on the notes will accrue from the date of original issuance or,
if interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Methods of Receiving Payments on the Notes
If a holder has given wire transfer instructions to us, we will pay all
principal, interest and premium and Liquidated Damages, if any, on that holder's
notes in accordance with those instructions. All other payments on notes will be
made at the office or agency of the paying agent and registrar for the notes
within the City and State of New York unless we elect to make interest payments
by check mailed to the holders at their addresses set forth in the register of
holders.
Paying Agent and Registrar for the Notes
The trustee will initially act as paying agent and registrar. We may
change the paying agent or registrar without prior notice to the holders, and we
or any of our Subsidiaries may act as paying agent or registrar.
Transfer and Exchange
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A holder may transfer or exchange notes in accordance with the indenture.
The registrar and the trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and we may require a
holder to pay any taxes and fees required by law or permitted by the indenture.
We are not required to transfer or exchange any note selected for redemption.
Also, we are not required to transfer or exchange any note for a period of 15
days before a selection of notes to be redeemed.
Optional Redemption
At any time prior to October 1, 2002, we may on any one or more occasions
redeem up to 35% of the aggregate principal amount of notes issued under the
indenture at a redemption price of 109.75% of the principal amount of the notes
redeemed, plus accrued and unpaid interest and Liquidated Damages, if any, to
the redemption date, with the net cash proceeds of one or more Equity Offerings;
provided that:
o at least 65% of the notes issued under the indenture remains
outstanding immediately after the occurrence of any such redemption,
excluding notes held by us and our Subsidiaries; and
o the redemption occurs within 90 days of the date of the closing of
any such Equity Offering.
Except pursuant to the preceding paragraph, the notes will not be
redeemable at our option prior to October 1, 2004.
On or after October 1, 2004, we may redeem all or a part of the notes upon
not less than 30 nor more than 60 days' notice, at the redemption prices,
expressed as percentages of principal amount, set forth below plus accrued and
unpaid interest and Liquidated Damages, if any, thereon, to the applicable
redemption date, if redeemed during the twelve-month period beginning on October
1, of the years indicated below:
Year Percentage
- ---- ----------
2004............................................................ 104.875%
2005............................................................ 103.250%
2006............................................................ 101.625%
2007 and thereafter............................................. 100.000%
Mandatory Redemption
We are not required to make mandatory redemption or sinking fund payments
with respect to the notes.
Repurchase at the Option of Holders
Change of Control
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If a Change of Control occurs, each holder of notes will have the right to
require us to repurchase all or any part (equal to $1,000 or an integral
multiple of $1,000) of that holder's notes pursuant to a Change of Control Offer
on the terms set forth in the indenture. In the Change of Control Offer, we will
offer a Change of Control Payment in cash equal to 101% of the aggregate
principal amount of notes repurchased plus accrued and unpaid interest and
Liquidated Damages, if any, on the notes repurchased, to the date of purchase.
Within 30 days following any Change of Control, we will mail a notice to the
trustee and each holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase notes on the Change
of Control Payment Date specified in the notice, which date shall be no earlier
than 30 days and no later than 60 days from the date such notice is mailed,
pursuant to the procedures required by the indenture and described in such
notice. We will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent those
laws and regulations are applicable in connection with the repurchase of the
notes as a result of a Change of Control. To the extent that the provisions of
any securities laws or regulations conflict with the Change of Control
provisions of the indenture, we will comply with the applicable securities laws
and regulations and will not be deemed to have breached its obligations under
the Change of Control provisions of the indenture by virtue of such conflict.
On the Change of Control Payment Date, we will, to the extent lawful:
o accept for payment all notes or portions of notes properly tendered
pursuant to the Change of Control Offer;
o deposit with the paying agent an amount equal to the Change of
Control Payment in respect of all notes or portions of notes
properly tendered; and
o deliver or cause to be delivered to the trustee the notes so
accepted together with an Officers' Certificate stating the
aggregate principal amount of notes or portions of notes being
purchased by us.
The paying agent will promptly mail to each holder of notes properly
tendered the Change of Control Payment for such notes, and we will execute and
issue and the trustee will promptly authenticate and mail, or cause to be
transferred by book entry, to each holder a new note equal in principal amount
to any unpurchased portion of the notes surrendered, if any; provided that each
such new note will be in a principal amount of $1,000 or an integral multiple of
$1,000.
The provisions described above that require us to make a Change of Control
Offer following a Change of Control will be applicable regardless of whether any
other provisions of the indenture are applicable. Except as described above with
respect to a Change of Control, the indenture does not contain provisions that
permit the holders of the notes to require that we repurchase or redeem the
notes in the event of a takeover, recapitalization or similar transaction.
We will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by us and purchases all
notes or portions of notes properly tendered and not withdrawn under such Change
of Control Offer.
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The definition of Change of Control includes a phrase relating to the
direct or indirect sale, lease, transfer, conveyance or other disposition of
"all or substantially all" of the properties or assets of us and our
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of notes to require us to repurchase such notes as a result of a sale,
lease, transfer, conveyance or other disposition of less than all of the assets
of us and our Subsidiaries taken as a whole to another Person or group may be
uncertain.
The Amended Kentucky Credit Facility and the Amended Indiana Credit
Facility currently limit Insight Midwest's Subsidiaries' ability to pay
dividends or make other distributions to us, and prohibit such payments in the
case of a default or event of default thereunder. A Change of Control may
constitute a default under the Amended Kentucky Credit Facility and the Amended
Indiana Credit Facility. In the event a Change of Control occurs, Insight
Midwest could seek the consent of its Subsidiaries' lenders to provide
sufficient funds to us for the purchase of the notes or could attempt to
refinance the borrowings that contain such restrictions. If Insight Midwest does
not obtain such consent or repay such borrowings, we will likely not have the
financial resources to purchase the notes and such Subsidiaries would be
prohibited from paying dividends to us for the purpose of such purchase. In any
event, there can be no assurance that Insight Midwest's Subsidiaries will have
the resources available to make any such dividend or distribution. In addition,
any future credit agreements or other agreements relating to Indebtedness to
which we become a party may prohibit or otherwise limit us from purchasing any
notes prior to their maturity, and may also provide that certain change of
control events with respect to us would constitute a default thereunder. In the
event a Change of Control occurs at a time when we are prohibited from
purchasing notes, we could seek the consent of their lenders to the purchase of
notes or could attempt to refinance the borrowings that contain such
prohibition. If we do not obtain such a consent or repay such borrowings, we
will remain prohibited from purchasing notes. In such case, our failure to
purchase tendered notes would constitute an Event of Default under the
Indenture. See "Risk Factors-Change of Control."
Asset Sales
We will not, and will not permit any of our Restricted Subsidiaries to,
consummate an Asset Sale unless:
(1) we, or the Restricted Subsidiary, as the case may be, receive
consideration at the time of such Asset Sale at least equal to the
fair market value of the assets or Equity Interests issued or sold
or otherwise disposed of;
(2) such fair market value is determined by our Boards of Directors and
evidenced by a resolution of the Boards of Directors set forth in an
Officers' Certificate delivered to the trustee; and
(3) at least 75% of the consideration received in such Asset Sale by us
or such Restricted Subsidiary is in the form of cash or Cash
Equivalents. For purposes of this provision, each of the following
shall be deemed to be cash:
o any Indebtedness or other liabilities, as shown on our or such
Restricted Subsidiary's most recent balance sheet, of us or
any Restricted Subsidiary,
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other than contingent liabilities and Indebtedness that is by
its terms subordinated to the notes, that are assumed by the
transferee of any such assets pursuant to an agreement that
releases us or such Restricted Subsidiary from further
liability; and
o any securities, notes or other obligations received by us or
any such Restricted Subsidiary from such transferee that are
converted within 45 days of the applicable Asset Sale by us or
such Restricted Subsidiary into cash, to the extent of the
cash received in that conversion.
Notwithstanding the foregoing, we and our Restricted Subsidiaries may
engage in Asset Swaps; provided that, (1) immediately after giving effect to
such Asset Swap, we would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Debt to Cash Flow Ratio test set forth in the first
paragraph of the covenant described below under the caption "-Certain
Covenants-Incurrence of Indebtedness and Issuance of Preferred Stock" and (2)
our or the Restricted Subsidiary's Boards of Directors, as the case may be,
determines that such Asset Swap is fair to us or such Restricted Subsidiary, as
the case may be, from a financial point of view and such determination is
evidenced by a resolution of such Boards of Directors set forth in an Officers'
Certificate delivered to the Trustee.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
we may apply those Net Proceeds at our option:
(1) to a permanent repayment or reduction of Indebtedness, other than
subordinated Indebtedness, of us or a Restricted Subsidiary and, if
the Indebtedness repaid is revolving credit Indebtedness, to
correspondingly reduce commitments with respect thereto;
(2) to acquire all or substantially all of the assets of a Permitted
Business;
(3) to acquire Voting Stock of a Permitted Business from a Person that
is not a Subsidiary of us; provided, that (a) after giving effect
thereto, we and our Restricted Subsidiaries collectively own a
majority of such Voting Stock and (b) such acquisition is otherwise
made in accordance with the indenture, including, without
limitation, the "Restricted Payments" covenant;
(4) to make capital expenditures; or
(5) to acquire other long-term tangible assets that are used or useful
in a Permitted Business.
Pending the final application of any Net Proceeds, we may temporarily
reduce revolving credit borrowings or otherwise invest the Net Proceeds in any
manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $20.0 million, we will make an Asset
Sale Offer to all holders of notes and all
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holders of other Indebtedness that is pari passu with the notes containing
provisions similar to those set forth in the indenture relating to the notes
with respect to offers to purchase or redeem with the proceeds of sales of
assets to purchase the maximum principal amount of notes and such other pari
passu Indebtedness that may be purchased out of the Excess Proceeds. The offer
price in any Asset Sale Offer will be equal to 100% of principal amount plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase, and will be payable in cash. If any Excess Proceeds remain after
consummation of an Asset Sale Offer, we may use such Excess Proceeds for any
purpose not otherwise prohibited by the indenture. If the aggregate principal
amount of notes and such other pari passu Indebtedness tendered into such Asset
Sale Offer exceeds the amount of Excess Proceeds, the trustee will select the
notes and such other pari passu Indebtedness to be purchased on a pro rata basis
based on the principal amount of notes and such other pari passu Indebtedness
tendered. Upon completion of each Asset Sale Offer, the amount of Excess
Proceeds will be reset at zero.
We will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with each repurchase of notes
pursuant to an Asset Sale Offer. To the extent that the provisions of any
securities laws or regulations conflict with the Asset Sales provisions of the
indenture, we will comply with the applicable securities laws and regulations
and will not be deemed to have breached its obligations under the Asset Sale
provisions of the indenture by virtue of such conflict.
Selection and Notice
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
(1) if the notes are listed on any national securities exchange, in
compliance with the requirements of the principal national
securities exchange on which the notes are listed; or
(2) if the notes are not listed on any national securities exchange, on
a pro rata basis, by lot or by such method as the trustee shall deem
fair and appropriate.
No notes of $1,000 or less will be redeemed in part. Notices of redemption
will be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each holder of notes to be redeemed at its registered
address. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note will state the portion of the principal amount of that note
that is to be redeemed. A new note in principal amount equal to the unredeemed
portion of the original note will be issued in the name of the holder thereof
upon cancellation of the original note. Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on notes or portions of them called for redemption.
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Certain Covenants
Restricted Payments
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of our or any of our Restricted
Subsidiaries' Equity Interests, including, without limitation, any
payment in connection with any merger or consolidation involving us
or any of our Restricted Subsidiaries, or to the direct or indirect
holders of our or any of our Restricted Subsidiaries' Equity
Interests in their capacity as such, other than dividends or
distributions payable in our Equity Interests (other than
Disqualified Stock) or to us or one of our Restricted Subsidiaries;
(2) purchase, redeem or otherwise acquire or retire for value,
including, without limitation, in connection with any merger or
consolidation involving us, any of our Equity Interests or of any
direct or indirect parent of us;
(3) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is
subordinated to the notes, except a payment of interest or principal
at the Stated Maturity thereof; or
(4) make any Restricted Investment (all such payments and other actions
set forth in this clause and clauses (1) through (3) above being
collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default has occurred and be continuing or
would occur as a consequence thereof; and
(2) we would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable fiscal quarter, have been
permitted to incur at least $1.00 of additional Indebtedness, other
than Permitted Debt, pursuant to the Debt to Cash Flow Ratio test
set forth in the first paragraph of the covenant described below
under the caption "-Incurrence of Indebtedness and Issuance of
Preferred Stock;" and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments declared or made after the date of the
indenture, excluding Restricted Payments made pursuant to the
second, third and fourth clauses of the next succeeding paragraph,
shall not exceed, at the date of determination, the sum, without
duplication, of:
(a) an amount equal to our Consolidated Cash Flow from the date of
the indenture to the end of our most recently ended full
fiscal quarter for which internal financial statements are
available, taken as a single accounting period, less the
product of 1.2 times our Consolidated Interest Expense
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from the date of the indenture to the end of our most recently
ended full fiscal quarter for which internal financial
statements are available, taken as a single accounting period;
plus
(b) an amount equal to 100% of Capital Stock Sale Proceeds less
any such Capital Stock Sale Proceeds used in connection with:
o an Investment made pursuant to the clause (6) of the
definition of "Permitted Investments;" or
o an incurrence of Indebtedness pursuant to the clause (8)
of the covenant described under the caption "-Incurrence
of Indebtedness and Issuance of Preferred Stock;" plus
(c) to the extent that any Restricted Investment that was made
after the date of the indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of: (1) the cash
return of capital with respect to such Restricted Investment,
less the cost of disposition, if any, and (2) the initial
amount of such Restricted Investment; plus
(d) to the extent that the Board of Directors designates any
Unrestricted Subsidiary that was designated as such after the
date of the Indenture as a Restricted Subsidiary, the lesser
of (1) the aggregate fair market value of all Investments
owned by us and our Restricted Subsidiaries in such Subsidiary
at the time such Subsidiary was designated as an Unrestricted
Subsidiary and (2) the then aggregate fair market value of all
Investments owned by us and our Restricted Subsidiaries in
such Unrestricted Subsidiary.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment
would have complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any of our subordinated Indebtedness or of any of our
Equity Interests in exchange for, or out of the net cash proceeds of
the substantially concurrent sale (other than to one of our
Subsidiaries or an employee stock ownership plan or to a trust
established by us or any of our Subsidiaries for the benefit of its
employees) of, our Equity Interests other than Disqualified Stock;
provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement, defeasance
or other acquisition will be excluded from clause (3)(b) of the
preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of us or any Restricted Subsidiary with
the net cash proceeds from an incurrence of Permitted Refinancing
Indebtedness;
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(4) regardless of whether any Default then exists, the payment of any
dividend by one of our Restricted Subsidiaries to the holders of its
Equity Interests on a pro rata basis;
(5) the payment of any dividend or distribution to Insight
Communications for the repurchase, redemption or other acquisition
or retirement for value by Insight Communications of any of its
Equity Interests held by any member of its or any of its
Subsidiaries' management pursuant to any management equity
subscription agreement or stock option agreement in effect as of the
date of the indenture; provided that the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests
shall not exceed $1.0 million in any twelve-month period;
(6) regardless of whether any Default then exists, the payment of any
dividend or distribution to the extent necessary to permit direct or
indirect beneficial owners of Capital Stock of Insight Midwest to
pay federal, state or local income tax liabilities that would arise
solely from income of Insight Midwest or any of its Restricted
Subsidiaries, as the case may be, for the relevant taxable period
and attributable to them solely as a result of Insight Midwest (and
any intermediate entity through which the holder owns such Capital
Stock) or any of its Restricted Subsidiaries being a limited
liability company, partnership or similar entity for federal income
tax purposes;
(7) the retirement, redemption or repurchase of our Equity Interests
pursuant to clauses (ii) or (iii) of Section 10.1(b) of the
Partnership Agreement as a result of the occurrence of a Formal
Determination (as defined in the Partnership Agreement) and which
relates to FCC or other regulatory violations described in the
Partnership Agreement; and
(8) other Restricted Payments in an aggregate amount not to exceed $25.0
million.
The amount of all Restricted Payments other than cash shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued to or by us or such Restricted Subsidiary,
as the case may be, pursuant to the Restricted Payment. The fair market value of
any assets or securities that are required to be valued by this covenant will be
determined by the Board of Directors whose resolution with respect thereto shall
be delivered to the trustee. The Board of Directors' determination must be based
upon an opinion or appraisal issued by an accounting, appraisal or investment
banking firm of national standing if the fair market value exceeds $20.0
million. Not later than the date of making any Restricted Payment, we will
deliver to the trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by this "Restricted Payments" covenant were computed, together with a
copy of any fairness opinion or appraisal required by the indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
We will not, and will not permit any of our Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become directly
or indirectly liable, contingently or otherwise, with respect to (collectively,
"incur") any Indebtedness including Acquired Debt, and
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we will not issue any Disqualified Stock and will not permit any of our
Subsidiaries to issue any shares of preferred stock; provided, however, that we
may incur Indebtedness including Acquired Debt or issue Disqualified Stock, and
our Restricted Subsidiaries may incur Indebtedness or issue preferred stock, if
our Debt to Cash Flow Ratio at the time of incurrence of such Indebtedness or
the issuance of such Disqualified Stock or preferred stock, after giving pro
forma effect to such incurrence or issuance as of such date and to the use of
proceeds therefrom as if the same had occurred at the beginning of our most
recently ended fiscal quarter for which internal financial statements are
available, would have been no greater than 8.0 to 1.
This covenant does not prohibit the incurrence of any of the following
items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by us and our Restricted Subsidiaries of additional
Indebtedness and letters of credit under Credit Facilities in an
aggregate principal amount at any one time outstanding under this
clause (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of us and our
Restricted Subsidiaries thereunder) not to exceed $1.225 billion;
(2) the incurrence by us and our Restricted Subsidiaries of the Existing
Indebtedness;
(3) the incurrence by us of Indebtedness represented by the initial
notes and the exchange notes;
(4) the incurrence by us or any of our Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for
the purpose of financing all or any part of the purchase price or
cost of construction or improvement of property, plant or equipment
used in our business or such Restricted Subsidiary's business, in an
aggregate principal amount, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause, not to exceed $25.0
million at any time outstanding;
(5) the incurrence by us or any of our Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace
Indebtedness other than intercompany Indebtedness that was permitted
by the indenture to be incurred under the first paragraph of this
covenant or clauses (2), (3) or (4) of this paragraph;
(6) the incurrence by us or any of our Restricted Subsidiaries of
intercompany Indebtedness between or among us and any of our
Restricted Subsidiaries; provided, however, that:
(a) if Insight Midwest or Insight Capital is the obligor on such
Indebtedness, such Indebtedness must be expressly subordinated
to the prior payment in full in cash of all Obligations with
respect to the notes, and
(b) (i) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person
other than us or one of our
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Restricted Subsidiaries and (ii) any sale or other transfer of
any such Indebtedness to a Person that is not either us or one
of our Restricted Subsidiaries will be deemed, in each case,
to constitute an incurrence of such Indebtedness by us or such
Restricted Subsidiary, as the case may be, that was not
permitted by this clause (6);
(7) the incurrence by us or any of our Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of the indenture to be outstanding;
(8) the incurrence by us or any Restricted Subsidiary of additional
Indebtedness in an aggregate principal amount at any time
outstanding not to exceed 200% of the net cash proceeds received by
Insight Midwest from the sale of its Equity Interests other than
Disqualified Stock after the date of the indenture to the extent
such net cash proceeds have not been applied to make Restricted
Payments or to effect other transactions pursuant to the covenant
described above under the caption "-Restricted Payments" or to make
Permitted Investments pursuant to clause (6) of the definition of
Permitted Investments;
(9) the guarantee by us of Indebtedness of us or one of our Restricted
Subsidiaries that was permitted to be incurred by another provision
of this covenant;
(10) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the
form of additional Indebtedness with the same terms, and the payment
of dividends on Disqualified Stock in the form of additional shares
of the same class of Disqualified Stock will not be deemed to be an
incurrence of Indebtedness or an issuance of Disqualified Stock for
purposes of this covenant;
(11) the incurrence by us or any of our Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount, or
accreted value, as applicable, at any time outstanding, including
all Permitted Refinancing Indebtedness incurred to refund, refinance
or replace any Indebtedness incurred pursuant to this clause, not to
exceed $50.0 million;
(12) the incurrence by us or any Restricted Subsidiary of Indebtedness
represented by notes issued to Affiliates in respect of, and amounts
equal to, advances made by such Affiliates to enable us or any
Restricted Subsidiary to make payments in connection with the notes
or the Amended Kentucky Credit Facility; and
(13) the incurrence by our Unrestricted Subsidiaries of Non-Recourse
Debt, provided, however, that if any such Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, that event will be
deemed to constitute an incurrence of Indebtedness by one of our
Restricted Subsidiaries that was not permitted by this clause.
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We will not, and will not permit any of our Restricted Subsidiaries to,
incur any Indebtedness, including Permitted Debt, that is contractually
subordinated in right of payment to any other Indebtedness of us or such
Restricted Subsidiary, as applicable, unless such Indebtedness is also
contractually subordinated in right of payment to the notes on substantially
identical terms; provided, however, that no Indebtedness of us or a Restricted
Subsidiary shall be deemed to be contractually subordinated in right of payment
to any other Indebtedness of us or such Restricted Subsidiary solely by virtue
of being unsecured.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described above, or is entitled to be incurred
pursuant to the first paragraph of this covenant, we will be permitted to
classify such item of Indebtedness on the date of its incurrence or later
reclassify all or a portion of such item of Indebtedness, in any manner that
complies with this covenant. Indebtedness under Credit Facilities outstanding on
the date on which notes are first issued and authenticated under the indenture
shall be deemed to have been incurred on such date in reliance on the exception
provided by clause (1) of the definition of Permitted Debt.
Sale and Leaseback Transactions
We will not, and will not permit any of our Restricted Subsidiaries to,
enter into any sale and leaseback transaction. However, we or any Restricted
Subsidiary may enter into a sale and leaseback transaction if:
(1) we or that Restricted Subsidiary, as applicable, could have (a)
incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction under the Debt to
Cash Flow Ratio test in the first paragraph of the covenant
described above under the caption "-Incurrence of Indebtedness and
Issuance of Preferred Stock" and (b) created a Lien on such property
securing Attributable Debt pursuant to the covenant described below
under the caption "-Liens;"
(2) the net cash proceeds of that sale and leaseback transaction are at
least equal to the fair market value, as determined in good faith by
the Board of Directors and set forth in an Officers' Certificate
delivered to the trustee, of the property that is the subject of
that sale and leaseback transaction; and
(3) the transfer of assets in that sale and leaseback transaction is
permitted by, and we or that Restricted Subsidiary applies the
proceeds of such transaction in compliance with, the covenant
described above under the caption "-Repurchase at the Option of
holders-Asset Sales."
Liens
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien of any
kind on any asset now owned or hereafter acquired, except Permitted Liens.
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Dividend and Other Payment Restrictions Affecting Subsidiaries
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Equity
Interests to us or any of our Restricted Subsidiaries, or with
respect to any other interest or participation in, or measured by,
its profits, or pay any indebtedness owed to us or any of our
Restricted Subsidiaries;
(2) make loans or advances or guarantee any such loans or advances to us
or any of our Restricted Subsidiaries; or
(3) transfer any of its properties or assets to us or any of our
Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the date of the indenture and
any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof,
provided that such amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacement or
refinancings are no more restrictive, taken as a whole, with respect
to such dividend and other payment restrictions than those contained
in such Existing Indebtedness, as in effect on the date of the
indenture;
(2) the indenture and the notes;
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by us or any of our Restricted Subsidiaries as in effect at
the time of such acquisition, except to the extent such Indebtedness
or Capital Stock was incurred in connection with or in contemplation
of such acquisition, which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so
acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the indenture to be
incurred;
(5) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(6) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so
acquired of the nature described in clause (3) of the preceding
paragraph;
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(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted
Subsidiary pending its sale or other disposition;
(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being
refinanced;
(9) Liens securing Indebtedness that limit the right of the debtor to
dispose of the assets subject to such Lien;
(10) provisions with respect to the disposition or distribution of assets
or property in joint venture agreements, asset sale agreements,
stock sale agreements and other similar agreements entered into in
the ordinary course of business;
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business;
(12) restrictions contained in the terms of Indebtedness permitted to be
incurred under the covenant described under the caption "-Incurrence
of Indebtedness and Issuance of Preferred Stock;" provided that such
restrictions are no more restrictive than the terms contained in the
Amended Kentucky Credit Facility and the Amended Indiana Credit
Facility; and
(13) restrictions that are not materially more restrictive than customary
provisions in comparable financings and our the management
determines that such restrictions will not materially impair our
ability to make payments as required under the notes.
Merger, Consolidation or Sale of Assets
Neither of us may directly or indirectly: (1) consolidate or merge with or
into another Person; or (2) sell, assign, transfer, convey or otherwise dispose
of all or substantially all of the properties or assets of us and our Restricted
Subsidiaries taken as a whole, in one or more related transactions, to another
Person; unless:
(1) either: (a) we shall the surviving corporation; or (b) the Person
formed by or surviving any such consolidation or merger, if other
than us, or to which such sale, assignment, transfer, conveyance or
other disposition shall have been made is a corporation, limited
liability company or limited partnership organized or existing under
the laws of the United States, any state thereof or the District of
Columbia;
(2) the Person formed by or surviving any such consolidation or merger,
if other than us, or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made
assumes all our obligations under the notes, the indenture and the
registration rights agreement pursuant to agreements reasonably
satisfactory to the trustee;
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(3) immediately after such transaction no Default or Event of Default
exists; and
(4) we or the Person formed by or surviving any such consolidation or
merger, if other than us, or to which such sale, assignment,
transfer, conveyance or other disposition shall have been made will,
on the date of such transaction after giving pro forma effect
thereto and any related financing transactions as if the same had
occurred at the beginning of the applicable fiscal quarter, be
permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt to Cash Flow Ratio test set forth in the first
paragraph of the covenant described above under the caption
"-Incurrence of Indebtedness and Issuance of Preferred Stock."
In addition, we may not, directly or indirectly, lease all or
substantially all of our properties or assets, in one or more related
transactions, to any other Person. This "Merger, Consolidation or Sale of
Assets" covenant will not apply to a sale, assignment, transfer, conveyance or
other disposition of assets between or among us and any of the Restricted
Subsidiaries.
Transactions with Affiliates
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly, make any payment to, or sell, lease, transfer, exchange
or otherwise dispose of any of their properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction or
series of transactions, contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any of our Affiliates, officers or
directors (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to
us or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by us or such Restricted
Subsidiary with an unrelated Person, as determined by the Board of
Directors and evidenced by a resolution of the Board of Directors;
and
(2) we deliver to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in
excess of $10.0 million, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying
that such Affiliate Transaction complies with this covenant
and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of
Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in
excess of $20.0 million, an opinion as to the fairness to the
holders of such Affiliate Transaction from a financial point
of view issued by an accounting, appraisal or investment
banking firm of national standing; provided, however, that
this clause (b) shall not apply to any transaction between or
among Insight Midwest, Insight Communications, AT&T and their
respective Subsidiaries.
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The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by us or any of our Restricted
Subsidiaries in the ordinary course of business and consistent with
our past practice or that of such Restricted Subsidiary;
(2) transactions between or among us or our Restricted Subsidiaries;
(3) transactions with a Person that is our Affiliate solely because we
own an Equity Interest in such Person;
(4) payment of reasonable directors fees to Persons who are not
otherwise our Affiliates;
(5) sales of Equity Interests other than Disqualified Stock to our
Affiliates;
(6) Restricted Payments that are permitted by the provisions of the
indenture described above under the caption "-Restricted Payments;"
(7) payment of management fees to Insight Communications Company, L.P.
pursuant to the Management Agreements;
(8) any transactions or arrangements entered into, or payments made,
pursuant to the terms of the Amended Kentucky Credit Facility or the
Amended Indiana Credit Facility;
(9) Permitted Investments;
(10) any transactions or arrangements in existence on the date of the
Indenture; and
(11) any arrangement with affiliates of Source Media for the distribution
of cable television services or programming.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate
fair market value of all outstanding Investments owned by us and our Restricted
Subsidiaries in the Subsidiary so designated will be deemed to be an Investment
made as of the time of such designation and will either reduce the amount
available for Restricted Payments under the first paragraph of the covenant
described above under the caption "-Restricted Payments" or reduce the amount
available for future Investments under one or more clauses of the definition of
Permitted Investments, as we shall determine. That designation will only be
permitted if such Investment would be permitted at that time and if such
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary
to be a Restricted Subsidiary if the redesignation would not cause a Default.
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Reports
Whether or not required by the Commission, so long as any notes are
outstanding, we will furnish to the holders of notes, within the time periods
specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms
10-Q and 10-K if we were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and, with respect to the annual information
only, a report on the annual financial statements by our certified
independent accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if we were required to file such reports.
In addition, following the completion of this exchange offer, whether or
not required by the Commission, we will file a copy of all of the information
and reports referred to in clauses (1) and (2) above with the Commission for
public availability within the time periods specified in the Commission's rules
and regulations, unless the Commission will not accept such a filing, and make
such information available to securities analysts and prospective investors upon
request. In addition, we have agreed that, for so long as any notes remain
outstanding, we will furnish to the holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
If we have designated any of our Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph shall include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereto, and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of us and our
Restricted Subsidiaries separate from the financial condition and results of
operations of our Unrestricted Subsidiaries.
Restrictions on Activities of Insight Capital
Insight Capital will not hold any material assets, become liable for any
material obligations, other than the notes, or engage in any significant
business activities; provided that Insight Capital may be a co-obligor with
respect to Indebtedness if Insight Midwest is a primary obligor of such
Indebtedness and the net proceeds of such Indebtedness are received by Insight
Midwest or one or more of Insight Midwest's Restricted Subsidiaries other than
Insight Capital.
Payments for Consent
We will not, and will not permit any of our Subsidiaries to, directly or
indirectly, pay or cause to be paid any consideration to or for the benefit of
any holder of notes for or as an inducement to any consent, waiver or amendment
of any of the terms or provisions of the Indenture or the notes unless such
consideration is offered to be paid and is paid to all holders of
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the notes that consent, waive or agree to amend in the time frame set forth in
the solicitation documents relating to such consent, waiver or agreement.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the notes;
(2) default in payment when due of the principal of, or premium, if any,
on the notes;
(3) failure by us or any of our Restricted Subsidiaries to comply with
the provisions described under the captions "-Repurchase at the
Option of holders" or "-Certain Covenants-Merger, Consolidation or
Sale of Assets;"
(4) failure by us or any of our Restricted Subsidiaries for 30 days
after written notice thereof has been given to us by the trustee or
to us and the trustee by the holders of at least 25% of the
aggregate principal amount of the notes outstanding to comply with
any of their other covenants or agreements in the indenture;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by us or any of our Restricted
Subsidiaries, or the payment of which is guaranteed by us or any of
our Restricted Subsidiaries, whether such Indebtedness or guarantee
was created before or after the date of the indenture, if that
default:
(a) is caused by a failure to pay principal of, or interest or
premium, if any, on such Indebtedness prior to the expiration
of the grace period provided in such Indebtedness on the date
of such default (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity, and, in each case, the principal amount of
any such Indebtedness, together with the principal amount of
any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so
accelerated, aggregates $25.0 million or more;
(6) failure by us or any of our Restricted Subsidiaries to pay final
judgments which are non-appealable aggregating in excess of $25.0
million, net of applicable insurance which has not been denied in
writing by the insurer, which judgments are not paid, discharged or
stayed for a period of 60 days; and
(7) certain events of bankruptcy or insolvency described in the
indenture with respect to us or any of our Restricted Subsidiaries.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to us, any Subsidiary that is a
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding notes will become due
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and payable immediately without further action or notice. If any other Event of
Default occurs and is continuing, the trustee or the holders of at least 25% in
principal amount of the then outstanding notes may declare all the notes to be
due and payable immediately.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding notes may direct the trustee in its
exercise of any trust or power. The trustee may withhold from holders of the
notes notice of any continuing Default or Event of Default if it determines that
withholding notice is in their interest, except a Default or Event of Default
relating to the payment of principal or interest.
The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except (1) a continuing Default or Event of Default in the payment
of interest or Liquidated Damages on, or the principal of, the notes or (2) in
respect of a covenant or provision which under the indenture cannot be modified
or amended without the consent of the holder of each note affected by such
modification or amendment.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by us or on our behalf with the intention
of avoiding payment of the premium that we would have had to pay if we then had
elected to redeem the notes pursuant to the optional redemption provisions of
the indenture, an equivalent premium will also become and be immediately due and
payable to the extent permitted by law upon the acceleration of the notes. If an
Event of Default occurs prior to October 1, 2004, by reason of any willful
action or inaction taken or not taken by us or on our behalf with the intention
of avoiding the prohibition on redemption of the notes prior to October 1, 2004,
then the premium specified in the indenture will also become immediately due and
payable to the extent permitted by law upon the acceleration of the notes.
We are required to deliver to the trustee within 90 days after the end of
each fiscal year a statement regarding compliance with the indenture. Upon
becoming aware of any Default or Event of Default, we are required to deliver to
the trustee a statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of us, as
such, shall have any liability for any of our obligations under the notes, the
indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of notes by accepting a note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. The waiver may not be effective to
waive liabilities under the federal securities laws.
Legal Defeasance and Covenant Defeasance
We may, at our option and at any time, elect to have all of their
obligations discharged with respect to the outstanding notes ("Legal
Defeasance") except for:
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(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, or interest or premium and Liquidated
Damages, if any, on such notes when such payments are due from the
trust referred to below;
(2) our obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost
or stolen notes and the maintenance of an office or agency for
payment and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee,
and our obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, we may, at our option and at any time, elect to have our
obligations released with respect to certain covenants that are described in the
indenture ("Covenant Defeasance") and thereafter any omission to comply with
those covenants shall not constitute a Default or Event of Default with respect
to the notes. In the event Covenant Defeasance occurs, certain events, not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events, described under "Events of Default" will no longer constitute an Event
of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) we must irrevocably deposit with the trustee, in trust, for the
benefit of the holders of the notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in
such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the
principal of, or interest and premium and Liquidated Damages, if
any, on the outstanding notes on the stated maturity or on the
applicable redemption date, as the case may be, and we must specify
whether the notes are being defeased to maturity or to a particular
redemption date;
(2) in the case of Legal Defeasance, we shall have delivered to the
trustee an Opinion of Counsel reasonably acceptable to the trustee
confirming that (a) we have received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the
date of the indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the holders of
the outstanding notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, we shall have delivered to the
trustee an Opinion of Counsel reasonably acceptable to the trustee
confirming that the holders of the outstanding notes will not
recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had
not occurred;
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(4) no Default or Event of Default shall have occurred and be continuing
either: (a) on the date of such deposit, other than a Default or
Event of Default resulting from the borrowing of funds to be applied
to such deposit; or (b) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument other than the indenture to which we or any
of our Subsidiaries is a party or by which we or any of our
Subsidiaries are bound;
(6) we must have delivered to the trustee an Opinion of Counsel to the
effect that, assuming no intervening bankruptcy of us between the
date of deposit and the 91st day following the deposit and assuming
that no holder is an "insider" of us under applicable bankruptcy
law, after the 91st day following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors'
rights generally;
(7) we must deliver to the trustee an Officers' Certificate stating that
the deposit was not made by us with the intent of preferring the
holders of notes over our other creditors with the intent of
defeating, hindering, delaying or defrauding our creditors or
others; and
(8) we must deliver to the trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent
relating to the Legal Defeasance or the Covenant Defeasance have
been complied with.
Amendment, Supplement and Waiver
Except as provided in the next three succeeding paragraphs, the indenture
or the notes may be amended or supplemented with the consent of the holders of
at least a majority in principal amount of the notes then outstanding,
including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, notes, and any existing default or
compliance with any provision of the indenture or the notes may be waived with
the consent of the holders of a majority in principal amount of the then
outstanding notes, including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, notes.
Without the consent of each holder affected, an amendment or waiver may
not, with respect to any notes held by a non-consenting holder:
(1) reduce the principal amount of notes whose holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes,
other than provisions relating to the covenants described above
under the caption "-Repurchase at the Option of holders";
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(3) reduce the rate of or change the time for payment of interest on any
note;
(4) waive a Default or Event of Default in the payment of principal of,
or interest or premium, or Liquidated Damages, if any, on the notes,
except a rescission of acceleration of the notes by the holders of
at least a majority in aggregate principal amount of the notes and a
waiver of the payment default that resulted from such acceleration;
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of holders of notes to
receive payments of principal of, or interest or premium or
Liquidated Damages, if any, on the notes;
(7) waive a redemption payment with respect to any note, other than a
payment required by one of the covenants described above under the
caption "-Repurchase at the Option of holders"; or
(8) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any holder of notes,
we and the trustee may amend or supplement the indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of our obligations to holders of notes
in the case of a merger or consolidation or sale of all or
substantially all our assets;
(4) to make any change that would provide any additional rights or
benefits to the holders of notes or that does not adversely affect
the legal rights under the indenture of any such holder; or
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust
Indenture Act.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect as
to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated, except lost, stolen or
destroyed notes that have been replaced or paid and notes for
whose payment money has theretofore been deposited in trust
and thereafter repaid to us, have been delivered to the
trustee for cancellation; or
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(b) all notes that have not been delivered to the trustee for
cancellation have become due and payable by reason of the
making of a notice of redemption or otherwise or will become
due and payable within one year and we have irrevocably
deposited or caused to be deposited with the trustee as trust
funds in trust solely for the benefit of the holders, cash in
U.S. dollars, non- callable Government Securities, or a
combination thereof, in such amounts as will be sufficient
without consideration of any reinvestment of interest, to pay
and discharge the entire indebtedness on the notes not
delivered to the trustee for cancellation for principal,
premium and Liquidated Damages, if any, and accrued interest
to the date of maturity or redemption;
(2) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit or shall occur as a result of such
deposit and such deposit will not result in a breach or violation
of, or constitute a default under, any other instrument to which
either of us is a party or by which either of us is bound;
(3) we have paid or caused to be paid all sums payable by us under the
indenture; and
(4) we have delivered irrevocable instructions to the trustee under the
indenture to apply the deposited money toward the payment of the
notes at maturity or the redemption date, as the case may be.
In addition, we must deliver an Officers' Certificate and an Opinion of
Counsel to the trustee stating that all conditions precedent to satisfaction and
discharge have been satisfied.
Concerning the Trustee
If the trustee becomes a creditor of us, the indenture limits its right to
obtain payment of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise. The trustee will
be permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding
notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur and be continuing, the trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
holder of notes, unless such holder shall have offered to the trustee security
and indemnity satisfactory to it against any loss, liability or expense.
Additional Information
Anyone who receives this prospectus may obtain a copy of the indenture
without charge by writing to Insight Midwest, L.P., c/o Insight Communications
Company, Inc., 126 East 56th Street, New York, NY 10022, Attention: Ms. Colleen
Quinn.
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Certain Definitions
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such
specified Person, whether or not such Indebtedness is incurred in
connection with, or in contemplation of, such other Person merging
with or into, or becoming a Subsidiary of, such specified Person;
and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of more than 10% of
the Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
"Amended Indiana Credit Facility" means that certain credit agreement,
dated as of October 31, 1998, by and among Insight Communications of Indiana,
LLC, The Bank of New York, as administrative agent, and the other lenders party
thereto, as amended by Amendment No. 1 dated as of September 24, 1999, and as
the same may hereafter be further amended, modified, supplemented or renewed in
accordance with its terms and all other loan documents, including the security
agreement, delivered pursuant thereto.
"Amended Kentucky Credit Facility" means the Amended and Restated
Revolving Credit and Term Loan Agreement dated as of October 1, 1999 among
Insight Kentucky Partners I, L.P. (f/k/a InterMedia Partners VI, L.P.), Toronto
Dominion (Texas), Inc., as administrative agent, and the other lenders party
thereto.
"Asset Acquisition" means (a) an Investment by us or any Restricted
Subsidiary in any other Person pursuant to which such Person shall become a
Restricted Subsidiary or shall be consolidated or merged with or into us or any
Restricted Subsidiary, or (b) any acquisition by us or any Restricted Subsidiary
of the assets of any Person that constitute substantially all of an operating
unit, a division or line of business of such Person or that is otherwise outside
of the ordinary course of business.
"Asset Sale" means:
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(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of inventory in the ordinary course of
business; provided that the sale, conveyance or other disposition of
all or substantially all of the assets of us and our Subsidiaries
taken as a whole will be governed by the provisions of the indenture
described above under the caption "-Repurchase at the Option of
holders-Change of Control" and/or the provisions described above
under the caption "-Certain Covenants-Merger, Consolidation or Sale
of Assets" and not by the provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests in any of our Restricted
Subsidiaries or the sale of Equity Interests in any of our
Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to
be Asset Sales:
(1) any single transaction or series of related transactions that
involves assets having a fair market value, as determined by the
Board of Directors and evidenced by a resolution of the Board of
Directors, of less than $5.0 million;
(2) a transfer of assets between or among us and our Wholly Owned
Restricted Subsidiaries,
(3) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to us or to another Wholly Owned Restricted Subsidiary;
(4) the sale or lease of equipment, inventory, accounts receivable or
other assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents;
(6) a Restricted Payment or Permitted Investment that is permitted by
the covenant described above under the caption "-Certain
Covenants-Restricted Payments;" and
(7) the incurrence of Permitted Liens and the disposition of assets
related to such Permitted Liens by the secured party pursuant to a
foreclosure.
"Asset Swap" means an exchange of assets by us or one of our Restricted
Subsidiaries for:
(1) one or more Permitted Businesses;
(2) a controlling equity interest in any Person whose assets consist
primarily of one or more Permitted Businesses; and/or
(3) long-term assets that are used in a Permitted Business in a
like-kind exchange pursuant to Section 1031 of the Internal Revenue
Code or any similar or successor provision of the Internal Revenue
Code.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the
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remaining term of the lease included in such sale and leaseback transaction
including any period for which such lease has been extended or may, at the
option of the lessor, be extended. Such present value shall be calculated using
a discount rate equal to the rate of interest implicit in such transaction,
determined in accordance with GAAP.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person," as that term is used in Section 13(d)(3)
of the Exchange Act, such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" shall have a corresponding meaning.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the
corporation;
(2) with respect to a partnership, the board of directors of the general
partner of the partnership;
(3) with respect to Insight Midwest at our option, the board of
directors of Insight Communications or the Advisory Committee of
Insight Midwest; and
(4) with respect to any other Person, the board or committee of such
Person serving a similar function.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents,
however designated, of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests, whether general or limited; and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"Capital Stock Sale Proceeds" means the aggregate net cash proceeds,
including the fair market value of the non-cash proceeds, as determined by an
independent appraisal firm, received by Insight Midwest after the date of the
indenture:
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(1) as a contribution to the common equity capital or from the issue or
sale of Equity Interests of Insight Midwest other than Disqualified
Stock; or
(2) from the issue or sale of convertible or exchangeable Disqualified
Stock or convertible or exchangeable debt securities of Insight
Midwest that have been converted into or exchanged for such Equity
Interests, other than Equity Interests or Disqualified Stock or debt
securities sold to a Subsidiary of Insight Midwest.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof,
provided that the full faith and credit of the United States is
pledged in support thereof, having maturities of not more than one
year from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities
of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding one year and overnight
bank deposits, in each case, with any lender party to the Credit
Agreement or with any domestic commercial bank having capital and
surplus in excess of $500.0 million and a Thomson Bank Watch Rating
of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3)
above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Rating Services and in
each case maturing within one year after the date of acquisition;
and
(6) money market funds having assets in excess of $100.0 million, at
least 90% of the assets of which constitute Cash Equivalents of the
kinds described in clauses (1) through (5) of this definition.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other
disposition, other than by way of merger or consolidation, in one or
a series of related transactions, of all or substantially all of the
properties or assets of us and our Restricted Subsidiaries, taken as
a whole, to any "person" (as that term is used in Section 13(d)(3)
of the Exchange Act) other than a Principal or a Permitted Holder
and its Related Parties;
(2) the adoption of a plan relating to the liquidation or dissolution of
Insight Midwest;
(3) the consummation of any transaction, including, without limitation,
any merger or consolidation, the result of which is that any
"person" (as defined above), other
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than the Principals and/or one or more of the Permitted Holders and
their Related Parties, becomes the Beneficial Owner, directly or
indirectly, of more than 50% of the Voting Stock of Insight Midwest,
measured by voting power rather than number of shares;
(4) the consummation of any transaction, including, without limitation,
any merger or consolidation, the result of which is that any
"person" (as defined above) other than a Permitted Holder and its
Related Parties, becomes the Beneficial Owner, directly or
indirectly, of more than 50% of the Voting Stock of Insight
Communications, measured by voting power rather than number of
shares;
(5) during any consecutive two-year period, the first day on which
individuals who constituted the Board of Directors of Insight
Communications as of the beginning of such two-year period, together
with any new directors who were nominated for election or elected to
such Board of Directors with the approval of a majority of the
individuals who were members of such Board of Directors, or whose
nomination or election was previously so approved at the beginning
of such two-year period, cease to constitute a majority of the Board
of Directors of Insight Communications; or
(6) Insight Communications consolidates with, or merges with or into,
any Person, or any Person consolidates with, or merges with or into,
Insight Communications, in any such event pursuant to a transaction
in which any of the outstanding Voting Stock of Insight
Communications or such other Person is converted into or exchanged
for cash, securities or other property, other than any such
transaction where the Voting Stock of Insight Communications
outstanding immediately prior to such transaction is converted into
or exchanged for Voting Stock other than Disqualified Stock of the
surviving or transferee Person constituting a majority of the
outstanding shares of such Voting Stock of such surviving or
transferee Person immediately after giving effect to such issuance.
"Common Stock" of any Person means all Capital Stock of such Person that
is generally: entitled to (1) vote in the election of directors of such Person
or (2) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management and policies of such Person.
"Consolidated Cash Flow" means, with respect to any specified Person for
any period, the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to any extraordinary loss plus any net loss realized
by such Person or any of its Restricted Subsidiaries in connection
with an Asset Sale, to the extent such losses were deducted in
computing such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and
its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net
Income; plus
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(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or
not capitalized, including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest
payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance
financings, and net of the effect of all payments made or received
pursuant to Hedging Obligations, to the extent that any such expense
was deducted in computing such Consolidated Net Income; plus
(4) depreciation, amortization, including amortization of goodwill and
other intangibles, and other non-cash expenses, excluding any such
non-cash expense to the extent that it represents an accrual of or
reserve for cash expenses in any future period, of such Person and
its Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted
in computing such Consolidated Net Income; minus
(5) non-cash items increasing such Consolidated Net Income, including
the partial or entire reversal of reserves taken in prior periods,
for such period, other than the accrual of revenue in the ordinary
course of business, in each case, on a consolidated basis and
determined in accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges of,
one of our Restricted Subsidiaries shall be added to Consolidated Net Income to
compute our Consolidated Cash Flow only to the extent that a corresponding
amount would be permitted at the date of determination to be dividend to us by
such Restricted Subsidiary without prior approval that has not been obtained,
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its stockholders.
"Consolidated Indebtedness" means, with respect to any Person as of any
date of determination, the sum, without duplication, of (a) the total amount of
Indebtedness of such Person and its Restricted Subsidiaries, plus (b) the total
amount of Indebtedness of any other Person, to the extent that such Indebtedness
has been Guaranteed by the referent Person or one or more of its Restricted
Subsidiaries, plus (c) the aggregate liquidation value of all Disqualified Stock
of such Person and all preferred stock of Restricted Subsidiaries of such
Person, in each case, determined on a consolidated basis in accordance with
GAAP.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication, the sum of (a) the consolidated interest expense of
such Person and its Restricted Subsidiaries for such period, whether paid or
accrued, including, without limitation, amortization of original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, all calculated after taking into
account the effect of all Hedging Obligations, (b) the consolidated interest
expense of such Person and its Restricted Subsidiaries that was capitalized
during such
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period, (c) any interest expense on Indebtedness of another Person that is
guaranteed by such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or one of its Restricted Subsidiaries, whether or
not such Guarantee or Lien is called upon, and (d) the product of (A) all
dividend payments on any series of preferred stock of such Person or any of its
Restricted Subsidiaries, times (B) a fraction, the numerator of which is one and
the denominator of which is one minus the then current combined federal, state
and local statutory tax rate of such Person, expressed as a decimal, in each
case, on a consolidated basis and in accordance with GAAP.
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income, but not loss, of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the specified Person or a
Wholly Owned Restricted Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is
not at the date of determination permitted without any prior
governmental approval that has not been obtained or, directly or
indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary or its
stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition
shall be excluded;
(4) the cumulative effect of a change in accounting principles shall be
excluded; and
(5) the Net Income, but not loss, of any Unrestricted Subsidiary shall
be excluded, whether or not distributed to the specified Person or
one of its Subsidiaries, except for purposes of the covenants
described under the caption "Certain Covenants Restricted Payments"
and "Incurrence of Indebtedness and Issuance of Preferred Stock" in
which case the Net Income of any Unrestricted Subsidiary will be
included to the extent it would otherwise be included under clause
(1) of this definition above.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of us who:
(1) was a member of such Board of Directors on the date of the
indenture; or
(2) was nominated for election or elected to such Board of Directors
with the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election.
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"Credit Facilities" means, one or more debt facilities, including, without
limitation, the Amended Kentucky Credit Facility and the Amended Indiana Credit
Facility, or commercial paper facilities, in each case with banks or other
institutional lenders providing for revolving credit loans, term loans,
receivables financing, including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables, or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
"Debt to Cash Flow Ratio" means, as of any date of determination (the
"Determination Date"), the ratio of (a) our Consolidated Indebtedness as of such
Determination Date to (b) four times our Consolidated Cash Flow for the most
recent full fiscal quarter ending immediately prior to such Determination Date
for which internal financial statements are available (the "Measurement
Period"), determined on a pro forma basis after giving effect to all
acquisitions or dispositions of assets made by us and our Subsidiaries from the
beginning of such quarter through and including such Determination Date,
including any related financing transactions, as if such acquisitions and
dispositions had occurred at the beginning of such quarter. For purposes of
calculating Consolidated Cash Flow for the Measurement Period immediately prior
to the relevant Determination Date, (a) any Person that is a Restricted
Subsidiary on the Determination Date, or would become a Restricted Subsidiary on
such Determination Date in connection with the transaction that requires the
determination of such Consolidated Cash Flow, will be deemed to have been a
Restricted Subsidiary at all times during the Measurement Period; (b) any Person
that is not a Restricted Subsidiary on such Determination Date, or would cease
to be a Restricted Subsidiary on such Determination Date in connection with the
transaction that requires the determination of such Consolidated Cash Flow, will
be deemed not to have been a Restricted Subsidiary at any time during such
Measurement Period; and (c) if we or any Restricted Subsidiary shall have in any
manner (x) acquired, including through an Asset Acquisition or the commencement
of activities constituting such operating business, or (y) disposed of,
including by way of an Asset Sale or the termination or discontinuance of
activities constituting such operating business, any operating business during
such Measurement Period or after the end of such period and on or prior to such
Determination Date, such calculation will be made on a pro forma basis in
accordance with generally accepted accounting principles consistently applied,
as if, in the case of an Asset Acquisition or the commencement of activities
constituting such operating business, all such transactions had been consummated
on the first day of such Measurement Period, and, in the case of an Asset Sale
or termination or discontinuance of activities constituting such operating
business, all such transactions had been consummated prior to the first day of
such Measurement Period.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof, or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the notes mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require us to repurchase such Capital Stock
upon the occurrence of a change of control or an asset sale shall not constitute
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Disqualified Stock if the terms of such Capital Stock provide that we may not
repurchase or redeem any such Capital Stock pursuant to such provisions unless
such repurchase or redemption complies with the covenant described above under
the caption "-Certain Covenants-Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock, but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock.
"Equity Offering" means an offering by a Person of its shares of Equity
Interests other than Disqualified Stock however designated and whether voting or
non-voting, and any and all rights, warrants or options to acquire such Equity
Interests other than Disqualified Stock.
"Existing Indebtedness" means up to $10.0 million in aggregate principal
amount of Indebtedness of us and our Subsidiaries, other than Indebtedness under
the Amended Kentucky Credit Facility and the Amended Indiana Credit Facility, in
existence on the date of the indenture, until such amounts are repaid.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the indenture.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit or reimbursement agreements in respect thereof;
(3) banker's acceptances;
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(4) representing Capital Lease Obligations of such Person and all
Attributable Debt in respect of sale and leaseback transactions
entered into by such Person;
(5) the balance deferred and unpaid of the purchase price of any
property, except any such balance that constitutes an accrued
expense or trade payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items, other than letters of credit
and Hedging Obligations, would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person, whether or not such Indebtedness is assumed by
the specified Person, and, to the extent not otherwise included, the Guarantee
by the specified Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
(2) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other
Indebtedness.
"Insight Communications" means Insight Communications Company, Inc.
"Insight Midwest" means Insight Midwest, L.P.
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons, including Affiliates, in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP and include the
designation of a Restricted Subsidiary as an Unrestricted Subsidiary. If we or
any of our Restricted Subsidiaries sells or otherwise disposes of any Equity
Interests of any of our direct or indirect Restricted Subsidiaries such that,
after giving effect to any such sale or disposition, such Person is no longer
our Subsidiary, we shall be deemed to have made an Investment on the date of any
such sale or disposition equal to the fair market value of the Equity Interests
of such Subsidiary not sold or disposed of in an amount determined as provided
in the final paragraph of the covenant described above under the caption
"-Certain Covenants-Restricted Payments." The acquisition by us or any of our
Restricted Subsidiaries of a Person that holds an Investment in a third Person
shall be deemed to be an Investment by us or such Restricted Subsidiary in such
third Person in an amount equal to the fair market value of the Investment held
by the acquired Person in such third Person in an amount determined as provided
in the final paragraph of the covenant described above under the caption
"-Certain Covenants-Restricted Payments."
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"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest, hypothecation, assignment for security or encumbrance
of any kind in respect of such asset, whether or not filed, recorded or
otherwise perfected under applicable law, including any conditional sale or
capital lease or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code or equivalent statutes of any jurisdiction.
"Management Agreements" means the management agreements between Insight
Communications Company, L.P. and each of Insight Indiana and Insight Kentucky as
each is in effect on the date of the indenture.
"Net Income" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however:
(1) any gain, but not loss, together with any related provision for
taxes on such gain, but not loss, realized in connection with: (a)
any Asset Sale; or (b) the disposition of any securities by such
Person or any of its Restricted Subsidiaries or the extinguishment
of any Indebtedness of such Person or any of its Restricted
Subsidiaries; and
(2) any extraordinary gain, but not loss, together with any related
provision for taxes on such extraordinary gain, but not loss.
"Net Proceeds" means the aggregate cash proceeds received by us or any of
our Restricted Subsidiaries in respect of any Asset Sale, including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale, net of:
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all Federal, state, provincial,
foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Sale;
(2) all payments made on any indebtedness which is secured by any assets
subject to such Asset Sale, in accordance with the terms of any Lien
upon or other security arrangement of any kind with respect to such
assets, or which must by its terms, or in order to obtain a
necessary consent to such Asset Sale, or by applicable law, be
repaid out of the proceeds from such Asset Sale;
(3) all distributions and other payments required to be made to minority
interest holders in Restricted Subsidiaries or joint ventures as a
result of such Asset Sale; and
(4) the deduction of appropriate amounts to be provided by the seller as
a reserve, in accordance with GAAP, against any liabilities
associated with the assets disposed of in such Asset Sale and
retained by us or any Restricted Subsidiary after such Asset Sale.
"Non-Recourse Debt" means Indebtedness:
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(1) as to which neither we nor any of our Restricted Subsidiaries (a)
provides credit support of any kind, including any undertaking,
agreement or instrument that would constitute Indebtedness, (b) is
directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender;
(2) no default with respect to which, including any rights that the
holders thereof may have to take enforcement action against an
Unrestricted Subsidiary, would permit upon notice, lapse of time or
both any holder of any other Indebtedness, other than the notes, of
us or any of our Restricted Subsidiaries to declare a default on
such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of us or any of our
Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Partnership Agreement" means the limited partnership agreement of Insight
Midwest, L.P., dated October 1, 1999.
"Permitted Business" means a cable television, media and communications,
entertainment, telecommunications or data transmission business, businesses
ancillary, complementary or reasonably related thereto and reasonable extensions
thereof.
"Permitted Holders" means Sidney R. Knafel, Michael S. Willner and Kim D.
Kelly.
"Permitted Investments" means:
(1) any Investment in us or in one of our Restricted Subsidiaries;
(2) any Investment in Cash Equivalents;
(3) any Investment by us or any of our Subsidiaries in a Person, if as a
result of such Investment:
(a) such Person becomes a Restricted Subsidiary of one of us; or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets
to, or is liquidated into, one of us or one of our Restricted
Subsidiaries; provided that such Person's primary business is
a Permitted Business;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"-Repurchase at the Option of holders-Asset Sales;"
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(5) any Investment in prepaid expenses, negotiable instruments held for
collection and lease, utility and workers' compensation, performance
and other similar deposits;
(6) Investments made out of the net cash proceeds of the issue and sale,
other than to a Subsidiary of Insight Midwest, of Equity Interests
other than Disqualified Stock of Insight Midwest, to the extent
that:
(a) such net cash proceeds have not been applied to make a
Restricted Payment or to effect other transactions pursuant to
the covenant described above under the caption "-Restricted
Payments," or
(b) such net cash proceeds have not been used to incur
Indebtedness pursuant to clause (8) of the covenant described
above under the caption "-Incurrence of Indebtedness and
Issuance of Preferred Stock;"
(7) the extension of credit to vendors, suppliers and customers in the
ordinary course of business;
(8) any Investment existing as of the date of the indenture, and any
amendment, modification, extension or renewal thereof to the extent
such amendment, modification, extension or renewal does not require
us or any Restricted Subsidiary to make any additional cash or
non-cash payments or provide additional services in connection
therewith;
(9) any acquisition of assets solely in exchange for the issuance of our
Equity Interests other than Disqualified Stock;
(10) Hedging Obligations;
(11) loans and advances to officers, directors and employees of us and
the Restricted Subsidiaries for business-related travel expenses,
moving expenses and other similar expenses in each case incurred in
the ordinary course of business not to exceed $1.0 million
outstanding at any time; and
(12) other Investments in any Person, other than Insight Communications
or an Affiliate of Insight Communications that is not also a
Subsidiary of one of us, having an aggregate fair market value,
measured on the date each such Investment was made and without
giving effect to subsequent changes in value, when taken together
with all other Investments made pursuant to this clause (12) since
the date of the indenture not to exceed $50.0 million.
"Permitted Liens" means:
(1) Liens securing Indebtedness and other Obligations under Credit
Facilities that was permitted by the terms of the indenture to be
incurred;
(2) Liens in favor of us or a Restricted Subsidiary;
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(3) Liens on property or assets, or any shares of Capital Stock or
secured indebtedness of a Person existing at the time such Person is
merged with or into or consolidated with one of us or one of our
Restricted Subsidiaries; provided that such Liens were in existence
prior to the contemplation of such merger or consolidation and do
not extend to any assets other than those of the Person merged into
or consolidated with us or the Restricted Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by us
or any of our Restricted Subsidiaries; provided that such Liens were
in existence prior to the contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like
nature incurred in the ordinary course of business;
(6) Liens to secure Indebtedness, including Capital Lease Obligations,
permitted by clause (4) of the second paragraph of the covenant
entitled "-Certain Covenants-Incurrence of Indebtedness and Issuance
of Preferred Stock" covering only the assets acquired with such
Indebtedness;
(7) Liens existing on the date of the indenture;
(8) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently
concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made
therefor;
(9) Liens securing Permitted Refinancing Indebtedness; provided that any
such Lien does not extend to or cover any property, Capital Stock or
Indebtedness other than the property, shares or debt securing the
Indebtedness so refunded, refinanced or extended;
(10) Statutory liens or landlords', carriers', warehouseman's,
mechanics', suppliers', materialmen's, repairmen's or other like
Liens arising in the ordinary course of business which do not secure
any Indebtedness and with respect to amounts not yet delinquent or
being contested in good faith by appropriate proceedings, if a
reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made therefor;
(11) Easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering
in any material respect with the ordinary conduct of the business of
us or any of our Restricted Subsidiaries;
(12) Attachment or judgment Liens not giving rise to a Default or an
Event of Default;
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(13) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and
other types of social security;
(14) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptance, surety and appeal bonds, government contracts,
performance and return-of-money bonds and other obligations of a
similar nature incurred in the ordinary course of business,
exclusive of obligations for the payment of borrowed money;
(15) Liens of franchisors or other regulatory bodies arising in the
ordinary course of business;
(16) Liens arising from filing Uniform Commercial Code financing
statements regarding leases or other Uniform Commercial Code
financing statements for precautionary purposes relating to
arrangements not constituting Indebtedness;
(17) Liens securing reimbursement obligations with respect to letters of
credit that encumber documents and other property relating to such
letters of credit and the products and proceeds thereof;
(18) Liens encumbering customary initial deposits and margin deposits,
and other Liens that are within the general parameters customary in
the industry and incurred in the ordinary course of business, in
each case, securing Indebtedness under Hedging Obligations and
forward contracts, options, future contracts, future options or
similar agreements or arrangements designed solely to protect us or
any of our Restricted Subsidiaries from fluctuations in interest
rates, currencies or the price of commodities;
(19) Liens consisting of any interest or title of a licensor in the
property subject to a license;
(20) Liens on the Capital Stock of Unrestricted Subsidiaries;
(21) Liens arising from sales or other transfers of accounts receivable
which are past due or otherwise doubtful of collection in the
ordinary course of business;
(22) Any extensions, substitutions, replacements or renewals of the
foregoing; and
(23) Liens incurred in the ordinary course of business of us or any of
our Restricted Subsidiaries with respect to obligations that do not
exceed $20.0 million at any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of us or any
of our Subsidiaries issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund other Indebtedness
of us or any of our Subsidiaries, other than intercompany Indebtedness; provided
that:
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(1) the principal amount, or accreted value if applicable, of such
Permitted Refinancing Indebtedness does not exceed the principal
amount, or accreted value if applicable, of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded, plus
all accrued interest thereon and the amount of all expenses and
premiums incurred in connection therewith;
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life
to Maturity of, the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the
notes, such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and is subordinated in
right of payment to, the notes on terms at least as favorable to the
holders of notes as those contained in the documentation governing
the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and
(4) such Indebtedness is incurred either by us or by the Subsidiary who
is the obligor on the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"Principals" means AT&T Broadband and Insight Communications.
"Related Party" means, with respect to any Person:
(1) any controlling stockholder, 80% (or more) owned Subsidiary, or
immediate family member (in the case of an individual) of such
Person; or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons
beneficially holding an 80% or more controlling interest of which
consist of any one or more such Persons and/or such other Persons
referred to in the immediately preceding clause (1).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
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"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock
entitled, without regard to the occurrence of any contingency, to
vote in the election of directors, managers or trustees thereof is
at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person, or a
combination thereof; and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are such Person or one or
more Subsidiaries of such Person, or any combination thereof.
"Unrestricted Subsidiary" means any Subsidiary of either of us, or any
successor to any of us, that is designated by the Board of Directors as an
Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent
that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with one of us or any of our Restricted Subsidiaries
unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to us or such Restricted
Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of us; and
(3) is a Person with respect to which neither we nor any of our
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or
preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results.
Any designation of one of our Subsidiaries as an Unrestricted Subsidiary
shall be evidenced to the trustee by filing with the trustee a certified copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the preceding
conditions and was permitted by the covenant described above under the caption
"-Certain Covenants-Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by one of our Restricted Subsidiaries as of such date and,
if such Indebtedness is not permitted to be incurred as of such date under the
covenant described under the caption "-Certain Covenants-Incurrence of
Indebtedness and Issuance of Preferred Stock," we shall be in default of such
covenant. Our Boards of Directors may at any time designate any
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Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by one of our
Restricted Subsidiaries of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (1) such Indebtedness
is permitted under the covenant described under the caption "-Certain
Covenants-Incurrence of Indebtedness and Issuance of Preferred Stock,"
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period; and (2) no Default or Event of
Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at final
maturity, in respect thereof, by (b) the number of years, calculated
to the nearest one-twelfth, that will elapse between such date and
the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any specified Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which, other than directors' qualifying shares,
shall at the time be owned by such Person or by one or more Wholly Owned
Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
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MATERIAL FEDERAL TAX CONSIDERATIONS
Set forth below are the material United States federal income tax
consequences relevant to, in the opinion of Cooperman Levitt Winikoff Lester &
Newman, P.C., our legal counsel, the exchange offer. Except where noted, the
following deals only with the notes held as capital assets within the meaning of
section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"), by a
holder of notes that is an individual citizen or resident of the United States
or is a United States corporation that has purchased the notes pursuant to their
original issue. The following does not deal with special situations such as
those of broker-dealers, tax-exempt organizations, individual retirement
accounts and other tax deferred accounts, financial institutions, insurance
companies, or persons holding notes as part of a hedging or conversion
transaction or a straddle. Furthermore, the following is based upon the
provisions of the Code and regulations, rulings and judicial decisions
promulgated under the Code as of the date hereof. Such authorities may be
repealed, revoked, or modified, possibly with retroactive effect, so as to
result in United States federal income tax consequences different from those
discussed below. In addition, except as otherwise indicated, the following does
not consider the effect of any applicable foreign, state, local or other tax
laws or estate or gift tax considerations.
As used in this prospectus, a "United States person" is:
(1) a citizen or resident of the U.S.;
(2) a corporation, partnership or other entity created or organized in
or under the laws of the U.S. or any of its political subdivision;
(3) an estate the income of which is subject to U.S. federal income
taxation regardless of its source;
(4) a trust if:
(a) a United States court is able to exercise primary supervision
over the administration of the trust; and
(b) one or more United States persons have the authority to
control all substantial decisions of the trust;
(5) a certain type of trust in existence on August 20, 1996, which was
treated as a United States person under the Code in effect
immediately prior to such date and which has made a valid election
to be treated as a United States person under the Code; and
(6) any person otherwise subject to U.S. federal income tax on a net
income basis in respect of its worldwide taxable income.
A "U.S. holder" is a beneficial owner of a note who is a United States
Person. A "foreign holder" is a beneficial owner of a note who is not a U.S.
holder.
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Prospective investors are advised to consult their own tax advisors with
regard to the application of the tax considerations discussed below to their
particular situations, as well as the application of any state, local, foreign
or other tax laws, or subsequent revisions of such laws.
Federal Income Taxation of U.S. Holders
Exchange of Notes
The exchange of exchange notes pursuant to the exchange offer will not be
treated as a taxable sale, exchange or other disposition of the corresponding
initial notes because the terms of the exchange notes are not materially
different from the terms of the initial notes. Accordingly:
(1) no gain or loss will be realized by a U.S. holder upon receipt of an
exchange note;
(2) the holding period of the exchange note will include the holding
period of the initial note exchanged therefor; and
(3) the adjusted tax basis of the exchange notes will be the same as the
adjusted tax basis of the initial notes exchanged.
The filing of a shelf registration statement should not result in a
taxable exchange to us or any holder of a note.
Payments of Interest
A U.S. holder of an exchange note generally will be required to report as
ordinary income for federal income tax purposes interest received or accrued on
the exchange note in accordance with the U.S. holder's method of tax accounting.
Market Discount
If a U.S. holder purchases an exchange note for an amount that is less
than its "stated redemption price at maturity" (which is the stated principal
amount), the amount of the difference will be treated as "market discount" for
federal income tax purposes unless such difference is less than a specified de
minimis amount. Under the de minimis exception, an exchange note is considered
to have no market discount if the excess of the stated redemption price at
maturity of the exchange note over the holder's tax basis in such note
immediately after its acquisition is less than 0.25% of the stated redemption
price at maturity of the exchange note multiplied by the number of complete
years to the maturity date of the exchange note after the acquisition date.
Under the market discount rules, a U.S. holder of an exchange note that
does have market discount is required to treat any principal payment on, or any
gain from the sale, exchange, retirement or other disposition of an exchange
note as ordinary income to the extent of the accrued market discount not
previously included in income at the time of such payment or disposition. In
addition, such a holder may be required to defer until maturity of the exchange
note or its earlier disposition in a taxable transaction the deduction of all or
a portion of the interest expense on any indebtedness incurred or continued to
purchase or carry such exchange note.
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Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the exchange note, unless
the U.S. holder elects to accrue the market discount on a constant interest
method. A U.S. holder of an exchange note may elect to include market discount
in income currently as it accrues (on either a ratable or constant interest
method), in which case the rule described above regarding deferral of interest
deductions will not apply. This election to include market discount in income
currently, once made, applies to all market discount obligation acquired on or
after the first taxable year to which the election applies and may not be
revoked without the consent of the Internal Revenue Service.
Bond Premium
A U.S. holder who purchases an exchange note for an amount in excess of
its stated redemption price at maturity will be considered to have purchased the
exchange note with "amortizable bond premium" equal to the amount of such
excess. A U.S. holder generally may elect to amortize the premium on the
constant yield to maturity method. The amount amortized in any year under such
method will be treated as a reduction of the holder's interest income from the
exchange note during such year and will reduce the holder's adjusted tax basis
in the exchange note by such amount. A holder of an exchange note that does not
make the election to amortize the premium will not reduce its tax basis in the
exchange note, and thus effectively will realize a smaller gain, or a larger
loss, on a taxable disposition of the exchange note than it would have realized
had the election been made. The election to amortize the premium on a constant
yield to maturity method, once made, applies to all debt obligations held or
acquired by the electing holder on or after the first day of the first taxable
year to which the election applies and may not be revoked without the consent of
the Internal Revenues Service.
Sale, Exchange or Retirement
A U.S. holder's tax basis in an exchange note generally will equal the
purchase price paid therefor, increased by market discount previously included
in income by such U.S. holder and decreased by any amortized premium applied to
reduce interest and any principal payments on the exchange note. Upon the sale,
exchange or retirement, including redemption, of an exchange note, a holder of
an exchange note generally will recognize gain or loss equal to the difference
between the amount of cash and the fair market value of other property received
from the sale, exchange or retirement of the exchange note (other than in
respect of accrued and unpaid interest on the exchange note) and the adjusted
tax basis in the exchange note. Such gain or loss generally will be capital gain
or loss, except to the extent of any accrued market discount, which will be
taxed as ordinary income. Amounts received attributable to accrued but unpaid
interest will be treated as ordinary interest income.
Under current law, net capital gains of individuals generally are subject
to the following maximum federal tax rates:
(1) twenty percent, for property held more than one year; and
(2) beginning in the year 2006, eighteen percent, for property acquired
after the year 2000 and held for more than five years.
The deductibility of capital losses is subject to limitations.
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Federal Income Taxation of Foreign Holders
The following is a summary of certain United States Federal income tax
consequences of the ownership and sale or other disposition of the exchange
notes by a foreign holder.
If the income or gain on the exchange notes is "effectively connected with
the conduct of a trade or business within the United States" of the foreign
holder of the exchange notes, such income or gain will be subject to tax
essentially in the same manner as if the exchange notes were held by a United
States person, as discussed above, and in the case of a foreign person that is a
foreign corporation, may also be subject to the federal branch profits tax.
If the income on the exchange notes is not effectively connected with the
conduct of a trade or business within the United States, then under the
"portfolio interest" exception to the general rules for the withholding of tax
on interest paid to a foreign holder, a foreign holder will not be subject to
United States tax, or to withholding, on interest on an exchange note, provided
that:
(1) the foreign holder does not actually or constructively own 10% or
more of a capital or profits interest in us within the meaning of
Section 871(h)(3) of the Code;
(2) the foreign holder is not a controlled foreign corporation that is
considered related to us within the meaning of Section 864(d)(4) of
the Code; and
(3) we, our paying agent or the person who would otherwise be required
to withhold tax received either:
(a) a statement on Internal Revenue Service Form W-8, signed under
penalties of perjury by the beneficial owner of the exchange
note, in which the owner certifies that the owner is not a
United States person and which provides the owner's name and
address; or
(b) a statement signed under penalties of perjury by a financial
institution holding the exchange note on behalf of the
beneficial owners, together with a copy of each beneficial
owner's Form W-8.
Recently finalized regulations, which generally became effective on
January 1, 2000, add certain alternative certification procedures. A foreign
holder who does not qualify for the "portfolio interest" exception will be
subject to United States withholding tax at a flat rate of 30% (or a lower
applicable treaty rate upon delivery of requisite certification of eligibility)
on interest payments on the exchange notes which are not effectively connected
with the conduct of a trade or business within the United States.
If the gain on the exchange notes is not effectively connected with the
conduct of a trade or business within the United States, then gain recognized by
a foreign holder upon the redemption, sale or exchange of an exchange note,
including any gain representing accrued market discount, will not be subject to
United States tax unless the foreign holder is an individual present in the
United States for 183 days or more during the taxable year in which the exchange
note is redeemed, sold or exchanged, and certain other requirements are met, in
which case the foreign
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holder will be subject to United States tax at a flat rate of 30%, unless exempt
by applicable treaty upon delivery of requisite certification of eligibility.
Foreign holders who are individuals may also be subject to tax pursuant to
provisions of United States federal income tax law applicable to certain United
States expatriates.
Federal Estate Taxation of Foreign Holders
An exchange note that is held by an individual who at the time of death is
not a citizen or resident of the United States will not be subject to U.S.
federal estate tax as a result of such individual's death, provided that, at the
time of the individual's death, payments of interest with respect to such
exchange note would have qualified for the portfolio interest exception.
Federal Income Tax Backup Withholding
Certain (generally, non-corporate) U.S. holders may be subject to back-up
withholding at a rate of 31% on payments of principal, premium and interest on,
and the proceeds of the disposition of the exchange notes if the holder:
(1) fails to provide a taxpayer identification number;
(2) furnishes an incorrect taxpayer identification number;
(3) is notified by the Internal Revenue Service that he or she has
failed to report properly payments of interest and dividends and the
Internal Revenue Service has notified us that he or she is subject
to backup withholding; or
(4) fails, under certain circumstances, to provide a signed statement,
certified under penalties of perjury, that the taxpayer
identification number provided is correct and that he or she is not
subject to backup withholding.
The amount of any backup withholding deducted from a payment to a U.S.
holder is allowable as a credit against the U.S. holder's federal income tax
liability, provided that certain required information is furnished to the
Internal Revenue Service. Certain holders, (including, among others,
corporations and foreign individuals who comply with certain certification
requirements described above under "Foreign Holders") are not subject to backup
withholding. Holders should consult their tax advisors as to their qualification
for exemption from backup withholding and the procedure for obtaining such an
exemption.
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EXCHANGE OFFER
Registration Rights Agreement
The initial notes were originally issued on October 1, 1999 to Donaldson,
Lufkin & Jenrette Securities Corporation, Morgan Stanley & Co., Incorporated,
BNY Capital Markets, Inc. and Wasserstein Perella Securities, Inc. pursuant to a
purchase agreement dated September 28, 1999. The initial purchasers subsequently
resold the notes to qualified institutional buyers in reliance on Rule 144A
under the Securities Act, and outside the United States in accordance with
Regulation S under the Securities Act. We are parties to a registration rights
agreement with the initial purchasers entered into as a condition to the closing
under the purchase agreement. Pursuant to the registration rights agreement, we
agreed, for the benefit of the holders of the initial notes, at our cost to:
o file an exchange offer registration statement on or before March 29,
2000 with the Securities and Exchange Commission with respect to the
exchange offer for the notes; and
o use our reasonable best efforts to have the registration statement
declared effective under the Securities Act by October 2, 2000.
Upon the registration statement being declared effective, we will offer
the exchange notes in exchange for surrender of the initial notes. We will keep
the exchange offer open for not less than 20 business days, or longer if
required by applicable law, after the date on which notice of the exchange offer
is mailed to the holders of the initial notes. For each initial note surrendered
to us pursuant to the exchange offer, the holder of such initial note will
receive an exchange note having a principal amount equal to that of the
surrendered initial note.
Under existing interpretations of the staff of the Securities and Exchange
Commission contained in several no-action letters to third parties, we believe
that the exchange notes will in general be freely tradeable after the exchange
offer without further registration under the Securities Act. However, any
purchaser of initial notes who is an "affiliate" of ours or who intends to
participate in the exchange offer for the purpose of distributing the exchange
notes:
o will not be able to rely on these interpretations of the staff of
the Securities and Exchange Commission;
o will not be able to tender its initial notes in the exchange offer;
and
o must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or
transfer of the initial notes, unless such sale or transfer is made
pursuant to an exemption from such requirements.
As contemplated by these no-action letters and the registration rights
agreement, each holder accepting the exchange offer is required to represent to
us in the letter of transmittal that:
o neither the holder nor any such other person is an "affiliate" of
ours within the meaning of Rule 405 under the Securities Act;
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o the holder or any such other person is not engaged in, does not
intend to engage in, and has no arrangement or understanding with
any person to participate in, a distribution of the exchange notes;
and
o it is acquiring the exchange notes in the ordinary course of
business;
Each holder participating in the exchange offer for the purpose of
distributing the exchange notes it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the exchange notes and cannot rely on those no-action letters.
For a description of the procedures for resales by broker-dealers, see
"Plan of Distribution."
Shelf Registration Statement
If:
o we are not permitted to consummate this exchange offer because the
exchange offer is not permitted by applicable law or Commission
policy (after we have unsuccessfully sought a no-action letter from
the Commission allowing us to consummate the exchange offer); or
o any holder of transfer restricted securities notifies us prior to
the 30th business day following the effective date of the
registration statement that:
o it is prohibited by law or Commission policy from
participating in the exchange offer; or
o it may not resell the exchange notes acquired by it in the
exchange offer to the public without delivering a prospectus
and the prospectus contained in the registration statement is
not appropriate or available for such resales; or
o that it is a broker-dealer and owns notes acquired directly
from us or one of our affiliates;
then we will file with the Commission a shelf registration statement relating to
all transfer restricted securities. We will use our reasonable best efforts to
file the shelf registration statement within 30 days of the earlier of the date
we determine that we cannot consummate this exchange offer or the date we
receive notice from a holder as described in the previous sentence. We will use
our reasonable best efforts to cause the shelf registration statement to be
declared effective by the Commission within 90 days after we are required to
file the shelf registration statement. However, the deadlines for filing and
effectiveness of the shelf registration statement shall not be earlier than such
deadlines for the registration statement.
For purposes of the preceding, "transfer restricted securities" means
o each initial note until
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o the date on which such initial note has been exchanged in the
exchange offer for an exchange note which may be resold to the
public by the holder thereof without complying with the
prospectus delivery requirements of the Securities Act;
o the date on which such initial note has been effectively
registered under the Securities Act and disposed of in
accordance with the shelf registration statement; or
o the date on which such initial note is distributed to the
public pursuant to Rule 144 under the Securities Act and
o each exchange note held by a broker-dealer until the date on which
such exchange note is disposed of by a broker-dealer pursuant to the
"Plan of Distribution" contained herein (including the delivery of
this prospectus).
The registration rights agreement provides that if:
o we fail to file the registration statement or shelf registration
statement required by the registration rights agreement on or before
the date specified for such filing;
o the registration statement or the shelf registration statement is
not declared effective by the Securities and Exchange Commission on
or prior to the date specified in the registration rights agreement
for such effectiveness;
o we fail to complete the exchange offer within 30 business days of
the September 29, 2000 deadline for effectiveness of the
registration statement; or
o the shelf registration statement or the registration statement is
filed and declared effective but thereafter ceases to be effective
or usable in connection with resales of transfer restricted
securities during the period specified in the registration rights
agreement (each such event referred to in this clause and the three
preceding clauses are referred to as a "registration default");
then we will pay liquidated damages to each holder of notes, with respect to the
first 90-day period immediately following the occurrence of the first
registration default in an amount equal to $.05 per week per $1,000 principal
amount of notes held by such holder.
The amount of the liquidated damages will increase by an additional $.05
per week per $1,000 principal amount of notes with respect to each subsequent
90-day period until all registration defaults have been cured, up to a maximum
amount of liquidated damages for all registration defaults of $.50 per week per
$1,000 principal amount of notes.
All accrued liquidated damages will be payable to holders of the initial
notes in cash on the semi-annual interest payment dates on the notes, commencing
with the first such date occurring after any such registration default, until
such registration default is cured.
Following the cure of all registration defaults, the accrual of liquidated
damages will cease.
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Holders of notes will be required to make certain representations to us
(as described in the registration rights agreement) in order to participate in
the exchange offer and will be required to deliver certain information to be
used in connection with the shelf registration statement and to provide comments
on the shelf registration statement within the time periods set forth in the
registration rights agreement in order to have their notes included in the shelf
registration statement and benefit from the provisions regarding liquidated
damages set forth above. By acquiring transfer restricted securities, a holder
will be deemed to have agreed to indemnify us against certain losses arising out
of information furnished by such holder in writing for inclusion in any shelf
registration statement. Holders of notes will also be required to suspend their
use of the prospectus included in the shelf registration statement under certain
circumstances upon receipt of written notice to that effect from us.
Expiration Date; Extensions; Amendments; Termination
The exchange offer will expire at 5:00 p.m., New York City time, on _____,
2000, unless we extend it in our reasonable discretion. The expiration date of
the exchange offer will be at least 30 days after we mail notice of the exchange
offer to holders as provided in Rule 14e-1(a) under the Securities Exchange Act
of 1934 and the registration rights agreement.
To extend the expiration date, we will need to notify the exchange agent
of any extension by oral, promptly confirmed in writing, or written notice. We
will also need to notify the holders of the initial notes by mailing an
announcement or by means of a press release or other public announcement
communicated, unless otherwise required by applicable law or regulation, before
9:00 A.M., New York City time, on the next business day after the previously
scheduled expiration date.
We expressly reserve the right:
o to delay acceptance of any initial notes, to extend the exchange
offer or to terminate the exchange offer and not permit acceptance
of initial notes not previously accepted if any of the conditions
described below under "--Conditions to the Exchange Offer" have
occurred and have not been waived by us, if permitted to be waived,
by giving oral or written notice of the delay, extension or
termination to the exchange agent; or
o to amend the terms of the exchange offer in any manner.
If we amend the exchange offer in a manner determined by us to constitute
a material change, we will promptly disclose the amendment in a manner
reasonably calculated to inform the holders of the initial notes of the
amendment including providing public announcement, or giving oral or written
notice to the holders of the initial notes. A material change in the terms of
the exchange offer could include a change in the timing of the exchange offer, a
change in the exchange agent and other similar changes in the terms of the
exchange offer. If any material change is made to the terms of the exchange
offer, we will disclose the change by means of a post-effective amendment to the
registration statement of which this prospectus is a part and will distribute an
amended or supplemented prospectus to each registered holder of initial notes.
In addition, we will also extend the exchange offer for an additional five to
ten business days as required by the Securities Exchange Act, depending on the
significance of the amendment, if the
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exchange offer would otherwise expire during that period. Any delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral, promptly confirmed in writing, or written notice to the
exchange agent.
Procedures for Tendering Initial Notes
To tender your initial notes in this exchange offer, you must use one of
the three alternative procedures described below:
Regular Delivery Procedure: Complete, sign and date the letter of
transmittal, or a facsimile of the letter of
transmittal. Have the signatures on the letter
of transmittal, guaranteed if required by the
letter of transmittal. Mail or otherwise
deliver the letter of transmittal or the
facsimile, together with the certificates
representing your initial notes being tendered
and any other required documents, to the
exchange agent on or before 5:00 p.m., New
York City time, on the expiration date.
Book-entry Delivery Procedure: Send a timely confirmation of a book-entry
transfer of your initial notes, if this
procedure is available, into the exchange
agent's account at The Depository Trust
Company ("DTC") as contemplated by the
procedures for book-entry transfer described
under "--Book-Entry Delivery Procedure" below,
on or before 5:00 p.m., New York City time, on
the expiration date.
Guaranteed Delivery Procedure: If time will not permit you to complete your
tender by using the procedures described above
before the expiration date, comply with the
guaranteed delivery procedures described under
"--Guaranteed Delivery Procedure" below.
The method of delivery of initial notes, the letter of transmittal and all
other required documents is at your election and risk. Instead of delivery by
mail, we recommend that you use an overnight or hand-delivery service. If you
choose the mail, we recommend that you use registered mail, properly insured,
with return receipt requested. In all cases, you should allow sufficient time to
assure timely delivery. You should not send any letters of transmittal or
initial notes to us. You must deliver all documents to the exchange agent at its
address provided below. You may also request your respective brokers, dealers,
commercial banks, trust companies or nominees to tender your initial notes on
your behalf.
Only a holder of initial notes may tender initial notes in this exchange
offer. For purposes of this exchange offer, a holder is any person in whose name
initial notes are registered on our books or any other person who has obtained a
properly completed bond power from the registered holder.
If you are the beneficial owner of initial notes that are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
and you wish to tender your notes, you must contact this registered holder
promptly and instruct this registered holder to tender these
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notes on your behalf. If you wish to tender these initial notes on your own
behalf, you must, before completing and executing the letter of transmittal and
delivering your initial notes, either make appropriate arrangements to register
the ownership of these notes in your name or obtain a properly completed bond
power from the registered holder. The transfer of registered ownership may take
considerable time.
You must have any signatures on a letter of transmittal or a notice of
withdrawal guaranteed by an eligible institution. An eligible institution is:
o a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.;
o a commercial bank or trust company having an office or correspondent
in the United States; or
o an eligible guarantor institution within the meaning of Rule 17Ad-15
under the Securities Exchange Act.
However, signatures on a letter of transmittal do not have to be
guaranteed if initial notes are tendered:
o by a registered holder, or by a participant in DTC in the case of
book-entry transfers, whose name appears on a security position
listing as the owner, who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions"
on the letter of transmittal and only if the exchange notes are
being issued directly to this registered holder, or deposited into
this participant's account at DTC in the case of book-entry
transfers; or
o for the account of an eligible institution.
If the letter of transmittal or any bond powers are signed by:
o the recordholder(s) of the initial notes tendered: The signature
must correspond with the name(s) written on the face of the initial
notes without alteration, enlargement or any change whatsoever;
o a participant in DTC: The signature must correspond with the name as
it appears on the security position listing as the holder of the
initial notes;
o a person other than the registered holder of any initial notes.
These initial notes must be endorsed or accompanied by bond powers
and a proxy that authorize this person to tender the initial notes
on behalf of the registered holder, in satisfactory form to us as
determined in our sole discretion, in each case, as the name of the
registered holder or holders appears on the initial notes;
o trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or
representative capacity. These persons should so indicate such
capacities when signing. Unless waived by us,
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evidence satisfactory to us of their authority to so act must also
be submitted with the letter of transmittal.
Book-Entry Delivery Procedure
Any financial institution that is a participant in DTC's system may make
book-entry deliveries of initial notes by causing DTC to transfer these initial
notes into the exchange agent's account at DTC according to DTC's procedures for
transfer. To effectively tender notes through DTC, the financial institution
that is a participant in DTC will electronically transmit its acceptance through
the Automatic Tender Offer Program. DTC will then edit and verify the acceptance
and send an agent's message to the exchange agent for its acceptance. An agent's
message is a message transmitted by DTC to the exchange agent stating that DTC
has received an express acknowledgment from the participant in DTC tendering the
initial notes that the participant has received and agrees to be bound by the
terms of the letter of transmittal, and that we may enforce this agreement
against the participant. The exchange agent will make a request to establish an
account for the initial notes at DTC for purposes of the exchange offer within
two business days after the date of this prospectus.
A delivery of initial notes through a book-entry transfer into the
exchange agent's account at DTC will only be effective if an agent's message or
the letter of transmittal or a facsimile of the letter of transmittal with any
required signature guarantees and any other required documents is transmitted to
and received by the exchange agent at the address indicated below under
"--Exchange Agent" on or before the expiration date unless the guaranteed
delivery procedures described below are complied with. Delivery of documents to
DTC does not constitute delivery to the Exchange Agent.
Guaranteed Delivery Procedure
If you are a registered holder of initial notes and desire to tender your
notes, and (1) these notes are not immediately available, (2) time will not
permit your notes or other required documents to reach the exchange agent before
the expiration date, or (3) the procedures for book-entry transfer cannot be
completed on a timely basis and an agent's message delivered, you may still
tender in this exchange offer if:
o you tender through an eligible institution, on or before the
expiration date, the exchange agent receives a properly completed
and duly executed letter of transmittal or facsimile of the letter
of transmittal and a notice of guaranteed delivery, substantially in
the form provided by us, with your name and address as holder of the
initial notes and the amount of notes tendered, stating that the
tender is being made by this letter and notice and guaranteeing that
within three New York Stock Exchange trading days after the
expiration date the certificates for all the initial notes tendered,
in proper form for transfer, or a book-entry confirmation with an
agent's message, as the case may be, and any other documents
required by the letter of transmittal will be deposited by the
eligible institution with the exchange agent; and
o the certificates for all your tendered initial notes in proper form
for transfer, or a book-entry confirmation, as the case may be, and
all other documents required by
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the letter of transmittal are received by the exchange agent within
three New York Stock Exchange trading days after the expiration
date.
Acceptance of Initial Notes for Exchange; Delivery of Exchange Notes
Your tender of initial notes will constitute an agreement between you and
us governed by the terms and conditions provided in this prospectus and in the
letter of transmittal.
We will be deemed to have received your tender as of the date when your
duly signed letter of transmittal accompanied by your initial notes tendered, or
a timely confirmation of a book-entry transfer of these notes into the exchange
agent's account at DTC with an agent's message, or a notice of guaranteed
delivery from an eligible institution is received by the exchange agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal tenders will be determined by us in our sole
discretion. Our determination will be final and binding.
We reserve the absolute right to reject any and all initial notes not
properly tendered or any initial notes which, if accepted, would, in our opinion
or our counsel's opinion, be unlawful. We also reserve the absolute right to
waive any conditions of this exchange offer or irregularities or defects in
tender as to particular notes. Our interpretation of the terms and conditions of
this exchange offer, including the instructions in the letter of transmittal,
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of initial notes must be cured within
the time that we shall determine. Neither the exchange agent, any other person
or we will be under any duty to give notification of defects or irregularities
with respect to tenders of initial notes. Neither the exchange agent nor we will
incur any liability for any failure to give notification of these defects or
irregularities. Tenders of initial notes will not be deemed to have been made
until the irregularities have been cured or waived. The exchange agent will
return without cost to their holders any initial notes that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived as promptly as practicable following the expiration date.
If all the conditions to the exchange offer are satisfied or waived on the
expiration date, we will accept all initial notes properly tendered and will
issue the exchange notes promptly thereafter. Please refer to the section of
this prospectus entitled "--Conditions to the Exchange Offer" below. For
purposes of this exchange offer, initial notes will be deemed to have been
accepted as validly tendered for exchange when, as and if, we give oral or
written notice of acceptance to the exchange agent.
We will issue the exchange notes in exchange for the initial notes
tendered by a notice of guaranteed delivery by an eligible institution only
against delivery to the exchange agent of the letter of transmittal, the
tendered initial notes and any other required documents, or the receipt by the
exchange agent of a timely confirmation of a book-entry transfer of initial
notes into the exchange agent's account at DTC with an agent's message, in each
case, in form satisfactory to us and the exchange agent.
If any tendered initial notes are not accepted for any reason or if
initial notes are submitted for a greater principal amount than the holder
desires to exchange, the unaccepted or
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non-exchanged initial notes will be returned without expense to the tendering
holder, or, in the case of initial notes tendered by book-entry transfer
procedures described above, will be credited to an account maintained with the
book-entry transfer facility, as promptly as practicable after withdrawal,
rejection of tender or the expiration or termination of the exchange offer.
In addition, we reserve the right in our sole discretion, but in
compliance with the provisions of the indenture, to:
o purchase or make offers for any initial notes that remain
outstanding after the expiration date, or, as described under
"-Expiration Date; Extensions; Amendments; Termination," to
terminate the exchange offer as provided by the terms of our
registration rights agreement, and
o purchase initial notes in the open market, in privately negotiated
transactions or otherwise, to the extent permitted by applicable
law.
The terms of any of the purchases or offers described above could differ
from the terms of the exchange offer.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, you may withdraw tenders
of initial notes at any time before 5:00 p.m., New York City time, on the
expiration date.
For a withdrawal to be effective, you must send a written or facsimile
transmission notice of withdrawal to the exchange agent before 5:00 p.m., New
York City time, on the expiration date at the address provided below under
"-Exchange Agent" and before acceptance of your tendered initial notes for
exchange by us.
Any notice of withdrawal must:
o specify the name of the person having tendered the initial notes to
be withdrawn;
o identify the initial notes to be withdrawn, including, if
applicable, the registration number or numbers and total principal
amount of these notes;
o be signed by the person having tendered the initial notes to be
withdrawn in the same manner as the original signature on the letter
of transmittal by which these initial notes were tendered, including
any required signature guarantees, or be accompanied by documents of
transfer sufficient to permit the trustee for the initial notes to
register the transfer of these notes into the name of the person
having made the original tender and withdrawing the tender; and
o state that you are withdrawing your tender of initial notes.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of all notices of withdrawal and our determination
will be final and binding on all parties. Initial notes that are withdrawn will
be deemed not to have been validly tendered for exchange in
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this exchange offer.
You may retender properly withdrawn initial notes in this exchange offer
by following one of the procedures described under "--Procedures for Tendering
Initial Notes" above at any time before the expiration date.
Conditions to the Exchange Offer
With exceptions, we will not be required to accept initial notes for
exchange, or issue exchange notes in exchange for any initial notes, and we may
terminate or amend the exchange offer as provided in this prospectus before the
acceptance of the initial notes, if:
o the exchange offer violates applicable law or any interpretation of
the staff of the Securities and Exchange Commission;
o any required governmental approval has not been obtained; or
o a court or any governmental authority has issued an injunction,
order or decree that would prevent or impair our ability to proceed
with the exchange offer.
These conditions are for our sole benefit. We may assert any of these
conditions regardless of the circumstances giving rise to any of them. We may
also waive these conditions, in whole or in part, at any time and from time to
time, if we determine in our reasonable discretion, but within the limits of
applicable law, that any of the foregoing events or conditions has occurred or
exists or has not been satisfied. Our failure at any time to exercise any of
rights will not be deemed a waiver of these rights and these rights will be
deemed ongoing rights which we may assert at any time and from time to time.
If we determine that we may terminate the exchange offer, as provided
above, we may:
o refuse to accept any initial notes and return any initial notes that
have been tendered to their holders;
o extend the exchange offer and retain all initial notes tendered
before the expiration date, allowing, however, the holders of
tendered initial notes to exercise their rights to withdraw their
tendered initial notes; or
o waive any termination event with respect to the exchange offer and
accept all properly tendered initial notes that have not been
withdrawn or otherwise amend the terms of the exchange offer in any
respect as provided under "--Expiration Date; Extensions;
Amendments; Termination."
If we determine that we may terminate the exchange offer, we may be
required to file a shelf registration statement with the Securities and Exchange
Commission as described under "--Shelf Registration Statement." The exchange
offer is not dependent upon any minimum principal amount of initial notes being
tendered for exchange.
Accounting Treatment
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We will record the exchange notes at the same carrying value as the
initial notes, as reflected in our accounting records on the date of the
exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes. We will amortize the costs of the exchange offer and the unamortized
expenses related to the issuance of the exchange notes over the term of the
exchange notes.
Exchange Agent
We have appointed Harris Trust Company of New York as exchange agent for
the exchange offer. You should direct all questions and requests for assistance
or additional copies of this prospectus or the letter of transmittal to the
exchange agent as follows:
Harris Trust Company of New York
Wall Street Plaza
88 Pine Street--19th Floor
New York, New York 10005
Attention: Reorganization Department
Fax number: (212) 701-7636
Fees and Expenses
We will bear the expenses of soliciting tenders under the exchange offer.
The principal solicitation for tenders under the exchange offer is being made by
mail; however, our officers and other employees may make additional
solicitations by telegraph, telephone, telecopy or in person.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. However, we will pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket expenses in connection with the
exchange offer. We may also pay brokerage houses and other custodians, nominees
and fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of the prospectus, letters of transmittal and related
documents to the beneficial owners of the initial notes, and in handling or
forwarding tenders for exchange.
We will pay the expenses incurred in connection with the exchange offer,
including fees and expenses of the exchange agent and trustee and accounting,
legal, printing and related fees and expenses.
We will generally pay all transfer taxes, if any, applicable to the
exchange of initial notes under the exchange offer. However, tendering holders
will pay the amount of any transfer taxes, whether imposed on the registered
holder or any other person, if:
o certificates representing exchange notes or initial notes for
principal amounts not tendered or accepted for exchange are to be
delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the initial notes
tendered; or
o tendered initial notes are registered in the name of any person
other than the person signing the letter of transmittal; or
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o a transfer tax is imposed for any reason other than the exchange of
initial notes under the exchange offer.
If satisfactory evidence of payment of these taxes or exemption therefrom
is not submitted with the letter of transmittal, the amount of the transfer
taxes will be billed directly to the tendering holder.
Your Failure to Participate in the Exchange Offer Will Have Adverse Consequences
If you do not properly tender your initial notes in the exchange offer,
your initial notes will remain outstanding and continue to accrue interest.
However, you will not be able to resell, offer to resell or otherwise transfer
the initial notes unless they are registered under the Securities Act or unless
you resell them, offer to resell or otherwise transfer them under an exemption
from the registration requirements of, or in a transaction not governed by, the
Securities Act. In addition, you will no longer be able to obligate us to
register the initial notes under the Securities Act, except in the limited
circumstances provided under our registration rights agreement. To the extent
the initial notes are tendered and accepted in the exchange offer, the trading
market, if any, for the initial notes would be adversely affected. You should
refer to "Risk Factors--Your failure to participate in the exchange offer will
have adverse consequences."
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BOOK-ENTRY; DELIVERY AND FORM
Principal and interest payments on global securities registered in the
name of DTC's nominee will be made in immediate available funds to DTC's nominee
as the registered owner of the global securities. We and the trustee will treat
DTC's nominee as the owner of the global securities for all other purposes as
well. Accordingly, we, the trustee, any paying agent and the initial purchaser
will have no direct responsibility or liability for any aspect of the records
relating to payments made on account of beneficial interests in the global
securities or for maintaining, supervising or reviewing any records relating to
these beneficial interests. It is DTC's current practice, upon receipt of any
payment of principal or interest, to credit direct participants' accounts on the
payment date according to their respective holdings of beneficial interests in
the global securities. These payments will be the responsibility of the direct
and indirect participants and not of DTC, the trustee or us.
So long as DTC or its nominee is the registered owner or holder of the
global security, DTC or its nominee, as the case may be, will be considered the
sole owner or holder of the notes represented by the global security for the
purposes of:
o receiving payment on the notes;
o receiving notices; and
o for all other purposes under the Indentures and the notes.
Beneficial interests in the notes will be evidenced only by, and transfers
of the notes will be effected only through, records maintained by DTC and its
participants.
Except as described below, owners of beneficial interests in a global
security will not be entitled to receive physical delivery of certificated notes
in definitive form and will not be considered the holders of the global security
for any purposes under the Indentures. Accordingly, each person owning a
beneficial interest in a global security must rely on the procedures of DTC.
And, if that person is not a participant, the person must rely on the procedures
of the participant through which that person owns its interest, to exercise any
rights of a holder under the Indentures. Under existing industry practices, if
we request any action of holders or an owner of a beneficial interest in a
global security desires to take any action under the Indentures, DTC would
authorize the participants holding the relevant beneficial interest to take that
action. The participants then would authorize beneficial owners owning through
the participants to take the action or would otherwise act upon the instructions
of beneficial owners owning through them.
DTC has advised us that it will take any action permitted to be taken by a
holder of notes only at the direction of one or more participants to whose
account with DTC interests in the global security are credited. Further, DTC
will take action only as to the portion of the aggregate principal amount at
maturity of the notes as to which the participant or participants has or have
given the direction.
Although DTC, Euroclear and Cedel have agreed to the procedures described
above in order to facilitate transfers of interests in global securities among
participants in DTC, Euroclear and Cedel, they are under no obligation to
perform these procedures, and the procedures may be
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discontinued at any time. None of us, the trustee, any agent of the initial
purchaser or ours will have any responsibility for the performance by DTC,
Euroclear and Cedel or their respective participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
DTC has provided the following information to us. DTC is a:
o limited-purpose trust company organized under the New York Banking
Law;
o a banking organization within the meaning of the New York Banking
Law;
o a member of the U.S. Federal Reserve System;
o a clearing corporation within the meaning of the New York Uniform
Commercial Code; and
o a clearing agency registered under the provisions of Section 17A of
the Securities Exchange Act.
Certificated Notes
Notes represented by a global security are exchangeable for certificated
notes only if:
o DTC notifies us that it is unwilling or unable to continue as
depository or if DTC ceases to be a registered clearing agency, and
a successor depository is not appointed by us within 90 days;
o determine not to require all of the notes to be represented by a
global security and notifies the trustee of their decision; or
o an event of default or an event which, with the giving of notice or
lapse of time, or both, would constitute an Event of Default
relating to the notes represented by the global security has
occurred and is continuing.
Any global security that is exchangeable for certificated notes in
accordance with the preceding sentence will be transferred to, and registered
and exchanged for, certificated notes in authorized denominations and registered
in the names as DTC or its nominee may direct. However, a global security is
only exchangeable for a global security of like denomination to be registered in
the name of DTC or its nominee. If a global security becomes exchangeable for
certificated notes:
o certificated notes will be issued only in fully registered form in
denominations of $1,000 or integral multiples of $1,000;
o payment of principal, premium, if any, and interest on the
certificated notes will be payable, and the transfer of the
certificated notes will be registrable, at the office or agency we
maintain for these purposes; and
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o no service charge will be made for any issuance of the certificated
notes, although the issuers may require payment of a sum sufficient
to cover any tax or governmental charge imposed in connection with
the issuance.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes, cross-market transfers between the participants in DTC, on the one hand,
and Euroclear or Cedel participants, on the other hand, will be effected through
DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case
may be, by its respective depositary; however, such cross-market transactions
will require delivery of instructions to Euroclear or Cedel, as the case may be,
by the counterparts in such system in accordance with the rules and procedures
and within the established deadlines, Brussels time, of such system. Euroclear
or Cedel, as the case may be, will, if the transaction meets its settlement
requirements, deliver instructions to its respective depositary to take action
to effect final settlement on its behalf by delivering or receiving interests in
the relevant global notes in DTC, and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable to DTC.
Euroclear participants and Cedel participants may not deliver instructions
directly to the depositories for Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a global note from a participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day,
which must be a business day for Euroclear and Cedel, immediately following the
settlement date of DTC. Cash received in Euroclear or Cedel as a result of sales
of interest in a global security by or through a Euroclear or Cedel participant
to a participant in DTC will be received with value on the settlement date of
DTC but will be available in the relevant Euroclear or Cedel cash account only
as of the business day for Euroclear or Cedel following DTC's settlement date.
157
<PAGE>
PLAN OF DISTRIBUTION
A broker-dealer that is the holder of initial notes that were acquired for
the account of such broker-dealer as a result of market-making or other trading
activities, other than initial notes acquired directly from us or any of our
affiliates, may exchange such initial notes for exchange notes pursuant to the
exchange offer; provided, that each broker-dealer that receives exchange notes
for its own account in exchange for initial notes, where such initial notes were
acquired by such broker-dealer as a result of market-making or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such exchange notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in exchange for initial notes where such
initial notes were acquired as a result of market-making activities or other
trading activities. We have agreed that for a period of 180 days after
consummation of the exchange offer or such time as any broker-dealer no longer
owns any registrable securities, we will make this prospectus, as it may be
amended or supplemented from time to time, available to any broker-dealer for
use in connection with any such resale. All dealers effecting transactions in
the exchange notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers or any other holder of exchange notes. Exchange notes received by
broker-dealers for their own account pursuant to the exchange offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the exchange notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
exchange notes. Any broker-dealer that resells exchange notes that were received
by it for its own account pursuant to the exchange offer and any broker or
dealer that participates in a distribution of such exchange notes may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
on any such resale of exchange notes and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after consummation of the exchange offer or such
time as any broker-dealer no longer owns any registrable securities, we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. We have agreed to pay all expenses incident to the
exchange offer and to our performance of, or compliance with, the registration
rights agreement, other than commissions or concessions of any brokers or
dealers, and will indemnify the holders of the notes, including any
broker-dealers, against certain liabilities, including liabilities under the
Securities Act.
158
<PAGE>
LEGAL MATTERS
The validity of the exchange notes offered hereby will be passed upon for
us by Cooperman Levitt Winikoff Lester & Newman, P.C., New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1999 and for the year then ended and the
consolidated financial statements of Insight Communications of Indiana, LLC at
December 31, 1998 and for the two month period ended December 31, 1998, and the
combined financial statements of Noblesville, Indiana, Jeffersonville, Indiana
and Lafayette, Indiana Cable Television Systems at October 31, 1998 and for the
ten month period ended October 31, 1998 and the year ended December 31, 1997, as
set forth in their reports. We've included our financial statements in this
prospectus and appearing elsewhere in the Registration Statement in reliance on
Ernst & Young LLP's reports, given on their authority as experts in accounting
and auditing.
The combined financial statements of TCI Insight Systems as of October
31, 1998 and for the ten-month period ended October 31, 1998 and for the year
ended December 31, 1997 have been included herein and in this prospectus in
reliance upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The combined financial statements of TCI IPVI Systems as of April 30,
1998 and for the four-month period ended April 30, 1998 and for the year ended
December 31, 1997 have been included herein and in this prospectus in reliance
upon the report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
The consolidated financial statements of InterMedia Capital Partners VI,
L.P., as of September 30, 1999 and December 31, 1998 and for the nine month
period ended September 30, 1999 and the period from April 30, 1998 (commencement
of operations) to December 31, 1998 included in this Registration Statement have
been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
159
<PAGE>
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-4, including all amendments, exhibits, schedules and
supplements, to register the exchange notes. Although this prospectus, which
forms a part of the registration statement, contain all material information
included in the registration statement, parts of the registration statement have
been omitted as permitted by the rules of the Commission. For further
information about us and the exchange notes offered in this prospectus, you
should refer to the registration statement and its exhibits. You may read and
copy any document we file with the Commission at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at 7 World Trade Center,
Suite 1300, New York, New York 10048 and at 500 West Madison Street, Suite
1400,Chicago, Illinois 60661. Copies of such material may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, NW, Washington,
D.C. 20549, at prescribed rates. You can also review such material by accessing
the Commission's Internet web site at http://www.sec.gov. This site contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission.
As a result of the exchange offer, we will be subject to the periodic
reporting and other informational requirements of the Securities Exchange Act.
So long as we are subject to these periodic reporting requirements, we will
continue to furnish the information required thereby to the Commission. We will
be required to file periodic reports with the Commission pursuant to the
Securities Exchange Act during our current fiscal year and thereafter so long as
the exchange notes are held by at least 300 registered holders. We do not
anticipate that, for periods following December 31, 2001, the exchange notes
will be held of record by more than 300 registered holders. Therefore, we do not
expect to be required to comply with the periodic reporting requirements imposed
under the Securities Exchange Act after that date. However, we have agreed that,
whether or not we are required to do so by the rules and regulations of the
Commission, for so long as any of the notes remain outstanding, we will furnish
to the holders of the notes and file with the Commission, unless the Commission
will not accept such a filing:
o all quarterly and annual financial information that would be
required to be contained in such a filing with the Commission on
Forms 10-Q and 10-K if we were required to file such forms,
including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, regarding a discussion of
the annual information only, a report thereon by our certified
independent public accountants; and
o all reports that would be required to be filed with the Commission
on Form 8-K if we were required to file such reports.
In addition, for so long as any of the notes remain outstanding, we have
agreed to make available to any prospective purchaser of the notes or beneficial
owner of the notes in connection with any sale thereof, the information required
by Rule 144A(d)(4) under the Securities Act.
160
<PAGE>
GLOSSARY
The following is a description of certain terms used in this prospectus:
Amplifier cascades................ The operation of two or more amplifiers in
series so that the output of one device feeds
the input of the next device.
Bandwidth......................... Bandwidth measures the information-carrying
capacity of a communication channel and
indicates the range of usable frequencies
that can be carried by a cable television
system.
Basic customer.................... A customer to a cable television system who
receives the Basic Service Tier and who is
usually charged a flat monthly rate for a
number of channels.
Basic penetration................. Basic customers as a percentage of total
number of homes passed.
Basic service tier................ A package of over-the-air broadcast stations,
local access channels and certain
satellite-delivered cable television services
(other than premium services).
Broadband......................... The ability to deliver multiple channels
and/or services to customers.
Cable modem....................... A device similar to a telephone modem that
sends and receives signals over a cable
television network at speeds up to 100 times
the capacity of a typical telephone modem.
Channel capacity.................. The number of traditional video programming
channels that can be carried over a
communications system.
Clustering........................ A general term used to describe the strategy
of operating cable television systems in a
specific geographic region, thus allowing for
the achievement of economies of scale and
operating efficiencies in such areas as
system management, marketing and technical
functions.
Converter......................... An electronic device that permits tuning of a
cable television signal to permit reception
by customer television sets and VCRs and
provides a means of access control for cable
television programming.
Density........................... A general term used to describe the number of
homes passed per mile of network.
G-1
<PAGE>
Digital video..................... A distribution technology where video content
is delivered in digital format.
Direct broadcast satellite
television system................. A service by which packages of television
programming are transmitted via high-powered
satellites to individual homes, each served
by a small satellite dish.
Fiber optic cable................. A cable made of glass fibers through which
signals are transmitted as pulses of light to
the distribution portion of the cable
television system which in turn goes to the
customer's home. Capacity for a very large
number of channels can be more easily
provided.
Fiber optic trunk system.......... The use of fiber optic cable from the headend
to the distribution portion of the cable
television system.
Headend........................... A collection of hardware, typically including
earth stations, satellite receivers, towers,
off-air antennae, modulators, amplifiers, and
video cassette playback machines within which
signals are processed and then combined for
distribution within the cable television
network. Equipment to process signals from
the customer's home also are contained at the
headend.
Homes passed...................... The number of single residence homes,
apartments and condominium units passed by
the cable distribution network in a cable
system's service area.
Multiplexing...................... Additional screens of premium channels, such
as HBO and Showtime, which cable operators
provide for no additional fees, provided the
customer subscribes to the primary premium
channel.
Multipoint multichannel
distribution...................... A one-way radio transmission of television
channels over microwave system frequencies
from a fixed station transmitting to multiple
receiving facilities located at fixed points.
Must carry........................ The provisions of the 1992 Cable Act that
require cable television operators to carry
local commercial and noncommercial television
broadcast stations on their systems.
Near video-on-demand.............. A pay-per-view service that allows customers
to select and order a movie of their choice
from a selection of movies being broadcast on
several dedicated channels.
G-2
<PAGE>
Each movie is broadcast on multiple channels
to offer the customer several start times for
the same movie and the customer joins the
movie in progress when it is purchased.
Network........................... The distribution network element of a cable
television system consisting of coaxial and
fiber optic cable leaving the headend on
power or telephone company poles or buried
underground.
Node.............................. The interface between the fiber optic and
coaxial distribution network.
Outage............................ The loss of service due to a failure in the
distribution network.
Overbuild......................... The construction of a second cable television
system in a franchise area in which such a
system had previously been constructed.
Pay-per-view...................... Programming offered by a cable television
operator on a per-program basis which a
customer selects and for which a customer
pays a separate fee.
Premium penetration............... Premium service units as a percentage of the
total number of basic service subscribers. A
customer may purchase more than one premium
service, each of which is counted as a
separate premium service unit. This ratio may
be greater than 100% if the average customer
subscribes to more than one premium service
unit.
Premium service................... Individual cable programming service
available only for monthly subscriptions on a
per-channel basis.
Premium units..................... The number of subscriptions to premium
services, which are paid for on an individual
basis.
Rebuild........................... The replacement or upgrade of an existing
cable system, usually undertaken to improve
its technological performance and/or to
expand the system's channel capacity in order
to provide more services.
Satellite master antenna
television system................. A video programming delivery system to
multiple dwelling units.
Telephone modem................... A device either inserted in a computer or
attached externally that encodes (modulates)
or decodes
G-3
<PAGE>
(demodulates) an analog telephone signal to a
data format that the computer can process.
Tiers............................. Varying levels of cable services consisting
of differing combinations of several
over-the-air broadcast and satellite
delivered cable television programming
services.
Video-on-demand................... A pay-per-view service that allows customers
to select and order a movie of their choice
from a large film library. The movie will
play in its entirety as soon as it is
ordered.
G-4
<PAGE>
Index to Financial Statements
Page
----
Insight Midwest, L.P.
Report of Independent Auditors--Ernst & Young LLP.........................F-3
Insight Midwest, L.P. Consolidated Balance Sheet at
December 31, 1999.....................................................F-4
Insight Midwest, L.P. Consolidated Statement of Operations and
Partners' Capital for the year ended December 31, 1999................F-5
Insight Midwest, L.P. Consolidated Statement of Cash Flows for
the year ended December 31, 1999 .....................................F-6
Insight Midwest, L.P. Notes to Consolidated Financial Statements..........F-7
Insight Communications of Indiana, LLC
Report of Independent Auditors--Ernst & Young LLP.........................F-20
Insight Communications of Indiana, LLC Balance Sheet at
December 31, 1998.....................................................F-21
Insight Communications of Indiana, LLC Statement of Operations
and Members' Equity for the period November 1, 1998 to
December 31, 1998.....................................................F-22
Insight Communications of Indiana, LLC Statement of Cash Flows
for the period November 1, 1998 to December 31, 1998..................F-23
Insight Communications of Indiana, LLC Notes to Financial Statements......F-24
Noblesville, Indiana, Jeffersonville, Indiana, and Lafayette, Indiana Cable
Television Systems
Report of Independent Auditors--Ernst & Young LLP.........................F-31
Noblesville, Indiana, Jeffersonville, Indiana, and Lafayette,
Indiana Cable Television Systems Combined Balance Sheet
at October 31, 1998...................................................F-32
Noblesville, Indiana, Jeffersonville, Indiana, and Lafayette,
Indiana Cable Television Systems Combined Statements of
Operations for the year ended December 31, 1997 and for
the period January 1, 1998 to October 31, 1998....................... F-33
Noblesville, Indiana, Jeffersonville, Indiana and Lafayette,
Indiana Cable Television Systems Combined Statement of
Changes in Net Assets for the year ended December 31, 1997
and for the period January 1, 1998 to October 31, 1998................F-34
Noblesville, Indiana, Jeffersonville, Indiana, and Lafayette,
Indiana Cable Television Systems Combined Statements of
Cash Flows for the year ended December 31, 1997 and for
the period January 1, 1998 to October 31, 1998........................F-35
Noblesville, Indiana, Jeffersonville, Indiana, and Lafayette,
Indiana Cable Television Systems Notes to Combined
Financial Statements..................................................F-36
F-1
<PAGE>
Index to Financial Statements
Page
----
TCI Insight Systems
Report of Independent Auditors--KPMG LLP.................................F-42
TCI Insight Systems Combined Balance Sheets as of October 31, 1998........F-43
TCI Insight Systems Combined Statements of Operations and Parent's
Investment (Deficit) for the ten month period ended
October 31, 1998, and the year ended December 31, 1997................F-44
TCI Insight Systems Combined Statements of Cash Flows for the
ten month period ended October 31, 1998, and the year
ended December 31, 1997...............................................F-45
TCI Insight Systems Notes to Combined Financial Statements................F-46
TCI IPVI Systems
Report of Independent Auditors--KPMG LLP..................................F-55
TCI IPVI Systems Combined Balance Sheets at April 30, 1998................F-56
TCI IPVI Systems Combined Statements of Operations and Parent's
Investment (Deficit) for the year ended December 31, 1997 and for
the four month period ended April 30, 1998............................F-57
TCI IPVI Systems Combined Statements of Cash Flows for the year
ended December 31, 1997 and for the four month period
ended April 30, 1998..................................................F-58
TCI IPVI Systems Notes to Combined Financial Statements...................F-59
InterMedia Capital Partners VI, L.P.
Report of Independent Accountants--PricewaterhouseCoopers LLP.............F-70
InterMedia Capital Partners VI, L.P. Consolidated Balance
Sheets at September 30, 1999 and December 31, 1998....................F-71
InterMedia Capital Partners VI, L.P. Consolidated Statement of
Operations for the Nine months ended September 30, 1999
and for the period April 30, 1998 (commencement of
operations) to December 31, 1998......................................F-72
InterMedia Capital Partners VI, L.P. Consolidated Statement of
Changes in Partners' Capital for the nine months ended
September 30, 1999 and for the period April 30, 1998
(commencement of operations) to December 31, 1998.....................F-73
InterMedia Capital Partners VI, L.P. Consolidated Statement
of Cash Flows for the nine months ended September 30, 1999 and
for the period April 30, 1998 (commencement of operations)
to December 31, 1998..................................................F-74
InterMedia Capital Partners VI, L.P. Notes to Consolidated
Financial Statements..................................................F-75
Note--Prior to the completion of the offering of notes in October 1999, Insight
Midwest, L.P. and Insight Capital, Inc. had no assets, liabilities, contingent
liabilities or operations.
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
Insight Midwest, L.P.
We have audited the accompanying consolidated balance sheet of Insight Midwest,
L.P. as of December 31, 1999 and the related consolidated statements of
operations and partners' capital, and cash flows for the year 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Insight Midwest,
L.P., at December 31, 1999 and the consolidated results of their operations and
their cash flows for the year ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
New York, New York
March 29, 2000
F-3
<PAGE>
INSIGHT MIDWEST, L.P.
CONSOLIDATED BALANCE SHEET
December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 35,996
Trade accounts receivable, net of allowance for doubtful accounts of $735 15,643
Prepaid expenses and other 6,976
----------
Total current assets 58,615
Fixed assets, net 596,246
Intangible assets, net 1,032,553
Deferred financing costs, net of
amortization 19,185
----------
$1,706,599
==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 59,406
Accrued expenses and other liabilities 26,029
Interest payable 19,397
Due to affiliates 1,220
----------
Total current liabilities 106,052
Debt 1,232,000
----------
Total liabilities 1,338,052
Partners' Capital 368,547
----------
$1,706,599
==========
</TABLE>
See accompanying notes
F-4
<PAGE>
INSIGHT MIDWEST, L.P.
CONSOLIDATED STATEMENT OF OPERATIONS AND PARTNERS' CAPITAL
For the year ended December 31, 1999
(in thousands)
Revenue $ 201,286
Costs and expenses:
Programming and other operating costs 59,587
Selling, general and administrative 38,267
Management fees 5,932
Depreciation and amortization 109,110
---------
212,896
Loss from operations (11,610)
Other expense:
Interest expense (50,900)
Other (167)
---------
Net loss (62,677)
Partners' Capital at January 1, 1999 44,195
Partners' Contribution 387,029
---------
Partners' Capital at December 31, 1999 $ 368,547
=========
See accompanying notes
F-5
<PAGE>
INSIGHT MIDWEST, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended December 31, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
<S> <C>
Operating activities:
Net loss $ (62,677)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 109,110
Provision for losses on trade accounts receivable 1,239
Changes in operating assets and liabilities:
Trade accounts receivable (6,272)
Prepaid expenses and other 2,885
Accounts payable and accrued expenses 41,585
Due to affiliates 3,475
Interest payable 13,573
Net cash provided by operating activities 102,918
---------
Investing activities:
Purchases of fixed assets (107,901)
Increase in intangible assets (2,540)
Net cash used in investing activities (110,441)
---------
Financing activities:
Repayment of bank credit facility (170,661)
Issuance of high yield senior notes 200,000
Debt issuance costs (7,712)
Net cash provided by financing activities 21,627
---------
Net increase in cash and cash equivalents 14,104
Cash and cash equivalents, beginning of period 21,892
---------
Cash and cash equivalents, end of period $ 35,996
=========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 37,904
=========
Supplemental disclosures of significant non cash financing activities:
Contribution of cable system assets by partner $ 387,029
=========
</TABLE>
See accompanying notes
F-6
<PAGE>
INSIGHT MIDWEST, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
A. Organization and Basis of Presentation
Insight Midwest, L.P. ("Insight Midwest"or the "Company") was formed in
September 1999 to serve as the holding company and a financing vehicle for
Insight's cable television system joint ventures with an affiliate of AT&T
Broadband, LLC (formerly Tele-Communications, Inc.) ("AT&T Broadband"). Insight
Midwest is owned 50% by Insight Communications Company, Inc. ("Insight Inc."),
through its subsidiary Insight Communications Company, L.P. ("Insight L.P."),
and 50% by TCI of Indiana Holdings, LLC ("TCI"), an indirect subsidiary of AT&T
Broadband. On October 1, 1999 Insight Midwest issued $200.0 million of 9 3/4%
Senior Notes due 2009 with Insight Capital, Inc., as co-issuer, a wholly-owned
subsidiary of Insight Midwest. On October 1, 1999 the joint ventures Indiana and
Kentucky systems and operations were consolidated under Insight Midwest, as
described further below. Through its operating subsidiaries Insight Indiana and
Insight Kentucky (defined below), Insight Midwest owns and operates cable
television systems in Indiana and Kentucky which passed approximately 1.2
million homes and served approximately 749,000 customers as of December 31,
1999.
Insight Indiana
On October 31, 1998 Insight L.P. and TCI contributed certain of their
cable television systems located in Indiana and Northern Kentucky (the "Indiana
systems") to Insight Communications of Indiana, LLC ("Insight Indiana") in
exchange for 50% equity interests therein. The cable television systems
contributed to Insight Indiana by Insight L.P. included the Jasper and
Evansville systems that were acquired by Insight L.P. from TCI on October 31,
1998 and the Noblesville, Jeffersonville and Lafayette systems already owned by
Insight L.P. (the "Insight Contributed Systems"). Insight L.P. entered into a
management agreement with Insight Indiana, pursuant to which Insight L.P. agreed
to manage the Indiana systems for an annual fee of 3% of the gross revenues of
the Indiana systems. On October 1, 1999, as part of a joint venture
restructuring, Insight Indiana became a wholly-owned subsidiary of Insight
Midwest and amended its management agreement with Insight L.P., confirming the
3% management fee. In addition to managing the day-to-day operations of the
Indiana systems, Insight L.P. is the general partner and therefore effectively
controls Insight Midwest, including all of the operating and financial
decisions pertaining to the Indiana systems. Pursuant to their terms of
respective governing agreements, the terms of Insight Midwest and Insight
Indiana will continue for twelve years through October 1, 2011, unless extended
by Insight L.P. and TCI.
In accordance with the foregoing, the historical carrying values of the
Indiana systems contributed by TCI were increased by an amount equivalent to 50%
of the
F-7
<PAGE>
INSIGHT MIDWEST, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
A. Organization and Basis of Presentation (continued)
difference between the fair value of the Indiana systems and their respective
carrying values ($89.1 million) as of October 31, 1998. In addition, the
historical values of the Insight Contributed Systems were increased by $44.3
million, an amount equivalent to 50% of the difference between the fair value of
such systems and their respective carrying values as of October 31, 1998.
Furthermore, in connection with Insight L.P.'s acquisition of the Jasper and
Evansville systems, the historical values of such systems were increased by
$112.0 million, an amount equivalent to the difference between the fair value of
such systems and their carrying values as of October 31, 1998. The aggregate
step-up to fair value was allocated to the cable television assets contributed
by TCI in relation to their fair values as increases in property and equipment
of $58.0 million and franchise costs of $181.6 million. Neither Insight L.P. nor
TCI is contractually required to contribute additional capital to Insight
Midwest and, because Insight Midwest is a limited partnership, neither Insight
L.P. nor TCI is liable for the obligations of Insight Indiana or the Indiana
systems. For the purposes of this financial statement, Insight Indiana is
considered the predecessor to Insight Midwest.
Insight Indiana's systems passed approximately 495,000 homes and served
approximately 323,000 customers as of December 31, 1999.
Insight Kentucky
On October 1, 1999, Insight L.P. acquired a combined 50% interest in
InterMedia Capital Partners VI, L.P. (the "IPVI Partnership") from related
parties of Blackstone Cable Acquisition Company, LLC, related parties of
InterMedia Capital Management VI, LLC and a subsidiary and related party of AT&T
Broadband, for approximately $341.5 million (inclusive of expenses), and Insight
Midwest assumed debt of approximately $742.1 million. The IPVI Partnership,
through several intermediary partnerships, own and operate cable television
systems in four major markets in Kentucky: Louisville, Lexington, Bowling Green
and Covington (the "Kentucky systems"). On October 1, 1999, concurrently with
this acquisition, the Kentucky systems were contributed to Insight Midwest. As a
result of the IPVI Partnership's historical ownership structure, the Kentucky
systems are owned and operated by Insight Kentucky Partners II, L.P. ("Insight
Kentucky"), a third-tier subsidiary partnership of Insight Midwest. Also on
October 1, 1999, Insight L.P. entered into a management agreement with Insight
Kentucky, pursuant to which Insight L.P. manages the Kentucky systems in
consideration for a 3% management fee. Similarly to Insight Indiana, subject to
certain matters that require TCI's approval as specified in Insight Midwest's
partnership agreement, Insight L.P. effectively controls Insight Kentucky,
including all of the operating and financial decisions
F-8
<PAGE>
INSIGHT MIDWEST, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
A. Organization and Basis of Presentation (Continued)
pertaining to the Kentucky systems. Insight Kentucky and each of the other
Kentucky partnerships also have twelve-year terms through October 1, 2011,
unless extended by Insight L.P.and TCI.
The assets of Insight Kentucky have been valued based on the purchase
price and have been preliminarily allocated between fixed and intangible assets
based on management's evaluation of each individual operating system including
such factors as the age of the cable plant, the progress of rebuilds and
franchise relations. This resulted in a step-up in the carrying values of fixed
assets of approximately $160.3 million and intangible assets of approximately
$272.1 million. Fixed assets are being depreciated over their estimated useful
lives and intangible assets are amortized over 15 years (See Note B).
Insight Kentucky's systems passed approximately 669,000 homes and served
approximately 426,000 customers as of December 31, 1999.
As a result of the above transactions, the accompanying financial
statements include the results of operations of:
A. Insight Indiana for the year ended December 31, 1999; and
B. Insight Kentucky for the period from October 1, 1999 (date of
acquisition) through December 31, 1999.
B. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-9
<PAGE>
INSIGHT MIDWEST, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
B. Significant Accounting Policies (continued)
Revenue Recognition
Revenues include service fees, connection fees, and launch fees. Service
fees are recorded in the month the cable television and pay television services
are provided to subscribers. Connection fees are charged for the hook-up of new
customers and are recognized as current revenues to the extent of direct selling
costs incurred. Launch fees are deferred and amortized over the period of the
underlying contract. Any fees in excess of such costs are deferred and amortized
into income over the period that subscribers are expected to remain connected to
the system.
Cash Equivalents
Insight Midwest considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Fixed Assets:
Fixed assets include amounts capitalized for labor and overhead expended
in connection with the installation of cable television systems and are stated
at cost. Depreciation for furniture, fixtures, office equipment, buildings, and
equipment is computed using the straight-line method over estimated useful lives
ranging from 3 to 30 years. For the year ended December 31, 1999, depreciation
expense approximated $55.0 million. Leasehold improvements are being amortized
using the straight-line method over the remaining terms of the leases or the
estimated lives of the improvements, whichever period is shorter. The carrying
value of fixed assets is reviewed if facts and circumstances suggest that they
may be impaired. If this review indicates that the carrying value of the fixed
assets will not be recovered from the undiscounted future cash flows of the
Company, an impairment loss would be recognized for the amount that the asset's
carrying value exceeds its fair value. Management believes that no material
impairment of fixed assets existed at December 31, 1999.
Intangible Assets
Intangible assets consist of franchise costs and goodwill. Costs incurred
in negotiating and renewing franchise agreements are capitalized and amortized
over the life of the franchise. Franchise rights acquired through the purchase
of cable television systems represent the excess of the cost of the properties
acquired over the amounts assigned to the tangible assets at the date of
acquisition and are amortized using the straight line method over a period of up
to fifteen years. Goodwill is amortized using the straight-line method over a
period of 40 years. The carrying value of intangible assets will be reviewed if
facts and circumstances suggest that they may be impaired. If this review
indicates that the intangible assets will not be recovered from the undiscounted
future cash flows of the individual systems comprising Insight Midwest, the
carrying value of such intangible assets would be considered impaired and will
be reduced by a charge to operations in the amount of the impairment. Based on
its most recent analysis, management believes that no material impairment of
intangible assets exists as of December 31, 1999.
F-10
<PAGE>
INSIGHT MIDWEST, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
DECEMBER 31, 1999
B. Significant Accounting Policies (continued)
Deferred Financing Costs
Deferred financing costs relate to costs, primarily legal fees and bank
facility fees, incurred to negotiate and secure bank loans. These costs are
being amortized on a straight line basis over the life of the applicable loan.
Marketing and Promotional Costs
Marketing and promotional costs are expensed as incurred. For the year
ended December 31, 1999, marketing and promotional expense approximated $1.1
million.
Income Taxes
No provision has been made in the accompanying financial statements for
federal, state, or local income taxes since the income or loss of Insight
Midwest is reportable by the individual partners in their respective tax
returns.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"), which as amended by SFAS 137 is effective for fiscal years beginning
after June 15, 2000. The Statement will require Insight Midwest to recognize all
derivatives on the balance sheet at fair value. Although management has not
completed its assessment of the impact of SFAS No. 133 on its results of
operations, and financial position, management does not anticipate that the
adoption of this Statement will be material.
C. ProForma Results of Operations (unaudited)
The pro forma unaudited results of operations for the year ended December
31, 1999 assuming the acquisition of the IPVI Partnership had been consummated
on January 1, 1999, follows (in thousands):
Revenues $ 360,483
Loss before extraordinary item 142,436
Net loss 142,436
F-11
<PAGE>
INSIGHT MIDWEST, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
D. Fixed Assets
Fixed assets consist of:
December 31, 1999
-----------------
(in thousands)
Land, buildings and improvements $ 12,887
Cable television equipment 661,530
Furniture, fixtures and office equipment 9,807
---------
684,224
Less accumulated depreciation and amortization (87,978)
---------
$ 596,246
=========
E. Intangible Assets
Intangible assets consist of:
December 31, 1999
-----------------
(in thousands)
Franchise rights $ 1,096,370
Goodwill 1,190
-----------
1,097,560
Less accumulated amortization (65,007)
-----------
$ 1,032,553
===========
F-12
<PAGE>
INSIGHT MIDWEST, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
F. Debt
Debt consists of:
December 31, 1999
-----------------
(in thousands)
Insight Indiana Credit Facility $ 470,000
Insight Kentucky Credit Facility 562,000
Insight Midwest Senior Notes 200,000
------------
$ 1,232,000
============
Insight Indiana Credit Facility
At December 31, 1999, Insight Indiana had a credit facility that provides
for term loans of $300.0 million and for revolving credit loans of up to $250.0
million (the "Insight Indiana Credit Facility"). The Insight Indiana Credit
Facility matures in December 2006, and contains quarterly reductions in the
amount of outstanding loans and commitments commencing in March 2001.
Obligations under this credit facility are secured by all of the membership
interests of Insight Indiana and any amounts payable to its members. Loans under
the Insight Indiana Credit Facility bear interest at an ABR or LIBOR plus an
additional margin tied to certain debt ratios of Insight Indiana. The credit
facility requires Insight Indiana to meet certain debt financial covenants. At
December 31, 1999, $470.0 million was outstanding under the Insight Indiana
Credit Facility. For the two months ended December 31, 1998 and the year ended
December 31, 1999 interest rates approximated 7.60% and 7.43%, respectively.
Insight Kentucky Credit Facility
The Kentucky credit facility (the "Insight Kentucky Credit Facility")
provides for two term loans of $100.0 million and $250.0 million and for
revolving credit loans of up to $325.0 million. Loans under the Insight Kentucky
Credit Facility may be used to refinance debt, finance acquisitions, capital
expenditures and for working capital and general corporate purposes as permitted
by the agreement. The term loans mature in September and December 2007 and the
revolving credit loans mature in October 2006, with quarterly reductions in the
amount of outstanding revolving credit loans and commitments commencing in June
2001. Obligations under the Insight Kentucky Credit Facility are guaranteed by
Insight Kentucky and Insight Kentucky Partners II, L.P. (a subsidiary of Insight
Kentucky Partners I, L.P.-See Note A), and are secured by all of the partnership
interests of Insight Kentucky Partners I, L.P ( a subsidiary of Insight
Kentucky-See Note A) and its subsidiaries and any intercompany notes made in
favor of Insight Kentucky Partners I, L.P. and its subsidiaries. Revolving loans
under the Insight Kentucky Credit Facility bear interest, at the Company's
option at an alternate base or eurodollar rate, plus an additional margin tied
to the Company's ratio of total debt to annualized cash flow. The term loans
under the Insight Kentucky Credit Facility also bear
F-13
<PAGE>
INSIGHT MIDWEST, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
F. Debt (continued)
interest, at the Company's option, at an alternate base or Eurodollar rate, plus
an additional margin. For the three months December 31, 1999, average interest
rates approximated 8.47%.
The Insight Kentucky Credit Facility contains a number of covenants that,
among other things, restrict the ability of Insight Kentucky to make capital
expenditures, acquire or dispose of assets, enter into mergers, incur additional
indebtedness, pay dividends or other distributions, create liens on assets, make
investments, and engage in transactions with related parties. The Insight
Kentucky Credit Facility permits the distribution to the Company of amounts
equal to the interest then due and owing on the notes, assuming that the
maturity of the notes has not been accelerated and, before and after giving
effect to such payment, no default exists under the facility.
In addition, the Insight Kentucky Credit Facility requires compliance with
certain financial ratios, requiring Insight Kentucky to enter into interest rate
protection agreements covering at least 50%, subject to increase to 60% under
certain circumstances, of its total indebtedness and also contains customary
events of default. As of December 31, 1999, there was approximately $562.0
million outstanding under the $675.0 million Insight Kentucky Credit Facility.
The Insight Midwest Senior Notes
On October 1, 1999, contemporaneously with the closing of Insight
Kentucky, Insight Midwest completed a $200 million high yield offering of 9 3/4
% senior notes due 2009 (the "Insight Midwest Senior Notes"). The proceeds of
the offering were used to repay certain debt of the IPVI Partnership. Interest
on the Insight Midwest Senior Notes accrues at the rate of 9 3/4% per annum and
is payable semi-annually on April 1 and October 1, commencing on April 1, 2000.
The Insight Midwest Senior Notes are redeemable on or after October 1,
2004. In addition, up to 35% of the Insight Midwest Senior Notes may be redeemed
prior to October 1, 2002 with the net proceeds from certain sales of Insight
Midwest's equity. Each holder of the Insight Midwest Senior Notes may require
Insight Midwest to redeem all or part of that holder's notes upon a change of
control. The Insight Midwest Senior Notes are general unsecured obligations, and
are subordinate to all liabilities of Insight Midwest's subsidiaries, the amount
of which was approximately $1.1 billion as of December 31, 1999.
The Insight Midwest Senior Notes contain certain covenants that limit,
among other things, the ability of Insight Midwest and its subsidiaries to incur
additional debt;
F-14
<PAGE>
INSIGHT MIDWEST, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
F. Debt (continued)
pay dividends on Insight Midwest's capital stock or repurchase Insight Midwest's
capital stock; make investments; use assets as security in other transactions;
and sell certain assets or merge with or into other companies.
At December 31, 1999, required annual principal payments under the Insight
Indiana and Insight Kentucky Credit Facilities and the Insight Midwest Senior
Notes are follows (in thousands):
2000 $ --
2001 98,000
2002 107,750
2003 129,250
2004 152,500
Thereafter 744,500
----------
$1,232,000
==========
Insight Midwest enters into interest-rate swap agreements to modify the
interest characteristics of its outstanding debt from a floating rate to a fixed
rate basis. These agreements involve the payment of fixed rate amounts in
exchange for floating rate interest receipts over the life of the agreement
without an exchange of the underlying principal amount. The differential to be
paid or received is accrued as interest rates change and recognized as an
adjustment to interest expense related to the debt. The related amount payable
to or receivable from counterparties is included in other liabilities or assets.
At December 31, 1999 Insight Midwest has entered into various interest rate swap
and collar agreements effectively fixing interest rates at 4.5% to 6.25%, plus
applicable margin on $690 million notional value of debt which expire at various
dates ranging from December, 2000 to July, 2003.
G. @Home Warrants
Under a distribution agreement with At Home Corporation ("@Home"), Insight
Midwest provides high-speed Internet access to subscribers over its distribution
network in certain of its cable television systems. In connection with the
capital acquisition, Insight Kentucky has agreements whereby @Home issued
warrants to Insight Kentucky to purchase shares of @Home Series A Common Stock
("@Home Stock") at an exercise price of $5.25 per share, as adjusted for a
two-for-one stock split which occurred on June 17, 1999. Under the provisions of
the agreement, Insight Kentucky estimates that it may purchase up to 459,200
shares of @Home Stock. The warrants become vested and excerisable, subject to
certain forfeiture and other conditions, based on operational targets which
include offering the @Home service by Insight Kentucky in its service areas and
obtaining specified numbers of @Home subscribers over the remaining six-year
term of the @Home distribution agreement. Insight Kentucky has not recognized
any income related to the warrants for the year ended December 31, 1999.
F-15
<PAGE>
INSIGHT MIDWEST, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
H. Financial Instruments
Concentrations of Credit: Financial instruments that potentially subject Insight
Midwest to significant concentrations of credit risk consist principally of cash
investments and accounts receivable. Insight Midwest maintains cash and cash
equivalents with various financial institutions. These financial institutions
are located throughout the country and Insight Midwest's policy is designed to
limit exposure to any one institution. Concentrations of credit risk with
respect to accounts receivable are limited due to the large number of customers
comprising Insight Midwest's customer base.
The following methods and assumptions were used by Insight Midwest in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance sheet for
cash and cash equivalents approximates its fair value.
Debt: The carrying amounts of Insight Midwest's borrowings under its credit
facilities approximate its fair value as it bears interest at floating rates.
The carrying amounts of Insight Midwest's senior notes approximate its
fair values and it bears interest at a fixed rate.
The fair values of the swap agreements are not recognized in the financial
statements and approximated $7.2 million at December 31, 1999, based on market
trading value.
I. 401(k) Plan
Insight Midwest through its subsidiaries, Insight Indiana and Insight
Kentucky, sponsors a savings and investment 401(k) Plan (the "Plan") for the
benefit of its employees. All employees who have completed six months of
employment and have attained age 21 are eligible to participate in the Plan.
Insight Midwest makes matching contributions equal to a percentage of the
employee's contribution. For the period ended December 31, 1999, the matching
contributions approximated $248,000 for Insight Indiana and $54,000 for Insight
Kentucky for the period October 1, 1999 through December 31, 1999.
F-16
<PAGE>
INSIGHT MIDWEST, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
J. Commitments and Contingencies
Insight Midwest leases and subleases equipment and office space under
operating lease arrangements expiring through December 31, 2015. Future minimum
rental payments required under operating leases are as follows (in thousands):
2000........................................... $ 1,223
2001........................................... 664
2002........................................... 432
2003........................................... 334
2004........................................... 219
Thereafter..................................... 420
Rental expense for the year ended December 31, 1999 approximated $1.2
million.
In September 1999, the IPVI Partnership received a tentative property tax
assessment from the Kentucky Revenue Cabinet with a total valuation of $1,197
million. This valuation could result in an additional property tax liability of
approximately $1.4 million for the three months ended December 31, 1999 to
Insight Kentucky. However, based on the information currently available to
Insight Kentucky and taking into account the advice of Insight Kentucky's
counsel, management believes that the accrued property tax liability included in
Insight Kentucky's financial statements is adequate.
F-17
<PAGE>
INSIGHT MIDWEST, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
K. Related Party Transactions
Insight Midwest purchases substantially all of its pay television and
other programming from affiliates of TCI. Charges for such programming were
$29.6 million for the year ended December 31, 1999. Management believes that the
programming rates charged by TCI affiliates are lower than those which would be
available for independent parties.
On October 1, 1999, Insight L.P. entered into management agreements with
each of Insight Indiana and Insight Kentucky pursuant to which Insight L.P.,
manages Insight Indiana and Insight Kentucky for an annual fee of 3% of the
gross revenues of the Indiana systems and the Kentucky systems. For the year
ended December 31, 1999, Insight Indiana was charged a management fee of
approximately $4.4 million by Insight L.P. For the period from October 1, 1999
through December 31, 1999, Insight Kentucky was charged a management fee of
approximately $1.6 million by Insight L.P.
In 1999, management agreements were put into place, whereby Insight
Indiana would manage Insight L.P's Portland and Scottsburg, Indiana systems. For
the year ended December 31, 1999 Insight L.P. was charged a management fee of
approximately $95,000.
L. Subsequent Events
On March 21, 2000, Insight Midwest entered into a letter of intent with
Cable One, Inc., a subsidiary of The Washington Post Company, for the
acquisition of a cable television system serving approximately 16,000 customers
in Greenwood, Indiana. The acquisition of the Greenwood system would occur upon
completion of a proposed trade of systems between Cable One and AT&T Broadband,
LLC. The transaction is subject to the negotiation and execution of definitive
agreements.
On March 15, 2000, Insight Inc. reached an agreement in principle with
AT&T Corp. for the delivery of telephone service utilizing Insight Midwest's
cable television systems under the "AT&T" brand name. The terms of the agreement
in principle provide that Insight Inc.and its affiliates will market, service
and bill for local telephone service. AT&T would be required to install and
maintain the necessary switching equipment, and would be the local exchange
carrier of record. AT&T would pay Insight Inc.and its affiliates a fee for the
use of the local telephone lines, and will also compensate Insight Inc. and its
affiliates for installation and maintenance services at customers' residences.
In addition, AT&T would pay Insight Inc.and its affiliates commissions for sales
made to customers.
F-18
<PAGE>
INSIGHT MIDWEST, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
L. Subsequent Events (continued)
The agreement in principle is subject to the negotiation and execution of
definitive agreements and covers areas serviced by Insight Midwest.
On March 23, 2000, Insight L.P. entered into a letter of intent with
AT&T Broadband to contribute to Insight Midwest additional cable television
systems serving approximately 537,000 customers. Through a series of
transactions, Insight L.P. will contribute to Insight Midwest its interests in
systems serving approximately 187,000 customers, and AT&T Broadband will
contribute systems serving approximately 350,000 customers. Initially, Insight
L.P. would exchange its Claremont, California system for a system in Freeport,
Illinois, subject to completion by AT&T Broadband of its proposed acquisition of
MediaOne. The Freeport system would be integrated into Insight L.P.'s Rockford,
Illinois system, creating a cluster of approximately 75,000 customers in the
northern part of the state. Insight L.P. would also purchase from AT&T Broadband
systems serving approximately 100,000 customers in North Central Illinois.
Concurrently with this purchase, Insight L.P. would contribute to Insight
Midwest all of its systems not already owned by Insight Midwest, including its
newly purchased Illinois systems, its expanded Rockford, Illinois cluster, its
interest in its Columbus, Ohio system and its Griffin, Georgia system, as well
as its systems in Indiana not already owned byInsight Midwest. At the same time,
AT&T Broadband would contribute to Insight Midwest systems located in Central
and North Central Illinois serving approximately 250,000 customers. As a result,
Insight Midwest would increase its customer base of approximately 748,800 as of
December 31, 1999 to approximately 1.3 million. AT&T Broadband would receive an
amount of cash from Insight L.P. Upon completion of the transactions, Insight
Midwest would remain equally owned by Insight L.P. and AT&T Broadband, and
Insight L.P. would continue to serve as general partner and manage and operate
Insight Midwest's systems. The transactions are subject to the negotiation and
execution of definitive agreements.
F-19
<PAGE>
Report of Independent Auditors
The Members
Insight Communications of Indiana, LLC
We have audited the accompanying balance sheet of Insight Communications of
Indiana, LLC as of December 31, 1998 and the related statements of operations
and members' equity, and cash flows for the period from November 1, 1998 (date
of inception) through December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Insight
Communications of Indiana, LLC, at December 31, 1998 and the results of its
operations and its cash flows for the period from November 1, 1998 (date of
inception) through December 31, 1998, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
New York, New York
March 31, 1999
F-20
<PAGE>
Insight Communications of Indiana, LLC
Balance Sheet
December 31, 1998
(in thousands)
Assets
Cash and cash equivalents $ 19,493
Trade accounts receivable, net of allowance for doubtful
accounts of $339 6,701
Prepaid expenses and other 651
Fixed assets, net 129,776
Intangible assets, net 367,029
Deferred financing costs, net of amortization 3,682
--------
$527,332
========
Liabilities and Members' Equity
Accounts payable $ 12,467
Accrued expenses and other liabilities 4,324
Interest payable 5,824
Due to Tele-Communications, Inc. 522
Debt 460,000
--------
Total liabilities 483,137
Members' equity 44,195
--------
$527,332
========
See accompanying notes.
F-21
<PAGE>
Insight Communications of Indiana, LLC
Statement of Operations and Members' Equity
For the period from November 1, 1998
(date of inception) through December 31, 1998
(dollars in thousands)
Revenue $ 23,925
Costs and expenses:
Programming and other operating costs 6,206
Selling, general and administrative 4,653
Depreciation and amortization 13,998
--------
24,857
Loss from operations (932)
Other income (expense):
Interest expense (5,824)
Other (64)
--------
Net loss (6,820)
Members' equity at November 1, 1998 (date of inception) 51,015
--------
Members' equity at December 31, 1998 $ 44,195
========
See accompanying notes.
F-22
<PAGE>
Insight Communications of Indiana, LLC
Statement of Cash Flows
For the period from November 1, 1998 (date of inception)
through December 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
<S> <C>
Operating activities
Net loss $ (6,820)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 13,998
Provision for losses on trade accounts receivable 226
Changes in operating assets and liabilities:
Trade accounts receivable (552)
Prepaid expenses and other (651)
Accounts payable and accrued expenses 7,223
Due to Tele-Communications, Inc. 522
Interest payable 5,824
---------
Net cash provided by operating activities 19,770
---------
Investing activities:
Purchases of fixed assets (4,022)
Increase in intangible assets (573)
---------
Net cash used in investing activities (4,595)
---------
Financing activities:
Proceeds from bank credit facility 460,000
Repayment of amounts due to Tele-Communications, Inc. (214,552)
Repayment of amounts due to Insight Communications Company, LP (237,448)
Debt issuance costs (3,682)
---------
Net cash provided by financing activities 4,318
---------
Cash and cash equivalents, December 31, 1998 $ 19,493
=========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ --
=========
Supplemental disclosures of significant non cash financing activities:
Contribution of cable system assets by partner $ 44,195
=========
</TABLE>
See accompanying notes.
F-23
<PAGE>
Insight Communications of Indiana, LLC
Notes to Financial Statements
A. Organization and Basis of Presentation
Pursuant to the terms of a Contribution Agreement dated October 31, 1998,
Insight Communications Company, L.P. ("Insight") and Tele-Communications, Inc.
("TCI") contributed certain of their cable television systems located in Indiana
and Northern Kentucky to Insight Communications of Indiana, LLC ("Insight
Indiana"), a newly formed limited liability corporation, in exchange for 50%
equity interests therein. The cable television systems contributed to Insight
Indiana by Insight included the Jasper and Evansville systems that were acquired
by Insight from TCI on October 31, 1998 and the Noblesville, Jeffersonville and
Lafayette systems. Pursuant to the terms of the Insight Indiana operating
agreement (the "Operating Agreement"), Insight Indiana has a twelve year life,
unless extended by TCI and Insight. In addition, the Operating Agreement states
that Insight is the manager of Insight Indiana and effectively controls its
board, including all of the operating and financial decisions pertaining to
Insight Indiana. Accordingly, the historical carrying values of the TCI
contributed systems have been increased by an amount equivalent to 50% of the
difference between the fair value of the systems and their respective carrying
values ($89.1 million). In addition, the historical values of the Noblesville,
Jeffersonville and Lafayette systems have been increased by $44.3 million, an
amount equivalent to 50% of the difference between the fair value of such
systems and their respective carrying values. Furthermore, in connection with
Insight's acquisition of the Jasper and Evansville systems, the historical
values of such systems were increased by $112 million, an amount equivalent to
the difference between the fair value of such systems and their carrying values.
The aggregate step-up to fair value was allocated to the cable television assets
contributed by TCI in relation to their fair values as increases in property and
equipment of $58 million and franchise costs of $181.6 million. The accompanying
financial statements include the results of operations of Insight Indiana from
November 1, 1998 (date of inception) through December 31, 1998.
Because Insight Indiana is a limited liability company, the liability of its
members is limited to their respective investments.
B. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
F-24
<PAGE>
Insight Communications of Indiana, LLC
Notes to Financial Statements (continued)
B. Significant Accounting Policies (continued)
Revenue Recognition
Revenues include service fees, connection fees, and launch fees. Service fees
are recorded in the month the cable television and pay television services are
provided to subscribers. Connection fees are charged for the hook-up of new
customers and are recognized as current revenues to the extent of direct selling
costs incurred. Launch fees are deferred and amortized over the period of the
underlying contract. Any fees in excess of such costs are deferred and amortized
into income over the period that subscribers are expected to remain connected to
the system.
Cash Equivalents
Insight Indiana considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Fixed Assets
Fixed assets are stated at cost, which includes amounts capitalized for labor
and overhead expended in connection with the installation of cable television
systems. Depreciation for furniture, fixtures, office equipment, buildings and
equipment is computed using the straight-line method over estimated useful lives
ranging from 3 to 10 years. Leasehold improvements are being amortized using the
straight-line method over the remaining terms of the leases or the estimated
lives of the improvements, whichever period is shorter. Management does not
believe that any events or changes in circumstances indicate that the carrying
amount of these long-lived assets may not be recovered.
Intangible Assets
Intangible assets consist of franchise costs and goodwill. Costs incurred in
negotiating and renewing franchise agreements are capitalized and amortized over
the life of the franchise. Franchise rights acquired through the purchase of
cable television systems represent the excess of the cost of the properties
acquired over the amounts assigned to the tangible assets at the date of
acquisition and are amortized using the straight line method over a period of up
to fifteen years. Goodwill is amortized using the straight-line method over a
period of 40 years. The carrying value of intangible assets will be reviewed if
facts and circumstances suggest that they may be impaired. If this review
indicates that the intangible assets will not be recovered from the undiscounted
future
F-25
<PAGE>
Insight Communications of Indiana, LLC
Notes to Financial Statements (continued)
B. Significant Accounting Policies (continued)
cash flows of the individual system comprising Insight Indiana, the carrying
value of such intangible assets would be considered impaired and will be reduced
by a charge to operations in the amount of the impairment. Based on its most
recent analysis, management believes that no material impairment of intangible
assets exists as of December 31, 1998.
Deferred Financing Costs
Deferred financing costs relate to costs, primarily legal fees and bank facility
fees, incurred to negotiate and secure bank loans. These costs are being
amortized on a straight line basis over the life of the applicable loan.
Marketing and Promotional Costs
Marketing and promotional costs are expensed as incurred. For the period from
November 1, 1998 (date of inception) through December 31, 1998, marketing and
promotional expense approximated $205,000.
Income Taxes
No provision has been made in the accompanying financial statements for federal,
state, or local income taxes since the income or loss of Insight Indiana is
reportable by the individual partners in their respective tax returns.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
Insight Indiana expects to adopt the Statement effective January 1, 2000. The
Statement will require Insight Indiana to recognize all derivatives on the
balance sheet at fair value. Although management has not completed its
assessment of the impact of SFAS No. 133 on its results of operations, and
financial position, management does not anticipate that the adoption of this
Statement will be material.
F-26
<PAGE>
Insight Communications of Indiana, LLC
Notes to Financial Statements (continued)
C. Fixed Assets
Fixed assets consist of:
December 31, 1998
-----------------
(in thousands)
Land, buildings and improvements $ 4,010
Cable television equipment 149,194
Furniture, fixtures and office equipment 6,681
---------
159,885
Less accumulated depreciation and amortization (30,109)
---------
$ 129,776
=========
D. Intangible Assets
Intangible assets consist of:
December 31, 1998
-----------------
(in thousands)
Franchise rights $ 378,631
Goodwill 930
---------
379,561
Less accumulated amortization (12,532)
---------
$ 367,029
=========
E. Debt
Debt consists of:
December 31, 1998
-----------------
(in thousands)
Revolving credit facility $160,000
Term loan 300,000
--------
$460,000
========
F-27
<PAGE>
Insight Communications of Indiana, LLC
Notes to Financial Statements (continued)
E. Debt (continued)
At December 31, 1998, Insight Indiana had a credit facility (the "Credit
Facility") that provides for term loans of $300 million and for revolving credit
loans of up to $250 million. The Credit Facility matures in December 2006, and
contains quarterly reductions in the amount of outstanding loans and commitments
commencing in March 2001. Obligations under this Credit Facility are secured by
substantially all of Insight Indiana's assets. Loans under the Credit Facility
bear interest at an alternate base or Eurodollar rate plus an additional margin
tied to certain debt ratios of Insight Indiana. The Credit Facility requires
Insight Indiana to meet certain debt financial covenants. For the two months
ended December 31, 1998, average interest rates approximated 7.60%.
At December 31, 1998 required annual principal payments under the aforementioned
Credit Facility are as follows (in thousands):
2001 $ 55,000
2002 74,250
2003 90,750
Thereafter 240,000
---------
$ 460,000
=========
F. Financial Instruments
Concentrations of Credit Risk
Financial instruments that potentially subject Insight Indiana to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. Insight Indiana maintains cash and cash equivalents, with
various financial institutions. Insight Indiana's policy is designed to limit
exposure to any one institution. Concentrations of credit risk with respect to
accounts receivable are limited due to the large number of customers comprising
Insight Indiana's customer base.
The following methods and assumptions were used by Insight Indiana in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance sheet for
cash and cash equivalents approximates its fair value.
F-28
<PAGE>
Insight Communications of Indiana, LLC
Notes to Financial Statements (continued)
F. Financial Instruments (continued)
Debt: The carrying amounts of Insight Indiana's borrowings under its credit
facility approximate its fair value as it bears interest at floating rates.
The carrying amounts and fair values of Insight Indiana's financial instruments
at December 31 approximate fair value.
Insight Indiana enters into interest-rate swap agreements to modify the interest
characteristics of its outstanding debt from a floating rate to a fixed rate
basis. These agreements involve the payment of fixed rate amounts in exchange
for floating rate interest receipts over the life of the agreement without an
exchange of the underlying principal amount. The differential to be paid or
received is accrued as interest rates change and recognized as an adjustment to
interest expense related to the debt. The related amount payable to or
receivable from counterparties is included in other liabilities or assets. At
December 31, 1998 Insight Indiana has entered into various interest rate swap
and collar agreements effectively fixing interest rates at 4.4% to 5.1% on $75
million notional value of debt. The fair values of the swap agreements are not
recognized in the financial statements and approximated $.1 million at December
31, 1998.
G. 401(k) Plan
Insight Indiana sponsors a savings and investment 401(k) Plan (the "Plan") for
the benefit of its employees. All employees who have completed six months of
employment and have attained age 21 are eligible to participate in the Plan.
Insight Indiana makes matching contributions equal to a percentage of the
employee's contribution. For the two months ended December 31, 1998, the
matching contribution approximated $71,000.
F-29
<PAGE>
Insight Communications of Indiana, LLC
Notes to Financial Statements (continued)
H. Commitments and Contingencies
Insight Indiana leases and subleases equipment and office space under operating
lease arrangements expiring through December 31, 2015. Future minimum rental
payments required under operating leases are as follows (in thousands):
1999 $ 477
2000 191
2001 143
2002 130
2003 119
Thereafter 378
-------
$ 1,438
=======
Rental expense for the two month period ended December 31, 1998 approximated $.1
million.
I. Related Party Transactions
In addition, in connection with the Contribution Agreement (see note D), Insight
Indiana purchases substantially all of its pay television and other programming
from affiliates of TCI. Charges for such programming were $1.4 million for the
period from November 1, 1998 through December 31, 1998. Management believes that
the programming rates charged by TCI affiliates are lower than those which would
be available for independent parties.
In connection with the formation of Insight Indiana, $214.6 million and $237.5
million of intercompany debt due to TCI and Insight was assumed. During November
1998, such amounts were repaid. Insight Indiana pays Insight a management fee
equivalent to 3% of its revenue. For the two month period ended December 31,
1998, such management fee approximated $.7 million.
F-30
<PAGE>
Report of Independent Auditors
The Board of Directors
Insight Communications Company, Inc.
We have audited the accompanying combined balance sheets of the Noblesville IN,
Jeffersonville IN and Lafayette IN cable television systems (collectively the
"Combined Systems") included in Insight Communications Company, L.P., as of
October 31, 1998, and the related combined statements of operations, changes in
net assets, and cash flows for the year ended December 31, 1997 and the period
from January 1, 1998 to October 31, 1998. These combined financial statements
are the responsibility of the Combined Systems' management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of the Combined Systems,
included in Insight Communications Company, L.P., October 31, 1998, and the
combined results of their operations and their cash flows for the year ended
December 31, 1997 and the period from January 1, 1998 to October 31, 1998, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
September 13, 1999
F-31
<PAGE>
Noblesville In, Jeffersonville In, and Lafayette In
Cable Television Systems
Combined Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
October 31, 1998
----------------
<S> <C>
Assets
Cash and cash equivalents $ 291
Trade accounts receivable, net of allowance for doubtful accounts
of $40 1,456
Prepaid expenses 141
Fixed assets, net 59,304
Intangible assets, net 55,194
--------
Total assets $116,386
========
Liabilities and Net Assets
Accounts payable $ 3,085
Accrued expenses and other liabilities 2,729
--------
Total liabilities 5,814
Net assets 110,572
--------
Total Liabilities and Net Assets $116,386
========
</TABLE>
See accompanying notes.
F-32
<PAGE>
Noblesville In, Jeffersonville In, and Lafayette In
Cable Television Systems
Combined Statements of Operations
(dollars in thousands)
Ten months
Year ended ended
December 31, October 31
1997 1998
----------------------------
Revenue $ 22,055 $ 33,486
Costs and expenses:
Programming and other operating costs 5,852 9,028
Selling, general and administrative 3,296 5,203
Depreciation and amortization 5,498 10,790
----------------------------
14,646 25,021
Operating income 7,409 8,465
Other expense (26) (27)
----------------------------
Net income $ 7,383 $ 8,438
============================
See accompanying notes.
F-33
<PAGE>
Noblesville In, Jeffersonville In, and Lafayette In
Cable Television Systems
Combined Statements of Changes in Net Assets
(dollars in thousands)
Balance at January 1, 1997 $ 14,751
Effect of cable system exchange (see Note A) 80,000
Net income 7,383
--------
Balance at December 31, 1997 102,134
Net income 8,438
--------
Balance at October 31, 1998 $110,572
========
See accompanying notes.
F-34
<PAGE>
Noblesville In, Jeffersonville In, and Lafayette In
Cable Television Systems
Combined Statements of Cash Flows
(dollars in thousands)
<TABLE>
<CAPTION>
Year ended Ten months
December 31, ended October
1997 31, 1998
---------------------------
<S> <C> <C>
Operating activities
Net income $ 7,383 $ 8,438
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 5,497 10,790
Provision for losses on trade accounts receivable 192 281
Changes in operating assets and liabilities:
Trade accounts receivable (686) (939)
Prepaid expenses and other assets (349) 376
Accounts payable 846 1665
Accrued expenses and other liabilities 456 994
---------------------------
Net cash provided by operating activities 13,339 21,605
---------------------------
Investing activities
Purchases of fixed assets (17,246) (21,432)
Increase in intangible assets (8,645) (25)
---------------------------
Net cash used in investing activities (25,891) (21,457)
---------------------------
Financing activities
Net proceeds from system exchange 12,588 -
---------------------------
Net cash provided by financing activities 12,588 -
---------------------------
Net increase in cash and cash equivalents 36 148
Cash and cash equivalents, beginning of period 107 143
---------------------------
Cash and cash equivalents, end of period $ 143 $ 291
===========================
</TABLE>
See accompanying notes.
F-35
<PAGE>
Noblesville In, Jeffersonville In, and Lafayette In
Cable Television Systems
Notes to Combined Financial Statements
A. Description of Business and Basis of Presentation
Description of Business
The cable television systems operating in the metropolitan areas of Noblesville,
IN; Jeffersonville, IN; and Lafayette, IN (the "Combined Systems") are
principally engaged in the cable television business under non-exclusive
franchise agreements, which expire at various times beginning in 1999. Through
October 31, 1998 the Combined Systems were owned by Insight Communications
Company, L.P. (the "Partnership").
Basis of Presentation
The accompanying combined financial statements of the Combined Systems reflect
the "carved out" historical financial position, results of operations, changes
in net assets and cash flows of the operations of the Combined Systems as if
they had been operating as a separate company. Significant intercompany accounts
and transactions between the Combined Systems have been eliminated. Significant
accounts and transactions with the Partnership and its affiliates are disclosed
as related party transactions (See Note C). Effective December 16, 1997 the
Partnership exchanged its Phoenix, Arizona system ("Phoenix") servicing 36,250
subscribers for Cox Communications, Inc.'s Lafayette, Indiana system
("Lafayette") servicing approximately 38,100 subscribers. In addition to the
Lafayette system received, the Partnership received $12.6 million in cash. The
Lafayette purchase price ($80 million) was allocated to the cable television
assets acquired in relation to their fair values as increases in property and
equipment of $22.4 million and franchise costs of $56.6 million. Purchase price
adjustments for differences in working capital between the Phoenix and Lafayette
systems were not significant.
Accordingly, the results of operations of the Layafette system are included in
the accompanying financial statements from the date of acquisition.
The pro forma unaudited results of operations of the Combined Systems for the
year ended December 31, 1997 assuming the acquisition of the Lafayette system
occurred on January 1, 1997 is as follows (in thousands):
F-36
<PAGE>
Noblesville In, Jeffersonville In, and Lafayette In
Cable Television Systems
Notes to Combined Financial Statements (continued)
A. Description of Business and Basis of Presentation (continued)
Revenues $40,203
Income before extraordinary item 10,932
Net income 10,932
Effective as of October 31, 1998, the Combined Systems' financial statements
reflect the new basis of accounting arising from their contribution into Insight
Communications of Indiana LLC ("Insight Indiana") (See Note E).
The combined financial statements have been adjusted to include the allocation
of certain expenses incurred by the Partnership on the Combined Systems' behalf,
based upon the ratio of Combined System subscribers to total Partnership
subscribers. These allocations reflect all costs of doing business that the
Combined Systems would have incurred on a stand alone basis as disclosed in Note
C. Management believes that these allocations are reasonable.
B. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Concentration of Credit Risk
A significant portion of the customer base is concentrated within the local
geographical area of each of the individual cable television systems. The
Combined Systems generally extend credit to customers and the ultimate
collection of accounts receivable could be affected by the local economy.
Management performs continuous credit evaluations of its customers and may
require cash in advance or other special arrangements from certain customers.
Management does not believe that there is a significant credit risk which could
have a significant effect on the financial condition of the Combined Systems.
F-37
<PAGE>
Noblesville In, Jeffersonville In, and Lafayette In
Cable Television Systems
Notes to Combined Financial Statements (continued)
B. Summary of Significant Accounting Policies (continued)
Revenue Recognition
Revenues include service fees, connection fees and launch fees. Service fees are
recorded in the month the cable television and pay television services are
provided to subscribers. Connection fees are charged for the hook-up of new
customers and are recognized as current revenues to the extent of direct selling
costs incurred. Launch fees are deferred and amortized over the period of the
underlying contract. Any fees in excess of such costs are deferred and amortized
into income over the period that subscribers are expected to remain connected to
the system.
Statement of Cash Flows
The Combined Systems participate in a cash management system with affiliates
whereby cash receipts are transferred to a centralized bank account from which
centralized payments to various suppliers and creditors are made on behalf of
the Combined Systems. The excess of such cash receipts over payments is included
in net assets. Amounts shown as cash represent the Combined Systems' net cash
receipts not transferred to the centralized account as of December 31, 1997 and
October 31, 1998. For purposes of this statement, cash and cash equivalents
includes all highly liquid investments purchased with original maturities of
three months or less.
Fixed Assets
Fixed assets are stated at cost, which includes amounts capitalized for labor
and overhead expanded in connection with the installation of cable television
systems. Depreciation is computed using the straight-line method over estimated
useful lives ranging from 5 to 10 years. Management does not believe that any
events or changes in circumstances indicate that the carrying value of these
long-lived assets may not be recovered. Fixed assets consist of the following:
F-38
<PAGE>
Noblesville In, Jeffersonville In, and Lafayette In
Cable Television Systems
Notes to Combined Financial Statements (continued)
B. Summary of Significant Accounting Policies (continued)
December 31, October 31,
1997 1998
--------------------------
(in thousands)
Land, buildings and improvements $ 2,243 $ 2,024
Cable television equipment 53,431 75,446
Furniture, fixtures and office equipment 1,420 894
Less accumulated depreciation and amortization (11,311) (19,060)
-----------------------
$ 45,783 $ 59,304
=======================
Intangible Assets
Intangible assets consist of franchise costs and goodwill. Costs incurred
negotiating and renewing franchise agreements are capitalized and amortized over
the life of the franchise. Franchise rights acquired through the purchase of
cable television systems represent the excess cost of the properties acquired
over the amounts assigned to the tangible assets at the date of acquisition.
During 1997 and 1998, the Combined Systems amortized cable television franchises
over periods up to 15 years using the straight-line method. The carrying value
of intangible assets, will be reviewed if facts and circumstances suggest that
that they may be impaired. Upon a determination that the carrying value of
intangible assets will not be recovered from the undiscounted future cash flows
of the acquired business, the carrying value of such intangible assets would be
considered impaired and would be reduced by a charge to operations in the amount
of the impairment. Based on its recent analysis, management believes that no
material impairment of long-lived assets exists at October 31, 1998.
Income Taxes
As a U.S. partnership, the Partnership is not subject to federal and most state
income taxes and, therefore, no income taxes are recorded in the accompanying
financial statements.
F-39
<PAGE>
Noblesville In, Jeffersonville In, and Lafayette In
Cable Television Systems
Notes to Combined Financial Statements (continued)
C. Related Parties
In the normal course of business, the Combined Systems had various transactions
with the Partnership and its affiliates, generally on terms resulting from a
negotiation between the affected units that in management's view resulted in
reasonable allocations.
The assets of the Combined Systems serve as security under the Partnership's
lending agreements. No amount of interest charged under these agreements has
been allocated to the Combined Systems' operations. Interest expense on a
consolidated basis for the Partnership was approximately $16.0 million and $28.1
million for the years ended December 31, 1997 and 1998, respectively.
Included in the Combined Systems' operating expenses are charges for programming
and promotional services provided by the Partnership. These charges are based on
customary rates and are in the ordinary course of business. For the year ended
December 31, 1997 and the ten months ended October 31, 1998 these charges
totaled $4.3 million and $7.2 million, respectively.
D. Commitment and Contingencies
The Combined Systems had rental expense of approximately $83,000 and $112,000
for the year ended December 31, 1997 and the ten months ended October 31, 1998,
respectively, under various lease agreements for offices, utility poles,
warehouses and computer equipment. Future minimum rental payments required under
operating leases over the next five years are as follows:
(in thousands)
--------------
1999 $ 40,831
2000 1,150
2001 500
2002 500
2003 500
Thereafter 1,208
--------------
$ 44,689
==============
F-40
<PAGE>
Noblesville In, Jeffersonville In, and Lafayette In
Cable Television Systems
Notes to Combined Financial Statements (continued)
E. Subsequent Event (Unaudited)
Effective October 31, 1998, the Partnership and Tele-Communications, Inc.
("TCI") entered into a contribution agreement ("Contribution Agreement").
Pursuant to the terms of the Contribution Agreement, the Partnership and TCI
contributed certain of their cable television systems located in Indiana and
Northern Kentucky to Insight Communications of Indiana, LLC ("Insight Indiana")
in exchange for 50% equity interests therein. All three of the Combined Systems
were contributed into Insight Indiana effective October 31, 1998. The
Partnership recognized a gain of $44.3 million on the contribution of the
Combined Systems to Insight Indiana, equivalent to 50% of the difference between
the carrying value of such systems and their fair value.
F-41
<PAGE>
Independent Auditors' Report
The Board of Directors
Tele-Communications, Inc.:
We have audited the accompanying combined balance sheet of the TCI Insight
Systems (as defined in Note 1 to the combined financial statements) as of
October 31, 1998, and the related combined statements of operations and parent's
investment (deficit), and cash flows for the ten-month period ended October 31,
1998 and for the year ended December 31, 1997. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the TCI Insight
Systems as of October 31, 1998, and the results of their operations and their
cash flows for the ten-month period ended October 31, 1998 and for the year
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Denver, Colorado
March 5, 1999
F-42
<PAGE>
TCI Insight Systems
(A combination of certain assets, as defined in note 1)
Combined Balance Sheet
(amounts in thousands)
<TABLE>
<CAPTION>
October 31,
1998
----------
<S> <C>
Assets
Cash $ 896
Trade and other receivables, net 5,113
Property and equipment, at cost:
Land 217
Distribution systems 117,346
Support equipment and buildings 12,716
---------
130,279
Less accumulated depreciation 69,679
---------
60,600
---------
Franchise costs 187,768
Less accumulated amortization 42,303
---------
145,465
---------
Other assets 108
=========
$ 212,182
=========
Liabilities And Parent's Deficit
Cash overdraft $ --
Accounts payable and accrued expenses 3,728
Deferred income taxes (note 3) 63,966
Intercompany notes owed to Tele-Communications, Inc. ("TCI") (notes 1 and 4) 230,000
---------
Total liabilities 297,694
Parent's deficit (note 4) (85,512)
---------
$ 212,182
=========
Commitments and contingencies (note 5)
</TABLE>
See accompanying notes to combined financial statements.
F-43
<PAGE>
TCI Insight Systems
(A combination of certain assets, as defined in note 1)
Combined Statements of Operations and Parent's Investment (Deficit)
(amounts in thousands)
January 1,
Year ended 1998 through
December 31, October 31,
1997 1998
-----------------------
Revenue $ 93,543 $ 80,357
Operating costs and expenses:
Operating (note 4) 28,012 24,375
Selling, general and administrative 11,583 11,835
Management fees (note 4) 3,732 3,057
Depreciation 8,545 8,222
Amortization 4,916 4,001
-----------------------
56,788 51,490
-----------------------
Operating income 36,755 28,867
Other income (expense) 96 (159)
Earnings before income taxes 36,851 28,708
Income tax expense (note 3) (12,828) (9,969)
-----------------------
Net earnings 24,023 18,739
Parent's investment (deficit):
Beginning of period 147,614 141,088
Change in due to TCI (30,549) (15,339)
Intercompany notes owed to TCI (notes 1 and 4) -- (230,000)
-----------------------
End of period $ 141,088 $ (85,512)
=======================
See accompanying notes to combined financial statements.
F-44
<PAGE>
TCI Insight Systems
(A combination of certain assets, as defined in note 1)
Combined Statements of Cash Flows
(amounts in thousands)
<TABLE>
<CAPTION>
January 1,
Year ended 1998 through
December 31, October 31,
1997 1998
--------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 24,023 $ 18,739
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 13,461 12,223
Deferred income tax expense (1,366) (1,659)
Changes in operating assets and liabilities:
Change in receivables (2,471) 40
Change in other assets 200 58
Change in accounts payable and accrued expenses 23 (683)
--------------------------
Net cash provided by operating activities 33,870 28,718
--------------------------
Cash flows from investing activities:
Capital expended for property and equipment (5,068) (11,927)
Other investing activities 102 43
--------------------------
Net cash used in investing activities (4,966) (11,884)
--------------------------
Cash flows from financing activities:
Change in due to TCI (30,549) (15,339)
Change in cash overdraft 599 (599)
--------------------------
Net cash used in financing activities (29,950) (15,938)
--------------------------
Net increase (decrease) in cash (1,046) 896
--------------------------
Cash:
Beginning of period 1,046 --
--------------------------
End of period $ -- $ 896
==========================
</TABLE>
See accompanying notes to combined financial statements.
F-45
<PAGE>
TCI Insight Systems
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
For the Period from January 1, 1998 to October 31, 1998
and for the Year Ended December 31, 1997
1. Basis of Presentation
The combined financial statements include the accounts of twelve of TCI's cable
television systems and three related advertising sales offices serving certain
subscribers within Indiana (collectively, the "TCI Insight Systems"). The TCI
Insight Systems were indirectly wholly-owned by TCI in all periods presented
herein. All significant inter-entity accounts and transactions have been
eliminated in combination. The combined net assets of TCI Insight Systems
including amounts due to TCI are referred to as "Parent's Investment."
The TCI Insight Systems were acquired through a series of transactions whereby
TCI acquired various larger cable entities (the "Original Systems"). The TCI
Insight System's combined financial statements include an allocation of certain
purchase accounting adjustments, including the related deferred tax effects,
from TCI's acquisition of the Original Systems. Such allocation and the related
franchise cost amortization is based on the relative fair market value of
systems acquired. In addition, certain costs of TCI are charged to the TCI
Insight Systems based on their number of subscribers (see note 4). Although such
allocations are not necessarily indicative of the costs that would have been
incurred by the TCI Insight Systems on a stand alone basis, management believes
that the resulting allocated amounts are reasonable.
Limited Liability Company Formation
Effective October 31, 1998, TCI and Insight Communications L.P. ("Insight")
executed a transaction under a Contribution and Purchase Agreement, whereby TCI
contributed and exchanged certain cable television systems and advertising sales
offices to a newly formed Limited Liability Company between TCI and Insight (the
"LLC") in exchange for an approximate 50% ownership interest in the LLC and
certain cable systems. In connection with the contribution, the LLC assumed
$214.6 million of the intercompany interest bearing notes owed by the TCI
Insight Systems to TCI and its affiliates. These amounts were subsequently paid
by the LLC. The accompanying combined financial statements reflect the financial
position, results of operations and cash flows of the TCI Insight Systems
immediately prior to the contribution and exchange transactions, and, therefore,
do not include the effects of such transactions.
F-46
<PAGE>
TCI Insight Systems
(A combination of certain assets, as defined in Note 1)
Notes to Combined Financial Statements (continued)
For the Period from January 1, 1998 to October 31, 1998
and for the Year Ended December 31, 1997
2. Summary of Significant Accounting Policies
Receivables
Receivables are reflected net of an allowance for doubtful accounts. Such
allowance at October 31, 1998 was not significant.
Property and Equipment
Property and equipment is stated at cost, including acquisition costs allocated
to tangible assets acquired. Construction costs, labor and applicable overhead
related to installations, and interest during construction are capitalized.
During the ten-month period ended October 31, 1998 and for the year ended
December 31, 1997 interest capitalized was not significant.
Depreciation is computed on a straight-line basis using estimated useful lives
of 3 to 15 years for distribution systems and 3 to 40 years for support
equipment and buildings.
Repairs and maintenance are charged to operations, and renewals and additions
are capitalized. At the time of ordinary retirements, sales or other
dispositions of property, the original cost and cost of removal of such property
are charged to accumulated depreciation, and salvage, if any, is credited
thereto. Gains or losses are only recognized in connection with the sales of
properties in their entirety.
Franchise Costs
Franchise costs include the difference between the cost of acquiring cable
television systems and amounts assigned to their tangible assets. Such amounts
are generally amortized on a straight-line basis over 40 years. Costs incurred
by the TCI Insight Systems in negotiating and renewing franchise agreements are
amortized on a straight-line basis over the life of the franchise, generally 10
to 20 years.
Impairment of Long-Lived Assets
Management periodically reviews the carrying amounts of property, plant and
equipment and its intangible assets to determine whether current events or
circumstances warrant adjustments to such carrying amounts. If an impairment
adjustment is deemed necessary
F-47
<PAGE>
TCI Insight Systems
(A combination of certain assets, as defined in Note 1)
Notes to Combined Financial Statements (continued)
For the Period from January 1, 1998 to October 31, 1998
and for the Year Ended December 31, 1997
2. Summary of Significant Accounting Policies (continued)
based on an analysis of undiscounted cash flows, such loss is measured by the
amount that the carrying value of such assets exceeds their fair value.
Considerable management judgment is necessary to estimate the fair value of
assets, accordingly, actual results could vary significantly from such
estimates. Assets to be disposed of are carried at the lower of their financial
statement carrying amount or fair value less costs to sell.
Revenue Recognition
Cable revenue for customer fees, equipment rental, advertising, and pay-per-view
programming is recognized in the period that services are delivered.
Installation revenue is recognized in the period the installation services are
provided to the extent of direct selling costs. Any remaining amount is deferred
and recognized over the estimated average period that customers are expected to
remain connected to the cable television system.
Combined Statements of Cash Flows
Transactions effected through the intercompany account (except for the dividend
discussed in Note 4) with TCI have been considered constructive cash receipts
and payments for purposes of the combined statements of cash flows.
Estimates
The preparation of combined financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the combined financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from those
estimates.
3. Income Taxes
The TCI Insight Systems were included in the consolidated federal income tax
return of TCI. Income tax expense for the TCI Insight Systems is based on those
items in the consolidated calculation applicable to the TCI Insight Systems.
Intercompany tax allocation represents an apportionment of tax expense or
benefit (other than deferred
F-48
<PAGE>
TCI Insight Systems
(A combination of certain assets, as defined in Note 1)
Notes to Combined Financial Statements (continued)
For the Period from January 1, 1998 to October 31, 1998
and for the Year Ended December 31, 1997
3. Income Taxes (continued)
taxes) among subsidiaries of TCI in relation to their respective amounts of
taxable earnings or losses. The payable or receivable arising from the
intercompany tax allocation is recorded as an increase or decrease in amounts
due to TCI. Deferred income taxes are based on the book and tax basis
differences of the assets and liabilities within the TCI Insight Systems. The
income tax amounts included in the accompanying combined financial statements
approximate the amounts that would have been reported if the TCI Insight Systems
would have filed a separate income tax return.
Income tax expense for the ten-month period ended October 31, 1998 and for the
year ended December 31, 1997 consists of:
<TABLE>
<CAPTION>
Current Deferred Total
--------------------------------------
(amounts in thousands)
<S> <C> <C> <C>
Ten-month period ended October 31, 1998:
Intercompany allocation $ (11,628) $ - $ (11,628)
Federal - 1,507 1,507
State and local - 152 152
--------------------------------------
$(11,628) $1,659 $(9,969)
======================================
Year ended December 31, 1997:
Intercompany allocation $(14,194) $ - $(14,194)
Federal - 1,241 1,241
State and local - 125 125
--------------------------------------
$ (14,194) $ 1,366 $ (12,828)
======================================
</TABLE>
F-49
<PAGE>
TCI Insight Systems
(A combination of certain assets, as defined in Note 1)
Notes to Combined Financial Statements (continued)
For the Period from January 1, 1998 to October 31, 1998
and for the Year Ended December 31, 1997
3. Income Taxes (continued)
Income tax expense differs from the amounts computed by applying the federal
income tax rate of 35% as a result of the following:
January 1,
Year ended 1998 through
December 31, October 31,
1997 1998
----------------------------
(amounts in thousands)
Computed "expected" tax expense. $ (12,897) $ (10,048)
State and local income taxes, net of federal
income tax benefit 81 98
Other (12) (19)
----------------------------
$ (12,828) $ (9,969)
============================
The tax effects of temporary differences that give rise to significant portions
of the deferred tax asset and deferred tax liabilities at October 31, 1998 are
presented below:
(amount in
thousands)
Deferred tax asset--principally due to
non-deductible accruals $ 79
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation 12,822
Franchise costs, principally due to differences
in amortization and initial basis 51,223
---------
Total gross deferred tax liabilities 64,045
---------
Net deferred tax liability $ 63,966
=========
F-50
<PAGE>
TCI Insight Systems
(A combination of certain assets, as defined in Note 1)
Notes to Combined Financial Statements (continued)
For the Period from January 1, 1998 to October 31, 1998
and for the Year Ended December 31, 1997
4. Parent's Investment (Deficit)
Parent's deficit in the TCI Insight Systems at October 31, 1998 is summarized as
follows:
amounts
in thousands
Due to TCI $ 77,892
Accumulated deficit (163,404)
------------
$ (85,512)
============
The amount due to TCI includes advances for operations, acquisitions and
construction costs, as well as, the non-interest bearing amounts owed as a
result of the allocation of certain costs from TCI.
On September 30, 1998, TCI caused the TCI Insight Systems to effect a dividend
from the TCI Insight Systems to TCI aggregating $230,000,000 (the "Dividend").
The Dividend resulted in an increase to the intercompany notes owed to TCI and a
corresponding decrease to retained earnings.
As a result of TCI's 100% ownership of the TCI Insight Systems, the non-interest
bearing amounts due to TCI have been classified as a component of Parent's
deficit in the accompanying combined balance sheet.
The TCI Insight Systems purchase, at TCI's cost, substantially all of their pay
television and other programming from affiliates of TCI. Charges for such
programming were $18,037,000 and $18,269,000 for the ten-months ended October
31, 1998 and for the year ended December 31, 1997, respectively, and are
included in operating expenses in the accompanying combined financial
statements.
Certain subsidiaries of TCI provide administrative services to the TCI Insight
Systems and have assumed managerial responsibility of the TCI Insight Systems'
cable television system operations and construction. As compensation for these
services, the TCI Insight Systems pay a monthly fee calculated on a
per-subscriber basis.
F-51
<PAGE>
TCI Insight Systems
(A combination of certain assets, as defined in Note 1)
Notes to Combined Financial Statements (continued)
For the Period from January 1, 1998 to October 31, 1998
and for the Year Ended December 31, 1997
4. Parent's Investment (Deficit) (continued)
The intercompany advances and expense allocation activity in amounts due to TCI
consists of the following:
January 1,
Year ended 1998 though
December 31, October 31,
1997 1998
--------------------------
(amounts in thousands)
Beginning of period $123,780 $ 93,231
Programming charges 18,269 18,037
Management fees 3,732 3,057
Tax allocations 14,194 11,628
Cash transfer (66,744) (48,061)
--------------------------
End of period $ 93,231 $ 77,892
==========================
5. Commitments and Contingencies
The Cable Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act") imposed certain rate regulations on the cable television industry.
Under the 1992 Cable Act, all cable systems are subject to rate regulation,
unless they face "effective competition," as defined by the 1992 Cable Act and
expanded in the Telecommunications Act of 1996 (the "1996 Act"), in their local
franchise area.
Although the Federal Communications Commission (the "FCC") has established
regulations required by the 1992 Cable Act, local government units (commonly
referred to as local franchising authorities) are primarily responsible for
administering the regulation of a cable system's basic service.
The FCC itself directly administered rate regulation of any cable programming
service tier ("CPST"). The FCC's authority to regulate CPST rates expired on
March 31, 1999. The FCC has taken the position that it will still adjudicate
CPST complaints filed after this sunset date (but not later than 180 days after
the last CPST rate increase imposed prior to March 31, 1999), and will strictly
limit its review (and possible refund orders) to the time period predating the
sunset date.
Under the FCC's rate regulations, most cable systems were required to reduce
their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a
F-52
<PAGE>
TCI Insight Systems
(A combination of certain assets, as defined in Note 1)
Notes to Combined Financial Statements (continued)
For the Period from January 1, 1998 to October 31, 1998
and for the Year Ended December 31, 1997
5. Commitments and Contingencies (continued)
complicated price structure that allows for the recovery of inflation and
certain increased costs, as well as providing some incentive for expanding
channel carriage. Operators also have the opportunity to bypass this "benchmark"
regulatory structure in favor of the traditional "cost-of-service" regulation in
cases where the latter methodology appears favorable. Premium cable services
offered on a per-channel or per-program basis remain unregulated, as do
affirmatively marketed packages consisting entirely of new programming product.
The management of the TCI Insight Systems believes that it has complied in all
material respects with the provisions of the 1992 Cable Act and the 1996 Act,
including its rate setting provisions. If, as a result of the review process, a
system cannot substantiate its rates, it could be required to retroactively
reduce its rates to the appropriate benchmark and refund the excess portion of
rates received. Any refunds of the excess portion of CPST rates would be
retroactive to the date of complaint. Any refunds of the excess portion of BST
or equipment rates would be retroactive to one year prior to the implementation
of the rate reductions.
Certain plaintiffs have filed or threatened separate class action complaints
against certain of the systems of TCI Insight Systems, alleging that the
systems' practice of assessing an administrative fee to subscribers whose
payments are delinquent constitutes an invalid liquidated damage provision, a
breach of contract, and violates local consumer protection statutes. Plaintiffs
seek recovery of all late fees paid to the subject systems as a class purporting
to consist of all subscribers who were assessed such fees during the applicable
limitation period, plus attorney fees and costs.
The TCI Insight Systems have contingent liabilities related to legal proceedings
and other matters arising in the ordinary course of business. Although it is
possible the TCI Insight Systems may incur losses upon conclusion of the matters
referred to above, an estimate of any loss or range of loss cannot presently be
made. Based upon the facts available, management believes that, although no
assurance can be given as to the outcome of these actions, the ultimate
disposition should not have a material adverse effect upon the combined
financial condition of the TCI Insight Systems.
The TCI Insight Systems lease business offices, have entered into pole rental
agreements and use certain equipment under lease arrangements. Rental expense
under such
F-53
<PAGE>
TCI Insight Systems
(A combination of certain assets, as defined in Note 1)
Notes to Combined Financial Statements (continued)
For the Period from January 1, 1998 to October 31, 1998
and for the Year Ended December 31, 1997
5. Commitments and Contingencies (continued)
arrangements amounted to $1,142,000 and $1,557,000 for the ten-month period
ended October 31, 1998 and for the year ended December 31, 1997, respectively.
Future minimum lease payments under noncancellable operating leases for each of
the next five years are summarized as follows (amounts in thousands):
Years
Ending
October 31,
-------------
1999 $ 413
2000 325
2001 302
2002 202
2003 161
Thereafter 367
------
$1,770
======
TCI formed a year 2000 Program Management Office (the "PMO") to organize and
manage its year 2000 remediation efforts. The PMO is responsible for overseeing,
coordinating and reporting on TCI's year 2000 remediation efforts, including the
year 2000 remediation efforts of the TCI Insight Systems prior to the
Contribution. Subsequent to the date of the Contribution, the year 2000
remediation efforts of the TCI Insight Systems are no longer the responsibility
of TCI or the PMO.
The failure to correct a material year 2000 problem could result in an
interruption or failure of certain important business operations. There can be
no assurance that the TCI Insight Systems or the systems of other companies on
which the TCI Insight Systems relies will be converted in time or that any such
failure to convert by the TCI Insight Systems or other companies will not have a
material adverse effect on its financial position, results of operations or cash
flows.
F-54
<PAGE>
Independent Auditors' Report
The Board of Directors
Tele-Communications, Inc.:
We have audited the accompanying combined balance sheet of the TCI IPVI Systems
(as defined in Note 1 to the combined financial statements) as of April 30,
1998, and the related combined statements of operations and parent's investment
(deficit), and cash flows for the four-month period ended April 30, 1998 and for
the year ended December 31, 1997. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the TCI IPVI Systems
as of April 30, 1998 , and the results of their operations and their cash flows
for the four-month period ended April 30, 1998 and for the year ended December
31, 1997, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Denver, Colorado
May 7, 1999
F-55
<PAGE>
TCI IPVI Systems
(A combination of certain assets, as defined in note 1)
Combined Balance Sheet
April 30, 1998
--------------
(amounts in thousands)
Assets
Trade and other receivables, net $ 11,944
Property and equipment, at cost:
Land 1,956
Distribution systems 354,042
Support equipment and buildings 31,718
-----------
387,716
-----------
Less accumulated depreciation 158,616
-----------
229,100
-----------
Intangible assets 784,316
Less accumulated amortization 133,443
-----------
650,873
-----------
Other assets 2,919
-----------
$ 894,836
===========
Liabilities and Parent's Deficit
Accounts payable and accrued expenses $ 13,049
Debt to banks (note 3) 322,500
Intercompany notes owed to TCI (notes 1 and 5) 489,488
Deferred income taxes (note 4) 254,698
-----------
Total liabilities 1,079,735
-----------
Parent's deficit (note 5) (184,899)
-----------
$ 894,836
===========
Commitments and contingencies (note 6)
See accompanying notes to combined financial statements.
F-56
<PAGE>
TCI IPVI Systems
(A combination of certain assets, as defined in note 1)
Combined Statements of Operations and Parent's Investment (Deficit)
<TABLE>
<CAPTION>
Year ended January 1,
December 31, 1998 through
1997 April 30, 1998
--------------------------------
(amounts in thousands)
<S> <C> <C>
Revenue $ 185,496 $ 64,042
Operating costs and expenses:
Operating (note 5) 62,788 23,428
Selling, general and administrative 37,711 13,147
Management fees (note 5) 6,195 2,035
Depreciation 27,996 9,528
Amortization 17,868 5,851
---------------------------
152,558 53,989
Operating income 32,938 10,053
Interest expense (19,627) (6,661)
Other income (expense) (65) 1,871
---------------------------
Earnings before income taxes 13,246 5,263
Income tax expense (note 4) (5,565) (1,971)
---------------------------
Net earnings 7,681 3,292
Parent's investment (deficit):
Beginning of period 261,348 260,222
Change in due to Tele-Communications, Inc. ("TCI"),
(notes 1 and 5) (8,807) 41,075
Intercompany notes owed to TCI (notes 1 and 5) - (489,488)
---------------------------
End of period $ 260,222 $ (184,899)
===========================
</TABLE>
See accompanying notes to combined financial statements.
F-57
<PAGE>
TCI IPVI SYSTEMS
(A combination of certain assets, as defined in note 1)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
January 1, 1998
Year ended through
December 31, 1997 April 30, 1998
--------------------------------------
(amounts in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 7,681 $ 3,292
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 45,864 15,379
Deferred income tax expense (benefit) 1,690 (1,532)
Other non cash charges 438 146
Changes in operating assets and liabilities:
Change in receivables (2,753) 972
Change in other assets (42) (122)
Change in accounts payable and accrued expenses (28,587) (5,575)
---------------------------------
Net cash provided by operating activities 24,291 12,560
---------------------------------
Cash flows from investing activities:
Capital expended for property and equipment (12,859) (10,636)
Other investing activities (125) 7
---------------------------------
Net cash used in investing activities (12,984) (10,629)
---------------------------------
Cash flows from financing activities:
Change in due to TCI (8,807) (1,931)
Borrowing of debt 103,500 --
Repayment of debt (106,000) --
---------------------------------
Net cash used in financing activities (11,307) (1,931)
---------------------------------
Net change in cash -- --
---------------------------------
Cash:
Beginning of period -- --
---------------------------------
End of period $ -- $ --
=================================
</TABLE>
See accompanying notes to combined financial statements.
F-58
<PAGE>
TCI IPVI Systems
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
For the Period from January 1, 1998 to April 30, 1998
and for the Year Ended December 31, 1997
1. Basis of Presentation
The combined financial statements include the accounts of eight of TCI's cable
television systems and five related advertising sales offices serving certain
subscribers within Kentucky (collectively, the "TCI IPVI Systems"). This
combination was created in connection with the Partnership formation discussed
below. Through February 1998, the TCI IPVI Systems were either 100%-owned or
majority-owned by TCI. In March 1998, through a series of transactions, TCI
acquired the remaining interest in the majority-owned entities from a third
party. As a result of these transactions, the TCI IPVI Systems' combined
financial statements include a March 1998 allocation of TCI's cost to acquire
such interest. Such allocation resulted in $69,646,000 of franchise costs and
$26,640,000 of deferred tax liabilities. All significant inter-entity accounts
and transactions have been eliminated in combination. The combined net assets of
TCI IPVI Systems including amounts due to TCI are referred to as "Parent's
Investment (Deficit)."
TCI's ownership interests in the IPVI Systems, as described above, were acquired
through transactions whereby TCI acquired various larger cable entities (the
"Original Systems"). The TCI IPVI System's combined financial statements include
an allocation of certain purchase accounting adjustments, including the related
deferred tax effects, from TCI's acquisition of the Original Systems. Such
allocation and the related franchise cost amortization was based on the relative
fair market value of the systems involved. In addition, certain costs of TCI are
charged to the TCI IPVI Systems based on their number of customers (see note 5).
Although such allocations are not necessarily indicative of the costs that would
have been incurred by the TCI IPVI Systems on a stand alone basis, management
believes that the resulting allocated amounts are reasonable.
Partnership Formation
Effective April 30, 1998, TCI and InterMedia Capital Management VI, L.P.
("InterMedia") executed a transaction under a Contribution Agreement, whereby
TCI contributed certain cable television systems and advertising sales offices,
the TCI IPVI Systems, to a newly formed partnership between TCI, Blackstone
Cable Acquisition Company, LLC, and InterMedia Capital Management VI, LLC (the
"Partnership") in exchange for an approximate 49.5% ownership interest in the
Partnership. TCI's 49.5% interest consists of a 49.005% direct ownership
interest issued in exchange for its contribution and an indirect ownership of
.495% through its 49.55% limited partner interest in InterMedia. In connection
with the contribution, the Partnership assumed
F-59
<PAGE>
TCI IPVI Systems
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements (continued)
For the Period from January 1, 1998 to April 30, 1998
and for the Year Ended December 31, 1997
1. Basis of Presentation (continued)
$322.5 million of bank debt and $489.5 million of intercompany interest bearing
notes owed by the TCI IPVI Systems to TCI and its affiliates. These amounts were
subsequently paid by the Partnership, net of certain post close adjustments. The
accompanying combined financial statements reflect the financial position,
results of operations and cash flows of the TCI IPVI Systems immediately prior
to the contribution transaction, and, therefore, do not include the effects of
such transactions.
2. Summary of Significant Accounting Policies
Receivables
Receivables are reflected net of an allowance for doubtful accounts. Such
allowance at April 30, 1998 was not significant.
Property and Equipment
Property and equipment is stated at cost, including acquisition costs allocated
to tangible assets acquired. Construction costs, labor and applicable overhead
related to installations, and interest during construction are capitalized.
During the four-month period ended April 30, 1998 and for the year ended
December 31, 1997, interest capitalized was not significant.
Depreciation is computed on a straight-line basis using estimated useful lives
of 3 to 15 years for distribution systems and 3 to 40 years for support
equipment and buildings.
Repairs and maintenance are charged to operations, and renewals and additions
are capitalized. At the time of ordinary retirements, sales or other
dispositions of property, the original cost and cost of removal of such property
are charged to accumulated depreciation, and salvage, if any, is credited
thereto. Gains or losses are only recognized in connection with the sales of
properties in their entirety.
F-60
<PAGE>
TCI IPVI Systems
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements (continued)
For the Period from January 1, 1998 to April 30, 1998
and for the Year Ended December 31, 1997
2. Summary of Significant Accounting Policies (continued)
Intangible Assets
Intangible assets are comprised of franchise costs that represent the difference
between the cost of acquiring cable television systems and amounts assigned to
their tangible assets. Such amounts are generally amortized on a straight-line
basis over 40 years. Costs incurred by the TCI IPVI Systems in negotiating and
renewing franchise agreements are amortized on a straight-line basis over the
life of the franchise, generally 10 to 20 years.
Impairment of Long-Lived Assets
Management periodically reviews the carrying amounts of property, plant and
equipment and its intangible assets to determine whether current events or
circumstances warrant adjustments to such carrying amounts. If an impairment
adjustment is deemed necessary based on an analysis of undiscounted cash flows,
such loss is measured by the amount that the carrying value of such assets
exceeds their fair value. Considerable management judgment is necessary to
estimate the fair value of assets, accordingly, actual results could vary
significantly from such estimates. Assets to be disposed of are carried at the
lower of their financial statement carrying amount or fair value less costs to
sell.
Revenue Recognition
Cable revenue for customer fees, equipment rental, advertising and pay-per-view
programming is recognized in the period that services are delivered.
Installation revenue is recognized in the period the installation services are
provided to the extent of direct selling costs. Any remaining amount is deferred
and recognized over the estimated average period that customers are expected to
remain connected to the cable television system.
Combined Statements of Cash Flows
Transactions effected through the intercompany account with TCI (except for the
Dividend discussed in Note 5) have been considered constructive cash receipts
and payments for purposes of the combined statements of cash flows.
During 1998, TCI completed a series of transactions to acquire the remaining
interest of the group of entities that own the TCI IPVI Systems. This
transaction resulted in a non
F-61
<PAGE>
TCI IPVI Systems
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements (continued)
For the Period from January 1, 1998 to April 30, 1998
and for the Year Ended December 31, 1997
2. Summary of Significant Accounting Policies (continued)
cash increase in franchise costs, parent's investment, and deferred income tax
liability of $69,646,000, $43,006,000 and $26,640,000, respectively.
Estimates
The preparation of combined financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the combined financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from those
estimates.
3. Debt to Banks
As described in note 1, the bank debt of the TCI IPVI Systems was paid by the
Partnership subsequent to the contribution of the TCI IPVI Systems to the
Partnership.
Debt to banks consisted of borrowings under a $340,000,000 unsecured revolving
credit facility. The revolving credit facility's maximum commitment were
scheduled to be gradually reduced in increasing quarterly increments commencing
March 31, 1997 in amounts ranging from 2.50% to 5.75% of the commitment level at
that date through the December 31, 2002 expiration date. The TCI IPVI Systems
were permitted to make prepayments in multiples of $5,000,000 prior to the
expiration date.
This facility provided for interest rates based on either the agent bank's base
rate (the higher of the prime rate or 1/2% above the Federal funds rate),
certificate of deposit-based rate, Eurodollar rate or some combination of the
above, plus an applicable margin, subject to selection by the TCI IPVI Systems.
The applicable margin was determined based on the maintenance of certain
leverage ratios. The interest rate, including the applicable margin, was 6.219%,
at April 30, 1998 and averaged approximately 6.06% during 1998.
The revolving line of credit facility required an annual commitment fee, payable
quarterly, at the rate of .375% of the average daily amount of the available
commitment.
F-62
<PAGE>
TCI IPVI Systems
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements (continued)
For the Period from January 1, 1998 to April 30, 1998
and for the Year Ended December 31, 1997
3. Debt to Banks (continued)
The most significant debt covenants of this agreement stipulated that the TCI
IPVI Systems was not to pay cash dividends, may not fall below predetermined
annualized cash flow levels relative to existing debt levels, nor to obtain
additional borrowings or make principal payments on subordinated debt if certain
predetermined cash flow levels relative to debt service were not maintained.
Additionally, the TCI IPVI Systems had agreed to maintain certain defined debt
to cash flow and leverage ratios.
The minimum mandatory principal repayments required as of April 30, 1998 based
upon the current level of indebtedness under the aforementioned facility were as
follows (amounts in thousands):
1998 $ 74,980
1999 47,175
2000 59,755
2001 59,755
2002 72,335
Thereafter 8,500
---------
$ 322,500
=========
4. Income Taxes
The TCI IPVI Systems were included in the consolidated federal income tax return
of TCI. Income tax expense for the TCI IPVI Systems is based on those items in
the consolidated calculation applicable to the TCI IPVI Systems. Intercompany
tax allocation represents an apportionment of tax expense or benefit (other than
deferred taxes) among subsidiaries of TCI in relation to their respective
amounts of taxable earnings or losses. The payable or receivable arising from
the intercompany tax allocation is recorded as an increase or decrease in
amounts due to TCI. Deferred income taxes are based on the book and tax basis
differences of the assets and liabilities within the TCI IPVI Systems. The
income tax amounts included in the accompanying combined financial statements
approximate the amounts that would have been reported if the TCI IPVI Systems
would have filed a separate income tax return.
Income tax expense for the four-month period ended April 30, 1998 and for the
year ended December 31, 1997 consists of:
F-63
<PAGE>
TCI IPVI Systems
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements (continued)
For the Period from January 1, 1998 to April 30, 1998
and for the Year Ended December 31, 1997
4. Income Taxes (continued)
Current Deferred Total
-----------------------------------
(amounts in thousands)
Four-month period ended April 30, 1998:
Intercompany allocation $ (3,503) $ - $ (3,503)
Federal - 1,332 1,332
State and local - 200 200
-----------------------------------
$ (3,503) $ 1,532 $ (1,971)
===================================
Year ended December 31, 1997:
Intercompany allocation $ (3,875) $ - $ (3,875)
Federal - (1,470) (1,470)
State and local - (220) (220)
-----------------------------------
$ (3,875) $ (1,690) $ (5,565)
===================================
Income tax expense differs from the amounts computed by applying the federal
income tax rate of 35% as a result of the following:
January 1,
1998
Year ended through
December 31 , April 30,
1997 1998
--------------------------
(amounts in thousands)
Computed "expected" tax expense $ (4,636) $ (1,842)
State and local income taxes, net of federal
income tax benefit (144) 130
Amortization not deductible for tax purposes (785) (259)
--------------------------
$ (5,565) $ (1,971)
==========================
F-64
<PAGE>
TCI IPVI Systems
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements (continued)
For the Period from January 1, 1998 to April 30, 1998
and for the Year Ended December 31, 1997
4. Income Taxes (continued)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax asset and deferred tax liabilities at April 30, 1998 are
presented below:
(amounts in thousands)
Deferred tax asset--principally due to non-deductible
accruals $ 328
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation 43,802
Franchise costs, principally due to differences in
amortization and initial basis 211,224
-------------
Total gross deferred tax liabilities 255,026
-------------
Net deferred tax liability $ 254,698
=============
5. Parent's Investment (Deficit)
Parent's deficit in the TCI IPVI Systems at April 30, 1998 is summarized as
follows:
(amounts in thousands)
Due to TCI $ 301,496
Accumulated deficit (486,395)
-------------
$ (184,899)
=============
F-65
<PAGE>
TCI IPVI Systems
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements (continued)
For the Period from January 1, 1998 to April 30, 1998
and for the Year Ended December 31, 1997
5. Parent's Investment (Deficit) (continued)
The amount due to TCI includes non-interest bearing advances for operations,
acquisitions and construction costs, as well as, the non-interest bearing
amounts owed as a result of the allocation of certain costs from TCI.
On April 30, 1998, in connection with Partnership formation described above, TCI
caused the TCI IPVI Systems to effect a dividend to TCI aggregating $489,488,000
(the "Dividend"). The Dividend resulted in an increase to the interest bearing
intercompany notes owed to TCI and a corresponding increase to accumulated
deficit.
As a result of TCI's controlling ownership of the TCI IPVI Systems, the
non-interest bearing amounts due to TCI have been classified as a component of
Parent's deficit in the accompanying combined balance sheet.
The TCI IPVI Systems purchase, at TCI's cost, substantially all of their pay
television and other programming from affiliates of TCI. Charges for such
programming were $14,787,000 and $39,288,000 for the four-months ended April 30,
1998 and for the year ended December 31, 1997, respectively, and are included in
operating expenses in the accompanying combined statements of operations.
Certain subsidiaries of TCI provide administrative services to the TCI IPVI
Systems and have assumed managerial responsibility of the TCI IPVI Systems'
cable television system operations and construction. As compensation for these
services, the TCI IPVI Systems pay a monthly fee calculated on a per-subscriber
basis.
The intercompany advances and expense allocation activity in amounts due to TCI
consists of the following:
F-66
<PAGE>
TCI IPVI Systems
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements (continued)
For the Period from January 1, 1998 to April 30, 1998
and for the Year Ended December 31, 1997
5. Parent's Investment (Deficit) (continued)
Year ended January 1,
December 31, 1998 through
1997 April 30, 1998
-------------------------------
(amounts in thousands)
Beginning of period $ 269,228 $ 260,421
Programming charges 39,288 14,787
Management fees 6,195 2,035
Tax allocations 3,875 3,503
Cash transfer (58,165) 20,750
-------------------------
End of period $ 260,421 $ 301,496
=========================
6. Commitments and Contingencies
The Cable Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act") imposed certain rate regulations on the cable television industry.
Under that 1992 Cable Act, all cable systems are subject to rate regulation,
unless they face "effective competition," as defined by the 1992 Cable Act and
expanded in the Telecommunications Act of 1996 (the "1996 Act"), in their local
franchise area.
Although the Federal Communications Commission (the "FCC") has established
regulations required by the 1992 Cable Act, local government units (commonly
referred to as local franchising authorities) are primarily responsible for
administering the regulation of a cable system's basic service tier ("BST"). The
FCC itself directly administered rate regulation of any cable programming
service tier ("CPST"). The FCC's authority to regulate CPST rates expired on
March 31, 1999. The FCC has taken the position that it will still adjudicate
CPST complaints filed after this sunset date (but not later than 180 days after
the last CPST rate increase imposed prior to March 31, 1999), and will strictly
limit its review (and possible refund orders) to the time period predating the
sunset date.
Under the FCC's rate regulations, most cable systems were required to reduce
their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a
F-67
<PAGE>
TCI IPVI Systems
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements (continued)
For the Period from January 1, 1998 to April 30, 1998
and for the Year Ended December 31, 1997
6. Commitments and Contingencies (continued)
complicated price structure that allows for the recovery of inflation and
certain increased costs, as well as providing some incentive for expanding
channel carriage. Operators also have the opportunity to bypass this "benchmark"
regulatory structure in favor of the traditional "cost-of-service" regulation in
cases where the latter methodology appears favorable. Premium cable services
offered on a per-channel or per-program basis remain unregulated, as do
affirmatively marketed packages consisting entirely of new programming product.
The management of the TCI IPVI Systems believes that it has complied in all
material respects with the provisions of the 1992 Cable Act and the 1996 Act,
including its rate setting provisions. However, certain franchising authorities
have filed Local Rate Orders challenging the rates of certain of the TCI IPVI
Systems. If, as a result of the review process, a system cannot substantiate its
rates, it could be required to retroactively reduce its rates to the appropriate
benchmark and refund the excess portion of rates received. Any refunds of the
excess portion of CPST rates would be retroactive to the date of complaint. Any
refunds of the excess portion of BST or equipment rates would be retroactive to
one year prior to the implementation of the rate reductions. TCI has indemnified
the Partnership for certain rate refund liabilities of the TCI IPVI Systems
through March 31, 1999.
Certain plaintiffs have filed or threatened separate class action complaints
against certain of the systems of TCI IPVI Systems, alleging that the systems'
practice of assessing an administrative fee to subscribers whose payments are
delinquent constitutes an invalid liquidated damage provision, a breach of
contract, and violates local consumer protection statutes. Plaintiffs seek
recovery of all late fees paid to the subject systems as a class purporting to
consist of all subscribers who were assessed such fees during the applicable
limitation period, plus attorney fees and costs.
The TCI IPVI Systems have contingent liabilities related to legal proceedings
and other matters arising in the ordinary course of business. Although it is
possible the TCI IPVI Systems may incur losses upon conclusion of the matters
referred to above, an estimate of any loss or range of loss cannot presently be
made. Based upon the facts available, management believes that, although no
assurance can be given as to the outcome of these actions, the ultimate
disposition should not have a material adverse effect upon the combined
financial condition of the TCI IPVI Systems.
F-68
<PAGE>
TCI IPVI Systems
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements (continued)
For the Period from January 1, 1998 to April 30, 1998
and for the Year Ended December 31, 1997
6. Commitments and Contingencies (continued)
The TCI IPVI Systems lease business offices, have entered into pole rental
agreements and use certain equipment under lease arrangements. Rental expense
under such arrangements amounted to $711,000 and $2,441,000 for the four-month
period ended April 30, 1998, and for the year ended December 31, 1997,
respectively.
Future minimum lease payments under noncancellable operating leases for each of
the next five years are summarized as follows (amounts in thousands):
Years
ending
April 30,
-------------
1999 $ 752
2000 619
2001 461
2002 376
2003 308
Thereafter 1,590
--------
$ 4,106
========
TCI formed a year 2000 Program Management Office (the "PMO") to organize and
manage its year 2000 remediation efforts. The PMO is responsible for overseeing,
coordinating and reporting on TCI's year 2000 remediation efforts, including the
year 2000 remediation efforts of the TCI IPVI Systems prior to the Contribution.
Subsequent to the date of the Contribution, the year 2000 remediation efforts of
the TCI IPVI Systems are no longer the responsibility of TCI or the PMO.
The failure to correct a material year 2000 problem could result in an
interruption or failure of certain important business operations. There can be
no assurance that the TCI IPVI Systems or the systems of other companies on
which the TCI IPVI Systems relies will be converted in time or that any such
failure to convert by the TCI IPVI Systems or other companies will not have a
material adverse effect on its financial position, results of operations or cash
flows.
F-69
<PAGE>
Report of Independent Accountants
To the Partners of InterMedia Capital Partners VI, L.P.:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of partners' capital and of cash flows
present fairly, in all material respects, the financial position of InterMedia
Capital Partners VI, L.P. (the Partnership) and its subsidiaries at September
30, 1999 and December 31, 1998, and the results of their operations and their
cash flows for the nine months ended September 30, 1999 and the period from
April 30, 1998 (commencement of operations) to December 31, 1998 in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
January 5, 2000
F-70
<PAGE>
InterMedia Capital Partners VI, L.P.
Consolidated Balance Sheets
(dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
<S> <C> <C>
Assets
Cash and cash equivalents $ 443 $ 2,602
Accounts receivable, net of allowance for
doubtful accounts of $1,070 and $2,692, respectively 17,984 15,160
Receivable from affiliates 6,613 7,532
Prepaids and other current assets 1,105 1,049
-------- --------
Total current assets 26,145 26,343
Intangible assets, net 579,929 632,002
Property and equipment, net 259,892 243,100
Other non-current assets 1,383 3,045
-------- --------
Total assets $867,349 $904,490
======== ========
Liabilities and Partners' Capital
Current poriton long term debt $ 55,141 $ --
Accounts payable and accrued liabilities 23,168 23,541
Payable to affiliates -- 2,913
Deferred revenue 12,892 11,429
Accrued interest 520 5,529
-------- --------
Total current liabilities 91,721 43,412
Deferred channel launch revenue 6,576 7,767
Long-term debt 687,000 726,000
Other long-term liabilities 8,453 411
-------- --------
Total liabilities 793,750 777,590
-------- --------
Commitments and contingencies
Partners' Capital
Total partners' capital 73,599 126,900
-------- --------
Total liabilities and partners' capital $867,349 $904,490
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements
F-71
<PAGE>
InterMedia Capital Partners VI, L.P.
Consolidated Statements of Operations
(dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
April 30, 1998
For the nine (commencement
months ended of operations) to
September 30, December 31,
1999 1998
<S> <C> <C>
Revenues
Basic and cable services $ 113,564 $ 91,970
Pay service 22,883 18,500
Other service 22,750 20,995
--------- ---------
159,197 131,465
--------- ---------
Costs and expenses
Program fees 37,481 30,106
Other direct expenses 14,443 11,794
Selling, general and administrative expenses 39,647 27,884
Management and consulting fees 1,515 1,350
Depreciation and amortization expenses 91,707 88,135
--------- ---------
184,793 159,269
--------- ---------
Loss from operations (25,596) (27,804)
--------- ---------
Other income (expense)
Interest and other income 264 323
Interest expense (41,979) (38,561)
Gain on exchange of cable systems 15,822 --
Other expense (1,812) (640)
--------- ---------
(27,705) (38,878)
--------- ---------
Net loss $ (53,301) $ (66,682)
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements
F-72
<PAGE>
InterMedia Capital Partners VI, L.P.
Consolidated Statements of Changes in Partners' Capital
(dollars in thousands)
- --------------------------------------------------------------------------------
General Limited
Partner Partners Total
Cash contributions $ 2 $ 102,032 $ 102,034
In-kind contributions -- 100,000 100,000
Syndication costs -- (8,452) (8,452)
Net loss -- (66,682) (66,682)
--------- --------- ---------
Balance at December 31, 1998 2 126,898 126,900
Net loss -- (53,301) (53,301)
--------- --------- ---------
Balance at September 30, 1999 $ 2 $ 73,597 $ 73,599
========= ========= =========
See accompanying notes to the consolidated financial statements
F-73
<PAGE>
InterMedia Capital Partners VI, L.P.
Consolidated Statements of Cash Flows
(dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
April 30, 1998
For the nine (commencement
months ended of operations) to
September 30, December 31,
1999 1998
<S> <C> <C>
Cash flows from operating activities
Net loss $ (53,301) $ (66,682)
Loss on disposal of fixed assets 2,442 --
Depreciation and amortization 92,132 88,528
Gain on exchange of cable systems (15,822) --
Changes in assets and liabilities:
Accounts receivable (2,636) (3,455)
Receivable from affiliates 919 (7,532)
Prepaids and other current assets 288 (739)
Other non-current assets 1,663 (3,035)
Accounts payable and accrued liabilities 2,519 10,557
Payable to affiliates (2,913) 2,913
Deferred revenue 1,120 2,962
Deferred channel launch revenue (971) 5,314
Other long-term liabilities (883) 226
Accrued interest (5,016) 5,529
--------- ---------
Cash flows from operating activities 19,541 34,586
--------- ---------
Cash flows from investing activities
Costs incurred in connection with contributed systems -- (3,629)
Proceeds from exchange of cable systems 16,737 --
Property and equipment (62,488) (36,745)
Intangible assets (1,022) (66)
--------- ---------
Cash flows from investing activities (46,773) (40,440)
--------- ---------
Cash flows from financing activities
Debt issue costs -- (7,395)
Proceeds from long-term debt 16,141 726,000
Proceeds from interest rate swap termination option
agreements 8,932 --
Repayment of debt assumed, net of cash acquired -- (803,731)
Contributed capital -- 102,034
Partner draw -- (8,452)
--------- ---------
Cash flows from financing activities 25,073 8,456
--------- ---------
Net change in cash and cash equivalents (2,159) 2,602
Cash and cash equivalents, beginning of period 2,602 --
--------- ---------
Cash and cash equivalents, end of period $ 443 $ 2,602
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements
F-74
<PAGE>
InterMedia Capital Partners VI, L.P.
Notes to Consolidated Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
1. The Partnership and Basis of Presentation
InterMedia Capital Partners VI, L.P. ("ICP-VI"), a Delaware limited
partnership, was formed in October 1997 for the purpose of acquiring and
operating cable television systems located in the state of Kentucky.
ICP-VI and its directly and indirectly majority-owned subsidiaries,
InterMedia Partners Group VI, L.P. ("IPG-VI"), InterMedia Partners VI,
L.P. ("IP-VI"), and InterMedia Partners of Kentucky, L.P. ("IP-KY") are
collectively referred to as the "Partnership." The Partnership commenced
business on April 30, 1998 upon contribution of cable television systems
serving subscribers throughout western and central Kentucky (the
"Systems") with significant concentrations in the state's four largest
cities: Lexington, Louisville, Covington and Bowling Green. Prior to April
30, 1998, the Partnership had no operations.
On April 30, 1998, the Partnership obtained capital contributions from its
limited and general partners of $202,034, including an in-kind
contribution of the Systems. InterMedia Capital Management VI, LLC
("ICM-VI LLC"), a Delaware limited liability company, is the 0.001%
general partner of ICP-VI. The Systems were contributed by affiliates of
AT&T Broadband Internet Services ("AT&TBIS"), formerly
Tele-Communications, Inc., a 49.5% limited partner of ICP-VI. AT&TBIS's
49.5% interest consists of a 49.005% direct ownership interest issued in
exchange for its in-kind contribution (see Note 3 - Contribution of Cable
Properties) and an indirect ownership of 0.495% through its 49.55% limited
partner interest in InterMedia Capital Management VI, L.P. ("ICM-VI LP"),
a California limited partnership, which owns a 0.999% limited partner
interest in ICP-VI. Blackstone Cable Acquisition Company, LLC
("Blackstone"), a 49.5% limited partner of ICP-VI, contributed $100,000 in
cash.
On April 18, 1999, the Partnership's general and limited partners, other
than AT&TBIS entered into an agreement with Insight Communications
Company, L.P. ("Insight") to sell their partner interest in ICP-VI. The
sale closed on October 1, 1999, and Insight began managing the
Partnership.
As of September 30, 1999, the Partnership served approximately 427,700
subscribers (unaudited) and encompassed approximately 673,900 homes passed
(unaudited).
The Partnership's contributed cable television systems were structured as
leveraged transactions and a significant portion of the assets contributed
are intangible assets which are being amortized over one to fourteen
years. Therefore, as was planned, the Partnership has incurred substantial
book losses. Of the total net losses of $119,983, non-cash charges have
aggregated $167,280. These charges consist of $73,972 of depreciation of
property and equipment, $106,688 of amortization of intangible assets
predominately related to franchise rights and $2,442 of loss on disposal
of fixed assets, offset by a $15,822 gain on exchange of cable systems.
2. Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of ICP-VI and
its directly and indirectly majority-owned subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation.
F-75
<PAGE>
InterMedia Capital Partners VI, L.P.
Notes to Consolidated Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
Cash equivalents
The Partnership considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Revenue recognition
Cable television service revenue is recognized in the period in which the
services are provided to customers. Deferred revenue represents revenue
billed in advance and deferred until cable service is provided.
Installation fees are recognized immediately into revenue to the extent of
direct selling costs incurred. Any fees in excess of such costs are
deferred and amortized into income over the period that customers are
expected to remain connected to the cable television system.
Property and equipment
Additions to property and equipment, including new customer installations,
are recorded at cost. Self-constructed fixed assets include materials,
labor and overhead. Costs of disconnecting and reconnecting cable service
are expensed. Expenditures for maintenance and repairs are charged to
expense as incurred. Expenditures for major renewals and improvements are
capitalized. Capitalized plant is written down to recoverable values
whenever recoverability through operations or sale of the systems becomes
doubtful.
Depreciation is computed using the double-declining balance method over
the following estimated useful lives:
Years
Cable television plant 5-10
Buildings and improvements 10
Furniture and fixtures 3-7
Equipment and other 3-10
Intangible assets
The Partnership has franchise rights to operate cable television systems
in various towns and political subdivisions. Franchise rights are being
amortized over the lesser of the remaining lives of the franchises or the
base fourteen year term of ICP-VI which expires on April 30, 2012.
Remaining franchise lives range from one to eighteen years.
The Partnership acquired a long term programming agreement (the
"Programming Agreement"), as described in Note 3 - "Contribution of Cable
Properties". The Programming Agreement is valued at $150,000 and is being
amortized on a straight line basis over the fourteen year term of ICP-VI.
Debt issue costs are included in intangible assets and are being amortized
over the terms of the related debt.
F-76
<PAGE>
InterMedia Capital Partners VI, L.P.
Notes to Consolidated Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
Costs associated with potential acquisitions are initially deferred. For
acquisitions which are completed, related costs are capitalized as part of
the purchase price of assets acquired. For those acquisitions not
completed, related costs are expensed in the period the acquisition is
abandoned.
Capitalized intangibles are written down to recoverable values whenever
recoverability through operations or sale of the systems becomes doubtful.
Each year, the Partnership evaluates the recoverability of the carrying
value of its intangible assets by assessing whether the projected cash
flows, including projected cash flows from sale of the systems, is
sufficient to recover the unamortized costs of these assets.
Interest rate swaps
Under an interest rate swap, the Partnership agrees with another party to
exchange interest payments at specified intervals over a defined term.
Interest payments are calculated by reference to the notional amount based
on the difference between the fixed and variable rates pursuant to the
swap agreement. The net interest received or paid as part of the interest
rate swap is accounted for as an adjustment to interest expense.
Income taxes
No provision or benefit for income taxes is reported by the Partnership
because, as partnerships, the tax effects of ICP-VI and its majority-owned
subsidiaries' results of operations accrue to the partners.
Partners' capital
Syndication costs incurred to raise capital have been charged to partners'
capital.
Allocation of profits and losses
Profits and losses are allocated in accordance with the provisions of
ICP-VI's partnership agreement, dated October 30, 1997, generally as
follows:
Losses are allocated first to the partners to the extent of and in
accordance with relative capital contributions; second, to the partners
which loaned money to the Partnership to the extent of and in accordance
with relative loan amounts; and third, to the partners in accordance with
relative capital contributions.
Profits are allocated first to the partners which loaned money to the
Partnership and to the extent of and proportionate to previously allocated
losses relating to such loans; second, among the partners in accordance
with relative capital contributions, in an amount sufficient to yield a
pre-tax return of 10% per annum on their capital contributions; and third,
5.3% to the general partner and 14.7% to ICM-VI LP, and 80% to the limited
and general partners in accordance with relative capital contributions.
F-77
<PAGE>
InterMedia Capital Partners VI, L.P.
Notes to Consolidated Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
Disclosures about fair value of financial instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to
estimate the fair value:
Current assets and current liabilities: The carrying value of receivables,
payables, deferred revenue, and accrued liabilities approximates fair
value due to their short maturity.
Long-term debt: The fair value of the Partnership's borrowings under the
bank term loans and revolving credit facility are estimated based on the
borrowing rates currently available to the Partnership for obligations
with similar terms.
Interest rate swaps and related derivatives: The estimated fair value of
the interest rate swaps and related derivatives is based on the current
value in the market for agreements with similar terms and adjusted for the
holding period.
New accounting pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("FAS 133"). FAS 133 was
amended in June 1999 by FAS 137. FAS 133 is currently effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000 (January
1, 2001 for the Partnership). FAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes
in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative
is designated as part of a hedge transaction and, if it is, the type of
hedge transaction. Management of the Partnership anticipates that, due to
its limited use of derivative instruments, the adoption of FAS 133 will
not have a significant effect on the Partnership's results of operations,
financial position or cash flows.
3. Contribution of Cable Properties
On April 30, 1998, the Partnership borrowed $730,000 under new bank term
loans and a revolving credit facility and received equity contributions
from its partners of $202,034, consisting of $102,034 in cash and $100,000
of in-kind contributions from AT&TBIS and another limited partner of
ICP-VI. ICP-VI assumed debt from AT&TBIS of $803,743 and issued a combined
49.5% limited partner interest to AT&TBIS and another limited partner, in
exchange for the contributed systems with a fair market value of $753,743
and a long-term programming fee discount agreement valued at $150,000. The
AT&TBIS debt assumed was repaid with proceeds from the borrowings under
the bank loans and the cash contributions received from ICP-VI's partners.
F-78
<PAGE>
InterMedia Capital Partners VI, L.P.
Notes to Consolidated Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
The total cost of the Systems contributed was as follows:
Value of AT&TBIS Debt assumed $ 803,743
Costs incurred in connection with the contributed systems 3,629
Value of IP-VI equity issued 100,000
---------
$ 907,372
=========
The Partnership's allocation of costs related to the contributed systems
is as follows:
December 31,
1998
Tangible assets $ 234,143
Intangible assets 528,033
Programming agreement 150,000
Current assets 12,037
Current liabilities (12,389)
Non-current liabilities (4,452)
---------
Net assets contributed $ 907,372
=========
4. Exchange of Cable Properties
On February 1, 1999, the Partnership exchanged with Insight Communications
of Indiana, LLC its cable television assets located in and around
Henderson, Kentucky ("Exchanged Assets"), serving approximately 10,700
(unaudited) basic subscribers, for cable television assets located in and
around Oldham County, Kentucky, serving approximately 8,300 (unaudited)
basic subscribers, plus net cash of $3,758. The cable system assets
received have been recorded at fair market value, allocated as follows:
Property and equipment $ 4,475
Franchise rights 12,665
-------
Total $ 17,140
=======
The exchange resulted in a gain of $1,255, calculated as the difference
between the fair value of the assets received and the net book value of
the Exchanged Assets, plus net proceeds received of $3,758.
On February 17, 1999 and March 11, 1999, the partnership entered into
agreements with FrontierVision Operating Partnership, L.P.
("FrontierVision") to exchange its cable television assets
F-79
<PAGE>
InterMedia Capital Partners VI, L.P.
Notes to Consolidated Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
located in central Kentucky, serving approximately 16,800 (unaudited)
basic subscribers, for cable television assets located in northern
Kentucky, serving approximately 11,000 (unaudited) basic subscribers. On
June 1, 1999 the Partnership completed the exchange with respect to
certain of the systems and entered into related management agreements.
Pursuant to the terms of the management agreements, the Partnership
managed and operated the remaining systems of FrontierVision in northern
Kentucky and FrontierVision managed and operated the Partnership's
remaining systems in central Kentucky. The management agreements, which
provided the Partnership with effective control over the remaining
systems, terminated upon completion of the exchanges of the remaining
systems on September 30, 1999.
The cable system assets received have been recorded at fair market value,
allocated as follows:
Property and equipment $ 6,328
Franchise rights 11,011
-------
Total $17,339
=======
The Partnership received cash of $12,979 from FrontierVision in connection
with the exchanged systems. The exchanges resulted in a gain of $14,567
for the nine months ended September 30, 1999, respectively.
5. Intangible Assets
Intangible assets consist of the following:
September 30, December 31,
1999 1998
Franchise rights $ 522,945 $ 528,073
Programming agreement 147,631 150,000
Debt issue costs 7,395 7,395
Other 105 26
---------- ----------
678,076 685,494
Accumulated amortization (98,147) (53,492)
---------- ----------
$ 579,929 $ 632,002
========== ==========
F-80
<PAGE>
InterMedia Capital Partners VI, L.P.
Notes to Consolidated Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
6. Property and Equipment
Property and equipment consist of the following:
September 30, December 31,
1999 1998
Land $ 5,990 $ 6,028
Cable television plant 242,943 213,826
Buildings and improvements 2,727 2,470
Furniture and fixtures 4,060 2,958
Equipment and other 26,932 20,279
Construction in progress 45,509 30,246
---------- ----------
328,161 275,807
Accumulated depreciation (68,269) (32,707)
---------- ----------
$ 259,892 $ 243,100
========== ==========
7. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
September 30, December 31,
1999 1998
Accounts payable $ 10,567 $ 1,387
Accrued program costs 1,112 2,974
Accrued franchise fees 723 2,050
Accrued copyright fees 172 346
Accrued capital expenditures 192 7,248
Accrued property and other taxes 8,604 4,523
Other accrued liabilities 1,798 5,013
--------- ---------
$ 23,168 $ 23,541
========= =========
8. Channel Launch Revenue
During the periods ended September 30, 1999 and December 31, 1998 the
Partnership received payments and recorded receivables from certain
programmers to launch and promote their new channels. As of September 30,
1999 and December 31, 1998 the Partnership had receivables from
programmers of $5,476 and $5,855, respectively. In connection with the
contribution of the Systems, the Partnership assumed deferred launch
support revenue and obligations of $4,452. The
F-81
<PAGE>
InterMedia Capital Partners VI, L.P.
Notes to Consolidated Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
Partnership recognized advertising revenue for advertisements provided by
the Partnership to promote the new channels of $441 and $911, during the
nine months ended September 30, 1999 and the period from April 30, 1998
(commencement of operations) through December 31, 1998, respectively. The
remaining deferred channel launch revenue is being amortized over the
respective terms of the program agreements which range between eight and
ten years. The Partnership amortized and recorded as other service revenue
$1,880 and $1,406 of the remaining deferred channel launch revenue during
the nine months ended September 30, 1999 and the period from April 30,
1998 (commencement of operations) through December 31, 1998, respectively.
9. @Home Warrants
Under a distribution agreement with At Home Corporation ("@Home"), the
Partnership provides high-speed Internet access to subscribers over the
Partnership's distribution network in certain of its cable television
systems. In January 1999, the Partnership and certain of its affiliates
entered into related agreements whereby @Home would issue to the
Partnership and its affiliates warrants to purchase shares of @Home's
Series A Common Stock ("@Home Stock") at an exercise price of five dollars
and twenty-five cents per share, as adjusted for a two-for-one stock split
which occurred on June 17, 1999. Under the provisions of the agreements,
management estimates that the Partnership may purchase up to 459,200
shares of @Home Stock. The warrants become vested and exercisable, subject
to certain forfeiture and other conditions, based on operational targets
which include offering the @Home service by the Partnership in its service
areas and obtaining specified numbers of @Home subscribers over the
six-year term of the @Home distribution agreement. The Partnership has not
recognized any income related to the warrants for the nine months ended
September 30, 1999.
F-82
<PAGE>
InterMedia Capital Partners VI, L.P.
Notes to Consolidated Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
10. Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
<S> <C> <C>
Senior Debt
Bank revolving credit facility, $325,000 commitment as of
September 30, 1999, interest currently at LIBOR plus 1.375%
(6.81%) or ABR plus .625% (8.625%) payable
quarterly, matures October 31, 2006 $ 212,000 $ 199,000
Bank Term Loan A; interest at LIBOR plus 1.750% (7.19%)
payable quarterly, matures September 30, 2007 100,000 100,000
Bank Term Loan B; interest at LIBOR plus 2.000% (7.44%)
payable quarterly, matures December 31, 2007 250,000 250,000
--------- ---------
Total senior debt 562,000 549,000
--------- ---------
Subordinated Debt
Bank Term Loan A; interest at LIBOR plus 2.750% (8.13%)
payable quarterly, matures April 30, 2008 125,000 125,000
Bank Term Loan B; $60,000 commitment as of September 30, 1999,
interest at LIBOR plus 0.500% (5.84%) or ABR (8.25%)
payable quarterly, matures January 1, 2000 55,141 52,000
--------- ---------
Total subordinated debt 180,141 177,000
--------- ---------
Total debt 742,141 726,000
Less current portion of long-term debt (55,141)
--------- ---------
Total long-term debt $ 687,000 $ 726,000
========= =========
</TABLE>
The Partnership's bank debt is outstanding under a revolving credit
facility and term loan agreements executed by the Partnership on April 30,
1998 (the "Bank Facility"). The revolving credit facility currently
provides for $325,000 of available credit. Starting June 30, 2001,
revolving credit facility commitments will be permanently reduced
quarterly by increments ranging from $7,500 to $40,000 through maturity on
October 31, 2006. The senior Term Loan A requires quarterly principal
payments of $250 starting June 30, 2001 with final payments in two equal
installments of $47,125 on March 31 and September 30, 2007. The senior
Term Loan B requires quarterly principal payments of $625 starting June
30, 2001 with final payments in two equal installments of $117,188 on
September 30, and December 31, 2007. The subordinated Term Loan A
F-83
<PAGE>
InterMedia Capital Partners VI, L.P.
Notes to Consolidated Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
requires quarterly principal payments of $313 starting June 30, 2001 with
final payments in two equal installments of $58,281 on January 31, and
April 30, 2008. The borrowings outstanding under the subordinated Term
Loan B were initially due and payable on May 31, 1999. On May 14, 1999 the
Partnership amended the terms and conditions of the subordinated Term Loan
B. The amendment extended the maturity date of subordinated Term Loan B to
January 1, 2000 and increased the applicable margin from 0.300% to 0.500%
for the period June 1, 1999 through September 30, 1999 and 0.625%
thereafter. On October 1, 1999 under the management of Insight, the
Partnership refinanced the borrowings outstanding under the subordinated
Term Loan B.
Advances under the Bank Facility are available under interest rate options
related to the base rate of the administrative agent for the Bank Facility
("ABR") or LIBOR. Interest rates vary on borrowings under the revolving
credit facility from LIBOR plus 0.500% to LIBOR plus 1.875% or ABR to ABR
plus 0.875% based on the Partnership's ratio of senior debt to annualized
semi-annual cash flow, as defined ("Senior Leverage Ratio"). Interest
rates vary on borrowings under the senior Term Loan A from LIBOR plus
1.500% to LIBOR plus 2.125% or ABR plus 0.500% to ABR plus 1.125%, and
under the senior Term Loan B from LIBOR plus 1.750% to LIBOR plus 2.250%
or ABR plus 0.750% to ABR plus 1.250% based on the Partnership's Senior
Leverage Ratio. Interest rates on borrowings under the subordinated Term
Loan A are at LIBOR plus 2.75% or ABR plus 2.75%. The Bank Facility
requires quarterly interest payments, or more frequent interest payments
if a shorter period is selected under the LIBOR option, and quarterly
payment of fees on the unused portion of the revolving credit facility and
the subordinated Term Loan B at 0.375% per annum when the Senior Leverage
Ratio is greater than 5.0:1.0 and at 0.250% when the Senior Leverage Ratio
is less than or equal to 5.0:1.0.
The Partnership has entered into interest rate swap agreements in the
aggregate notional principal amount of $500,000 to establish long-term
fixed interest rates on its variable rate debt. Under the swap agreements,
the Partnership pays quarterly interest at fixed rates ranging from 5.850%
to 5.865% and receives quarterly interest payments equal to LIBOR. The
agreements expire July 2003. At September 30, 1999 and December 31, 1998,
the fair market value of the interest rate swaps was approximately $8,437
and $(14,493), respectively.
On July 12, 1999, the Partnership entered into early termination option
agreements ("Option Agreements") with banks which are parties to the
Partnership's interest rate swap agreements. Under the terms of the Option
Agreements, the banks may terminate the interest rate swap agreements
between May 2001 and July 2003, the expiration date of the agreements. In
exchange for the early termination option, the Partnership received a cash
payment of $8,932 which has been deferred and is being amortized over the
remaining terms of the interest rate swap agreements. $570 was amortized
and recorded against interest expense during the three and nine months
ended September 30, 1999. At September 30, 1999, the fair market value of
the Option Agreements was approximately $(10,334).
Borrowings under the Bank Facility, excluding the subordinated Term Loan
B, ("Permanent Debt") are secured by the partnership interests of IPG-VI
and IP-VI's subsidiaries and negative pledges of the stock and assets of
certain AT&TBIS subsidiaries that are parties to an agreement ("Keepwell
Agreement") to support the Permanent Debt. Under the Keepwell Agreement,
the AT&TBIS
F-84
<PAGE>
InterMedia Capital Partners VI, L.P.
Notes to Consolidated Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
subsidiaries are required to make loans to IPG-VI and IP-VI in an amount
not to exceed $489,500 if (i) IPG-VI or IP-VI fails to make payment of
principal in accordance with the respective debt agreements, or (ii)
amounts due under the respective debt agreements have been accelerated for
non-payment or bankruptcy.
The debt agreements contain certain covenants which restrict the
Partnership's ability to encumber assets, make investments or
distributions, retire partnership interests, pay management fees
currently, incur or guarantee additional indebtedness and purchase or sell
assets. The debt agreements also include financial covenants which require
minimum interest and debt coverage ratios and specify maximum debt to cash
flows ratios.
Annual maturities of long-term debt at September 30, 1999 are as follows:
2000 $ 55,141
2001 3,562
2002 4,750
2003 4,750
Thereafter 673,938
---------
$ 742,141
=========
Borrowings under the Bank Facility are at rates that would be otherwise
currently available to the Partnership. Accordingly, the carrying amounts
of bank borrowings outstanding as of September 30, 1999 approximate their
fair value.
11. Related Party Transactions
ICM-VI LP provides certain management and administrative services to the
Partnership for a per annum fee of 1% of ICP-VI's total non-preferred
partner contributions ("ICM Management Fee") offset by certain expenses of
the Partnership, as defined, up to an amount equal to $500. Prior to
September 30, 1999, 50% of the net ICM Management Fee was deferred until
the Partnership's Senior Leverage Ratio was less than five times in order
to support the Partnership's debt. Any deferred ICM Management Fee bore
interest at 10%, compounded annually, payable upon payment of the deferred
management fee. Effective September 30, 1999 such deferral was not
required pursuant to an amendment to the Partnership's debt agreements.
Based on current capital contributions, the management fee per annum is
$2,020 less partnership expenses of $500.
Pursuant to ICP-VI's partnership agreement, on April 30, 1998 the
Partnership prepaid $1,000 of the ICM Management Fee. ICM Management Fee
expenses for the nine months ended September 30, 1999 and the period from
April 30, 1998 (commencement of operations) through December 31, 1998
amounted to $1,140 and $1,013, respectively. On September 30, 1999 the
Partnership paid the total
F-85
<PAGE>
InterMedia Capital Partners VI, L.P.
Notes to Consolidated Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
outstanding deferred ICM Management Fee and related interest due to ICM-VI
LP. At December 31, 1998, the Partnership had a non-current payable to
ICM-VI LP of $13.
The Partnership pays monitoring fees of $250 per annum to each of AT&TBIS
and Blackstone. Prior to September 30, 1999, 50% of the monitoring fees
were deferred until the Partnership's Senior Leverage Ratio was less than
five times in order to support the Partnership's debt. Any deferred
monitoring fees bore interest at 10%, compounded annually, payable upon
payment of the deferred monitoring fees. Effective September 30, 1999 such
deferral was not required pursuant to an amendment to the Partnership's
debt agreements. Management and consulting fees of $1,515 and $1,350 for
the nine months ended September 30, 1999 and the period from April 30,
1998 (commencement of operations) through December 31, 1998, respectively,
include both the ICM Management Fee and monitoring fees.
Pursuant to ICP-VI's partnership agreement, on April 30, 1998, the
Partnership prepaid its monitoring fees for the period from April 30, 1999
through April 29, 2000. The Partnership had a non-current payable of $83
each to AT&TBIS and Blackstone at December 31, 1998. In contemplation of
the sale of certain of the partners' interest in ICP-VI (as described in
Note 16 - Subsequent Events) and the amendments to the partnership and
debt agreements, the Partnership received from Blackstone its prepaid
monitoring fees net of deferred monitoring fees and related interest
outstanding at September 30, 1999. At September 30, 1999 the Partnership
has a receivable of $28 from AT&TBIS representing prepaid monitoring fees,
net of deferred monitoring fees and related interest.
In connection with raising its capital, the Partnership paid aggregate
transaction fees of $4,942 to AT&TBIS and Blackstone on April 30, 1998.
The amount has been recorded as syndication costs.
InterMedia Management, Inc. ("IMI") is the sole member of ICM-VI LLC. IMI
has entered into an agreement with the Partnership to provide accounting
and administrative services at cost. IMI also provides such services to
other cable systems which are affiliates of the Partnership.
Administrative fees charged by IMI for the nine months ended September 30,
1999 and the period from April 30, 1998 (commencement of operations)
through December 31, 1998 were $3,131 and $2,495, respectively. Receivable
from affiliates includes $2,850 and $628 at September 30, 1999 and
December 31, 1998, respectively, of advances to IMI, net of administrative
fees charged by IMI and operating expenses paid by IMI on behalf of the
Partnership.
As an affiliate of AT&TBIS, the Partnership is able to purchase
programming services from a subsidiary of AT&TBIS. Management believes
that the overall programming rates made available through this
relationship are lower than those which the Partnership could obtain
separately. Such volume rates may not continue to be available in the
future should AT&TBIS's ownership in the Partnership significantly
decrease. Programming fees charged by the AT&TBIS subsidiary for the nine
months ended September 30, 1999 and the period April 30, 1998
(commencement of operations) through December 31, 1998 amounted to $28,523
and $22,183, respectively. Payable to affiliates at December 31, 1998
represents programming fees payable to the AT&TBIS subsidiary.
The Partnership entered into an agreement with an affiliate of AT&TBIS to
manage the Partnership's advertising business and related services for an
annual fixed fee per advertising sales
F-86
<PAGE>
InterMedia Capital Partners VI, L.P.
Notes to Consolidated Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
subscriber, as defined by the agreement. In addition to the annual fixed
fee, AT&TBIS is entitled to varying percentage shares of the incremental
growth in annual cash flow from advertising sales above specified targets.
Management fees charged by the AT&TBIS subsidiary for the nine months
ended September 30, 1999 and the period April 30, 1998 (commencement of
operations) through December 31, 1998 amounted to $231 and $563,
respectively. Receivables from affiliates at September 30, 1999 and
December 31, 1998 includes $3,632 and $6,904, respectively, of receivables
from AT&TBIS for advertising sales.
As part of its normal course of business the Systems are involved in
transactions with affiliates of ICP-VI which own and operate cable
television systems. Such transactions include purchases and sales, at
cost, of inventories used in construction of cable plant. Receivables from
affiliates at September 30, 1999 includes $131 of receivables from
affiliated systems.
12. Cable Television Regulation
Cable television legislation and regulatory proposals under consideration
from time to time by Congress and various federal agencies have in the
past, and may in the future, materially affect the Partnership and the
cable television industry.
The cable industry is currently regulated at the federal and local levels
under the Cable Act of 1984, the Cable Act of 1992 (the "1992 Act"), the
Telecommunications Act of 1996 (the "1996 Act") and regulations issued by
the Federal Communications Commission ("FCC") in response to the 1992 Act.
FCC regulations govern the determination of rates charged for basic,
expanded basic and certain ancillary services, and cover a number of other
areas including customer service and technical performance standards, the
required transmission of certain local broadcast stations and the
requirement to negotiate retransmission consent from major network and
certain local television stations. Among other provisions, the 1996 Act
eliminated rate regulation on the expanded basic tier effective March 31,
1999.
Current regulations issued in connection with the 1992 Act empower the FCC
and/or local franchise authorities to order reductions of existing rates
which exceed the maximum permitted levels and require refunds measured
from the date a complaint is filed in some circumstances or retroactively
for up to one year in other circumstances. Management believes it has made
a fair interpretation of the 1992 Act and related FCC regulations in
determining regulated cable television rates and other fees based on the
information currently available.
Many aspects of regulations at the federal and local levels are currently
the subject of judicial review and administrative proceedings. In
addition, the FCC continues to conduct rulemaking proceedings to implement
various provisions of the 1996 Act. It is not possible at this time to
predict the ultimate outcome of these reviews or proceedings or their
effect on the Partnership.
13. Commitments and Contingencies
The Partnership is committed to provide cable television services under
franchise agreements with
F-87
<PAGE>
InterMedia Capital Partners VI, L.P.
Notes to Consolidated Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
remaining terms of up to eighteen years. Franchise fees of up to 5% of
gross revenues are payable under these agreements.
Current FCC regulations require that cable television operators obtain
permission to retransmit major network and certain local television
station signals. The Partnership has entered into long-term retransmission
agreements with all applicable stations in exchange for in-kind and/or
other consideration.
On April 30, 1999 the Partnership was named as an additional defendant in
a purported class action which was originally filed in January 1998
against AT&TBIS and certain of its affiliates in the State of Kentucky
concerning late fee charges and practices. Certain cable systems owned by
the Partnership charge late fees to customers who do not pay their cable
bills on time. These late fee cases challenge the amount of the late fees
and practices under which they are imposed. The Plaintiffs raise claims
under state consumer protection statutes, other state statutes, and common
law. Plaintiffs generally allege that the late fees charged by the
Partnership's cable systems in the State of Kentucky are not reasonably
related to the costs incurred by the cable systems as a result of late
payment. Plaintiffs seek to require cable systems to reduce their late
fees on a prospective basis and to provide compensation for alleged
excessive late fee charges for past periods. Based on the facts available,
management believes that, although no assurances can be given as to the
outcome of these actions, the ultimate disposition of these matters should
not have a material adverse effect upon the financial position, results of
operations or cash flows of the Partnership.
In September 1999 the Partnership received a tentative property tax
assessment from the Kentucky Revenue Cabinet with a total valuation of
$1,197,571. This valuation could result in an additional property tax
liability of approximately $4,149 for the nine months ended September 30,
1999. However, based on the information currently available to the
Partnership and taking into account the advice of the Partnership's
counsel, management believes that the accrued property tax liability
included in the Partnership's financial statements is adequate.
The Partnership is subject to litigation and other claims in the ordinary
course of business. In the opinion of management, the ultimate outcome of
any existing litigation or other claims will not have a material adverse
effect on the Partnership's financial position, results of operations or
cash flows.
The Partnership has entered into pole rental agreements and leases certain
of its facilities and equipment under non-cancelable operating leases.
Minimum rental commitments at September 30, 1999 for the next five years
and thereafter under these leases are as follows:
1999 $ 154
2000 552
2001 264
2002 129
2003 100
Thereafter 162
-------
$ 1,361
=======
F-88
<PAGE>
InterMedia Capital Partners VI, L.P.
Notes to Consolidated Financial Statements
(dollars in thousands)
- --------------------------------------------------------------------------------
Rent expense, including pole rental agreements was $1,099 and $1,003 for
the nine months ended September 30, 1999 and the period from April 30,
1998 (commencement of operations) through December 31,1998, respectively.
14. Supplemental Disclosures to Consolidated Statement of Cash Flows
During the nine months ended September 30, 1999 and the period from April
30, 1998 through December 31, 1998, the Partnership paid interest of
$46,942 and $32,465, respectively.
As described in Note 3 (Contribution of Cable Properties), on April 30,
1998 the Partnership received, from AT&TBIS and another limited partner,
in-kind contributions of cable television systems located in Kentucky. In
connection with the contribution, the Partnership repaid debt assumed of
$803,743 and incurred fees of $3,629.
15. Employee Benefit Plan
The Partnership participates in the InterMedia Partners Tax Deferred
Savings Plan, which covers all full-time employees who have completed at
least six months of employment. Such Plan provides for a base employee
contribution of 1% and a maximum of 15% of compensation. The Partnership's
matching contributions under such Plan are at the rate of 50% of the
employee's contributions, up to a maximum of 5% of compensation.
16. Subsequent Events
On October 1, 1999, the Partnership's general and limited partners, other
than AT&TBIS, sold their partner interests in ICP-VI to Insight. Upon
consummation of the sale, Insight began managing the Partnership. Also on
October 1, 1999, under Insight's management, the Partnership refinanced
its borrowings outstanding under the subordinated Term Loan B.
F-89
<PAGE>
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy these securities in any jurisdiction where
that would not be permitted or legal. Neither the delivery of this prospectus
nor any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Insight
Midwest and Insight Capital have not changed since the date hereof.
Until _______, 2000 (90 days after the date of this prospectus), all dealers,
that effect transactions in these securities, whether or not participating in
this offering, may be required to deliver a prospectus. This in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Insight Midwest, L.P.
Section 17-108 of the Delaware Revised Uniform Limited Partnership Act
(the "Partnership Act") provides that a limited partnership may indemnify and
hold harmless any partners or other persons from and against any and all claims
and demands whatsoever, subject to such standards and restrictions set forth in
the partnership agreement. Accordingly, Section 12.1 of the Limited Partnership
Agreement of Insight Midwest, L.P., dated as of October 1, 1999, provides that
each partner of the Partnership and their respective members, partners,
officers, directors, shareholders, employees and agents, the employees, officers
and agents of the Partnership, and the members of the Advisory Committee
(collectively, the "Indemnified Persons") will be indemnified, defended and held
harmless by the Partnership from any liability, loss or damage incurred by the
Indemnified Person by reason of any act performed or omitted to be performed by
the Indemnified Person in connection with the business of the Partnership and
its subsidiaries, including costs and attorney's fees and any amounts expended
in the settlement of any claims of liability, loss or damage; provided that if
the liability, loss, damage or claim arises out of any action or inaction of an
Indemnified Person, indemnification under Section 12.1 shall not be available if
the action or inaction is finally adjudicated to have constituted fraud, gross
negligence, breach of fiduciary duty (which shall not be construed to encompass
mistakes in judgement or any breach of any Indemnified Person's duty of care
that did not constitute gross negligence), or willful misconduct by the
Indemnified Person; and provided further that indemnification under Section 12.1
shall be recoverable only from the assets of the Partnership and not from any
assets of the partners of the Partnership. Article 12 further provides that the
Partnership may pay for insurance covering liability of the Indemnified Person
for negligence in operations of the Partnership's affairs.
Insight Capital, Inc.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person being
or having been a director, officer, employee of or agent to the Registrants. The
statute provides that it is not exclusive of other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise. Insight Capital's by-laws
provide for indemnification by Insight Capital of any director or officer (as
such term is defined in the by-laws) of Insight Capital who is or was a director
of any of its subsidiaries, or, at the request of Insight Capital, is or was
serving as a director or officer of, or in any other capacity for, any other
enterprise, to the fullest extent permitted by law. The by-laws also provide
that Insight Capital shall advance expenses to a director or officer and, if
reimbursement of such expenses is demanded in advance of the final disposition
of the matter with respect to which such demand is being made, upon receipt of
an undertaking by or on behalf of such director or officer to repay such amount
if it is ultimately determined that the director or officer is not entitled to
be indemnified by Insight Capital. To the extent authorized from time to time by
the board of directors of Insight Capital, Insight Capital may provide to any
one or more employees of Insight
II-1
<PAGE>
Capital, one or more officers, employees and other agents of any subsidiary or
one or more directors, officers, employees and other agents of any other
enterprise, rights of indemnification and to receive payment or reimbursement of
expenses, including attorneys' fees, that are similar to the rights conferred in
the by-laws of Insight Capital on directors and officers of Insight Capital or
any subsidiary or other enterprise. The by-laws do not limit the power of
Insight Capital or its board of directors to provide other indemnification and
expense reimbursement rights to directors, officers, employees, agents and other
persons otherwise than pursuant to the by-laws.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
payments of unlawful dividends or unlawful stock repurchases or redemptions, or
(iv) for any transaction from which the director derived an improper personal
benefit. Insight Capital's certificate of incorporation provides for such
limitation of liability.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
The following exhibits are filed as part of this Registration Statement:
Exhibit Number Exhibit Description
- -------------- -------------------
2.1 Asset Contribution Agreement by and among Insight Communications of
Indiana, LLC ("Insight Indiana"), Insight Communications Company, L.P.
("Insight LP"), UACC Midwest, Inc., TCI of Kokomo, Inc., TCI of Indiana,
Inc., Heritage Cablevision Associates, A Limited Partnership and TCI of
Indiana Holdings, LLC dated as of May 14, 1998 (filed as Exhibit 2.1 to
Insight Communications Company, Inc.'s Registration Statement on Form S-1
(Registration No. 333-78293) and incorporated herein by reference)
2.2 Asset Exchange Agreement by and among Insight LP, TCI of Indiana, Inc.
and UACC Midwest, Inc., dated May 14, 1998 (filed as Exhibit 2.5 to
Insight Communications Company, Inc.'s Registration Statement on Form S-1
(Registration No. 333-78293) and incorporated herein by reference)
2.3 Purchase Agreement, dated as of April 18, 1999, among InterMedia Capital
Management VI, LLC, InterMedia Management Inc., Robert J. Lewis, TCI ICM
VI, Inc., InterMedia Capital Management VI, L.P., Blackstone KC Capital
Partners, L.P., Blackstone KC Offshore Capital Partners, L.P., Blackstone
Family Investment Partnership III L.P., Leo J. Hindery, Jr., TCI IP-VI,
LLC and Insight L.P. (filed as Exhibit 2.8 to Insight Communications
Company, Inc.'s Registration Statement on Form S-1 (Registration No.
333-78293) and incorporated herein by reference)
2.4 Contribution and Formation Agreement, dated April 18, 1999, between TCI
of Indiana Holdings, LLC and Insight LP (filed as Exhibit 2.9 to Insight
Communications Company,
II-2
<PAGE>
Inc.'s Registration Statement on Form S-1 (Registration No. 333-78293)
and incorporated herein by reference)
3.1 Certificate of Limited Partnership of Insight Midwest
3.2 Limited Partnership Agreement of Insight Midwest
3.3 Certificate of Incorporation of Insight Capital
3.4 By-laws of Insight Capital
4.1 Indenture, dated as of October 1, 1999, among Insight Midwest, Insight
Capital and Harris Trust Company of New York, as Trustee*
4.2 Registration Rights Agreement, dated as of October 1, 1999, among
Insight Midwest, Insight Capital, Donaldson, Lufkin & Jenrette
Securities Corporation, Morgan Stanley & Co., Incorporated, BNY Capital
Markets, Inc. and Wasserstein Perella Securities, Inc.
5.1 Opinion of Cooperman Levitt Winikoff Lester & Newman, P.C.*
10.1 Credit Agreement, dated as of October 30, 1998 (the "Indiana Credit
Facility"), among Insight Indiana, the several lenders and The Bank of
New York (filed as Exhibit 10.3 to Insight Communications Company,
Inc.'s Registration Statement on Form S-1 (Registration No. 333-78293)
and incorporated herein by reference)
10.2 Amendment to the Indiana Credit Facility dated September 24, 1999
10.3 Amended and Restated Revolving Credit and Term Loan Agreement, dated as
of October 1, 1999, among Insight Kentucky Partners I, L.P., several
lenders and Toronto Dominion (Texas), Inc.*
10.4 Amended and Restated Operating Agreement of Insight Indiana dated as of
October 1,1999
10.5 Amended and Restated Management Agreement by and between Insight Indiana
and Insight LP, dated as of October 1, 1999
10.6 Amended and Restated Partnership Agreement of Insight Communications of
Kentucky, L.P. dated as of October 1, 1999
10.7 Management Agreement of Insight Kentucky by and between Insight LP and
Insight Kentucky Partners II, L.P., dated as of October 1, 1999
21.1 Subsidiaries of Insight Midwest
23.1(a) Consent of Ernst & Young LLP
23.1(b) Consent of Ernst & Young LLP
23.1(c) Consent of Ernst & Young LLP
23.2(a) Consent of KPMG LLP
23.2(b) Consent of KPMG LLP
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of Cooperman Levitt Winikoff Lester & Newman, P.C. (included in
Exhibit 5.1)*
27.1 Financial Data Schedules for Insight Midwest
27.2 Financial Data Schedules for Insight Capital
99.1 Form of Letter of Transmittal with respect to the exchange offer*
99.2 Form of Instruction Letter to Registered Shareholders*
99.3 Form of Notice of Guaranteed Delivery*
- --------------
* To be filed by amendment
(b) Financial Statement Schedules
None.
II-3
<PAGE>
Item 22. Undertakings.
Insight Midwest, L.P. and Insight Capital, Inc. (the "Registrants") hereby
undertake:
(1) To file, during any period in which offers or sales are being made, a
post- effective amendment to this Registration Statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
registration statement; (iii) to include any material information with respect
to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of Form S-4, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
The undersigned Registrants hereby undertake as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
Registrants undertake that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
II-4
<PAGE>
The Registrants undertake that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrants pursuant to the foregoing provisions, or otherwise, the
Registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on March 29, 2000.
INSIGHT MIDWEST, L.P.
By: Insight Communications Company, L.P.,
its general partner
By: Insight Communications Company, Inc.,
its general partner
By: /s/ Michael S. Willner
_______________________________________
Michael S. Willner,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature
appears below constitutes and appoints Michael S. Willner and Kim D. Kelly as
such person's true and lawful attorney-in-fact and agent, acting alone, with
full powers of substitution and revocation, for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement and to file
the same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent, acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Sidney R. Knafel Chairman of the Board and Member March 29, 2000
- -------------------------- of the Advisory Committee
Sidney R. Knafel
/s/ Michael S. Willner President, Chief Executive March 29, 2000
- -------------------------- Officer and Member of the
Michael S. Willner Advisory Committee
(Principal executive officer)
II-6
<PAGE>
/s/ Kim D. Kelly Executive Vice President, March 29, 2000
- -------------------------- Chief Operating and Financial
Kim D. Kelly Officer and Member of the
Advisory Committee
(principal financial officer
and principal accounting officer)
Member of the Advisory Committee
- --------------------------
William R. Fitzgerald
Member of the Advisory Committee
- --------------------------
Derek Chang
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on March 29, 2000.
INSIGHT CAPITAL, INC.
By: /s/ Michael S. Willner
__________________________________
Michael S. Willner,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature
appears below constitutes and appoints Michael S. Willner and Kim D. Kelly as
such person's true and lawful attorney-in-fact and agent, acting alone, with
full powers of substitution and revocation, for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement and to file
the same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent, acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Sidney R. Knafel Chairman of the Board March 29, 2000
- --------------------------
Sidney R. Knafel
/s/ Michael S. Willner President, Chief Executive March 29, 2000
- -------------------------- Officer and Director
Michael S. Willner (principal executive officer)
II-8
<PAGE>
/s/ Kim D. Kelly Executive Vice President, March 29, 2000
- --------------------------- Chief Operating and Financial
Kim D. Kelly Officer and Director
(principal financial officer
and principal accounting officer)
II-9
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF LIMITED PARTNERSHIP
FOR
INSIGHT MIDWEST, L.P.
THE UNDERSIGNED, desiring to form a limited partnership pursuant to the
Delaware Revised Uniform Limited Partnership Act, 6 Delaware Code, Chapter 17,
do hereby certify as follows:
FIRST: The name of the limited partnership is Insight Midwest, L.P. (the
"Partnership").
SECOND: The name and address of the registered agent for the Partnership is The
Corporation Trust Company, 1209 Orange Street, City of Wilmington, County of New
Castle, State of Delaware.
THIRD: The name and mailing address of the general partner for the Partnership
is Insight Communications Company, L.P., 126 E. 56th Street, New York, New York
10022.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Limited
Partnership, this 24th day of September, 1999.
INSIGHT COMMUNICATIONS COMPANY, L.P.,
General Partner of Insight Midwest, L.P.
By: Insight Communications Company, Inc.,
its general partner
By: ------------------------------------
Name: Kim D. Kelly
Title: Executive Vice President
<PAGE>
Exhibit 3.2
LIMITED PARTNERSHIP AGREEMENT OF
INSIGHT MIDWEST, L.P.
DATED AS OF
OCTOBER 1, 1999
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE 1 DEFINITIONS............................................................... 2
1.1 Terms Defined in this Section............................................. 2
1.2 Terms Defined Elsewhere in this Agreement................................. 13
1.3 Terms Generally........................................................... 14
ARTICLE 2 FORMATION AND PURPOSE..................................................... 14
2.1 Formation................................................................. 14
2.2 Name 14
2.3 Principal and Registered Office........................................... 15
2.4 Term 15
2.5 Purposes of Partnership................................................... 15
2.6 Certificate............................................................... 17
2.7 Addresses of the Partners................................................. 17
2.8 Foreign Qualification..................................................... 17
2.9 Tax Classification........................................................ 17
ARTICLE 3 PARTNERSHIP CAPITAL....................................................... 18
3.1 Contributions............................................................. 18
3.2 Additional Capital Contributions.......................................... 19
3.3 Return of Contributions................................................... 19
ARTICLE 4 DISTRIBUTIONS; ALLOCATIONS OF PROFIT AND LOSS............................. 19
4.1 Distributions of Cash..................................................... 19
4.2 Allocations of Net Profit and Net Loss.................................... 21
4.3 Special Provisions Regarding Allocations of Profit and Loss............... 21
4.4 Tax Allocations: Code Section 704(c)...................................... 23
4.5 Allocation in Event of Transfer........................................... 24
4.6 Alternative Allocations................................................... 24
ARTICLE 5 AUTHORITY OF THE GENERAL PARTNER;OTHER MATTERS AFFECTING GENERAL PARTNER.. 24
5.1 Authority of General Partner.............................................. 24
5.2 No Personal Liability..................................................... 25
5.3 Withdrawal of General Partner............................................. 25
5.4 Tax Matters Partner....................................................... 26
5.5 Operating and Capital Expenditure Budgets................................. 28
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
ARTICLE 6 STATUS OF LIMITED PARTNER; OTHER LIMITATIONS ON PARTNERS.................................. 28
6.1 No Management and Control................................................................. 28
6.2 Limited Liability......................................................................... 29
6.3 Return of Distributions of Capital........................................................ 29
6.4 Specific Limitations...................................................................... 29
6.5 Matters Requiring TCI Approval............................................................ 30
6.6 Additional Matters Requiring Limited Partner Approval..................................... 30
6.7 Limited Partner Consent Defined........................................................... 34
ARTICLE 7 ADVISORY COMMITTEE........................................................................ 34
7.1 Appointment and Removal of Representatives................................................ 34
7.2 Meetings of the Advisory Committee........................................................ 35
7.3 Procedural Matters........................................................................ 35
ARTICLE 8 TRANSFER OF PARTNERSHIP INTERESTS......................................................... 36
8.1 Limitations on Transfers.................................................................. 36
8.2 Transferees and Successors................................................................ 37
8.3 Transfers of Interests in Partners........................................................ 38
8.4 Other Consents and Requirements........................................................... 38
8.5 Assignment Not In Compliance.............................................................. 39
8.6 Division of Partnership Interests......................................................... 39
8.7 Pledge of Partnership Interests........................................................... 39
8.8 Code Section 708(b)(1)(B)................................................................. 39
ARTICLE 9 BUY/SELL RIGHTS........................................................................... 40
9.1 Commencement of Buy/Sell Process.......................................................... 40
9.2 Non-Initiating Partner's Option to Postpone the Buy/Sell Process.......................... 41
9.3 TCI's Options as Non-Initiating Partner................................................... 41
9.4 Insight's Options as Non-Initiating Partner............................................... 43
9.5 TCI's Option to Negotiate Alternative Structure........................................... 43
9.6 Insight's Option to Require TCI to Purchase Insight's Partnership Interest................ 44
9.7 Default by Partner........................................................................ 44
9.8 Removal of Insight as Partner............................................................. 45
9.9 General Terms Applicable to Purchase and Sale of Partnership Interests and LLC Interests.. 47
ARTICLE 10 OTHER BUSINESSES AND INVESTMENT OPPORTUNITIES............................................. 49
10.1 Prohibited Cross-Interests................................................................ 49
10.2 No Other Restrictions..................................................................... 51
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
ARTICLE 11 DISSOLUTION AND LIQUIDATION OF PARTNERSHIP.. 52
11.1 Events of Dissolution....................... 52
11.2 Liquidation................................. 52
11.3 Distribution in Kind........................ 54
11.4 No Action for Dissolution................... 54
11.5 No Further Claim............................ 54
ARTICLE 12 INDEMNIFICATION............................. 54
12.1 General..................................... 54
12.2 Exculpation................................. 55
12.3 Persons Entitled to Indemnity............... 55
12.4 Procedure Agreements........................ 55
ARTICLE 13 BOOKS, RECORDS, ACCOUNTING, AND REPORTS..... 56
13.1 Books and Records........................... 56
13.2 Delivery to Partner and Inspection.......... 56
13.3 Annual Statements........................... 56
13.4 Quarterly Financial Statements.............. 57
13.5 Monthly Statements.......................... 58
13.6 Other Information........................... 58
13.7 Tax Matters................................. 58
13.8 Other Filings............................... 59
13.9 Non-Disclosure.............................. 59
ARTICLE 14 REPRESENTATIONS BY THE PARTNERS............. 60
14.1 Investment Intent........................... 60
14.2 Securities Regulation....................... 60
14.3 Knowledge and Experience.................... 61
14.4 Economic Risk............................... 61
14.5 Binding Agreement........................... 61
14.6 Tax Position................................ 61
14.7 Information................................. 61
ARTICLE 15 AMENDMENTS AND WAIVERS...................... 61
15.1 Amendments to Operating Agreement........... 61
15.2 Waivers..................................... 62
ARTICLE 16 MISCELLANEOUS............................... 62
16.1 Programming and Discounts................... 62
16.2 Additional Documents........................ 65
16.3 Inspection.................................. 65
16.4 General..................................... 65
16.5 Notices, Etc................................ 65
16.6 Execution of Papers......................... 65
16.7 Attorneys' Fees............................. 66
16.8 No Third-Party Beneficiaries................ 66
16.9 Headings.................................... 66
</TABLE>
-iii-
<PAGE>
SCHEDULES
Schedule I Addresses of the Partners
Schedule II Capital Accounts; Percentage Interest
Schedule III Initial Members of the Advisory Committee
Schedule IV Indiana Systems
-iv-
<PAGE>
LIMITED PARTNERSHIP AGREEMENT
OF
INSIGHT MIDWEST, L.P.
THIS LIMITED PARTNERSHIP AGREEMENT is made and entered into as of October
1, 1999, by and between INSIGHT COMMUNICATIONS COMPANY, L.P., a Delaware limited
partnership ("Insight Communications"), as general partner, and TCI OF INDIANA
HOLDINGS, LLC, a Colorado limited liability company ("TCI Indiana"), as limited
partner.
RECITALS
--------
A. Immediately prior to execution of this Agreement, Insight
Communications and TCI Indiana were the sole members of Insight Communications
of Indiana, LLC, a Delaware limited liability company ("Insight Indiana"), the
operations of which were governed by the Operating Agreement dated as of May 14,
1998 (as amended, the "Insight Indiana Operating Agreement").
B. Pursuant to the Purchase Agreement dated as of April 18, 1999 among
Insight Communications, certain affiliates of TCI Indiana and the other parties
named therein (as amended, the "Purchase Agreement"), Insight Communications
purchased 50% of the partnership interests in InterMedia Capital Partners VI,
L.P., a Delaware limited partnership ("ICP-VI").
C. The remaining 50% partnership interests in ICP-VI held by affiliates of
TCI Indiana were transferred to TCI Indiana immediately following closing under
the Purchase Agreement.
D. TCI Indiana and Insight Communications formed the Partnership pursuant
to an Agreement of Limited Partnership dated September 28, 1999, which is
superseded by this Agreement.
E. Pursuant to the Contribution Agreement, each of TCI Indiana and Insight
Communications contributed to the Partnership its 50% partnership interest in
ICP-VI and its 50% membership interest in Insight Indiana, with the effect that
as of the date of this Agreement, (1) Insight Indiana is wholly-owned by the
Partnership, (2) ICP-VI was dissolved by virtue of the Partnership's acquisition
of 100% of the partnership interests in such entity and (3) the Partnership
became the owner of 99.999% of the partnership interests of InterMedia Partners
Group VI, L.P. ("IPG VI").
F. Contemporaneously with closing under the Contribution Agreement, the
Insight Indiana Operating Agreement was amended and restated in its entirety and
the IPG VI Agreement of Limited Partnership was amended and restated in its
entirety.
NOW, THEREFORE, the parties agree as follows:
<PAGE>
ARTICLE 1
DEFINITIONS
-----------
1.1 Terms Defined in this Section .
-----------------------------
For purposes of this Agreement, the following terms shall have the
following meanings (all terms used in this Agreement that are not defined in
this Section 1.1 shall have the meanings set forth elsewhere in this Agreement
as indicated in Section 1.2, except as otherwise provided in this Agreement):
"@Home" means At Home Corporation, a Delaware corporation.
"@Home Distribution Agreement" means collectively, the Master Distribution
Agreement Term Sheet and the Term Sheet for Form of LCO Agreement, each of which
are exhibits to the letter agreement, dated as of May 15, 1997, among @Home and
Tele-Communications, Inc., Comcast Corporation, Cox Enterprises, Inc., Kleiner,
Perkins, Caufield & Byers and certain of their respective Affiliates, as each
such term sheet has been amended by the letter agreement, dated as of October 2,
1997, as amended as of October 10, 1997, among the parties to the May 15, 1997
letter agreement and Cablevision Systems Corporation and certain of its
Affiliates; provided, that such term shall include any definitive agreements
entered into by such parties in respect of the distribution of the @Home Service
as contemplated by the May 15, 1997 letter agreement.
"@Home Service" has the meaning specified in the @Home Distribution
Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act.
"Adjusted Capital Account Deficit" means with respect to either Partner,
the deficit balance, if any, in such Partner's Capital Account as of the end of
the relevant Fiscal Year, after:
(i) crediting to such Capital Account any amounts that such Partner is
obligated to restore to the Partnership pursuant to Treasury Regulations Section
1.704-1(b)(2)(ii)(c) or is deemed to be obligated to restore pursuant to the
penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-
2(i)(5); and
(ii) debiting from such Capital Account the items described in
Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5),
and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith.
"Advertising Sales Agreements" means (a) the Management Agreement for
Advertising Sales Business dated as of April 21, 1998 between Insight Kentucky
II and TCI Cable Management
-2-
<PAGE>
Corporation and (b) the Agreement dated as of December 1, 1995 between TKR Cable
of Greater Louisville and Insight Communications.
"Advisory Committee" means the Advisory Committee established by Article 7.
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by, or under common control with such Person. For
purposes of this definition and the definition of "Controlled Affiliate," the
term "control" means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of Voting Stock or other equity interests, by contract, or
otherwise, and the terms "controlled by" and "under common control with" have
meanings corresponding to the meaning of "control."
"Agreement" means this Agreement, as it may be amended from time to time.
"Asset Acquisition" shall mean (i) an investment by the Partnership or any
of its Subsidiaries in any other Person, pursuant to which such Person becomes a
Subsidiary of the Partnership or another Subsidiary of the Partnership or is
merged, consolidated, amalgamated with or into, or is liquidated into, the
Partnership or any of its Subsidiaries, or (ii) the acquisition by the
Partnership or any of its Subsidiaries of the assets of any Person (other than
the Partnership or any of its Subsidiaries) that constitute a division or line
of business or operating business (even if not a separate division or line of
business) of such Person, including, without limitation, the acquisition by the
Partnership or any of its Subsidiaries of any cable television system or other
business.
"Asset Disposition" shall mean the sale, exchange or other disposition by
the Partnership or any of its Subsidiaries (other than to the Partnership or
another Subsidiary of the Partnership) (i) of all or substantially all of the
capital stock, partnership interests or membership interests of any Subsidiary
of the Partnership, or (ii) of the assets that constitute a division or line of
business or operating business (even if not a separate division or line of
business) of the Partnership or of any of its Subsidiaries, including, without
limitation, the sale, exchange or disposition by the Partnership or any of its
Subsidiaries of any cable television system or other business.
"Business Day" means any day (other than a day that is a Saturday or
Sunday) on which banks are permitted to be open for business in the State of New
York.
"Capital Account" means a separate account to be maintained for each
Partner in accordance with the Code, which, subject to any contrary requirements
of the Code, shall equal such Partner's initial Capital Account balance as of
the date of this Agreement as provided in Section 3.1(b), increased by: (i)
the amount of money contributed by such Partner to the Partnership after the
date of this Agreement, if any; (ii) the fair market value without regard to
Code Section 7701(g) of property, if any, contributed by such Partner to the
Partnership after the date of this Agreement (net of liabilities that are
secured by such contributed property or that the Partnership or any other
Partner is considered to assume or take subject to under Code Section 752);
(iii) allocations to the Partner of Net Profit and items of income and gain
pursuant to Article 4 that are made after the date of this Agreement; and (iv)
other additions made in accordance with the Code; and decreased by (i)
-3-
<PAGE>
the amount of cash distributed to such Partner by the Partnership after the date
of this Agreement; (ii) allocations to the Partner of Net Loss and items of loss
and deduction pursuant to Article 4 that are made after the date of this
Agreement; (iii) the fair market value without regard to Code Section 7701(g) of
property distributed to such Partner by the Partnership after the date of this
Agreement (net of liabilities that are secured by such distributed property or
that such Partner is considered to assume or take subject to under Code Section
752); and (iv) other deductions made in accordance with the Code. The foregoing
provisions and the other provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with Treasury Regulations
under Code Section 704(b) and, to the extent not inconsistent with the
provisions of this Agreement, shall be interpreted and applied in a manner
consistent with such Treasury Regulations.
"Capital Contributions" means, with respect to either Partner, the amount
of money and the net fair market value of property contributed by such Partner
to the Partnership pursuant to this Agreement.
"Certificate" means the certificate of limited partnership filed with
respect to the Partnership pursuant to the Act.
"Closing" means the Closing under the Contribution Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any subsequent federal law of similar import, and, to the extent
applicable, the Treasury Regulations.
"Contribution Agreement" means the Contribution and Formation Agreement,
dated as of April 18, 1999, between TCI Indiana and Insight Communications, as
it may be amended from time to time in accordance with its terms.
"Controlled Affiliate" means (i) with respect to TCI, any Person that, at
such time, is controlled directly or indirectly by TCI or Tele-Communications,
Inc., a Delaware corporation, (ii) with respect to Insight, any Person (other
than the Partnership or any Subsidiary) that, at such time, is controlled
directly or indirectly by Insight or Insight Communications Company, Inc., and
(iii) with respect to any other specified Person, any Person that, at such time,
is controlled directly or indirectly by such specified Person.
"Depreciation" means, for each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset Value
of an asset differs from its adjusted basis for federal income tax purposes at
the beginning of such Fiscal Year, Depreciation shall be determined in the
manner described in Treasury Regulations Section 1.704-1(b)(2)(iv)(g)(3) or
Treasury Regulations Section 1.704-3(d)(2), as applicable.
"Equity Value" means, with respect to any Partnership Interest and LLC
Interest for purposes of any provision of this Agreement that refers to the
Equity Value of such Partnership Interest and LLC Interest, the amount that
would be distributed to the holder of such Partnership Interest and LLC Interest
if the Partnership's assets and Insight Kentucky Capital's assets were sold
-4-
<PAGE>
on the date of closing the purchase and sale of such Partner's Partnership
Interest and LLC Interest or the date of closing an Alternative Structure, as
applicable, pursuant to Article 9 for the Stated Value of the Partnership and
Insight Kentucky Capital (except, in the event of the purchase of Insight's
Partnership Interest and LLC Interest by TCI pursuant to Section 9.8, for the
Fair Market Value of the Partnership and Insight Kentucky Capital) and the
Partnership were then liquidated in accordance with Article 11 of this Agreement
on the date of said closing and Insight Kentucky Capital were then liquidated in
accordance with the Insight Kentucky Capital Agreement, subject to the following
sentences. In applying the provisions of Section 11.2 to such hypothetical
liquidation of the Partnership and in applying the liquidation provisions of the
Insight Kentucky Capital Agreement, (i) all current assets and all liabilities
of the Partnership and Insight Kentucky Capital, defined and determined in
accordance with generally accepted accounting principles, shall be calculated as
of the date of said closing, (ii) all costs that would customarily be incurred
in connection with such a purchase and sale (including attorneys' fees and
broker fees, but excluding taxes measured on the amount of income, gain or
proceeds realized by the selling Partner or any governmental charges imposed in
lieu of such taxes) shall be treated as an expense of liquidation under Section
11.2(d)(1), and (iii) appropriate reserves shall be set up pursuant to Section
11.2(d)(2) or the parallel provision of the Insight Kentucky Capital Agreement,
for any contingent or unforeseen liabilities or obligations of the Partnership
or Insight Kentucky Capital that relate to the period prior to the date of such
closing pursuant to Article 9 or any obligation or liability that relates to the
period prior to the date of such closing pursuant to Article 9 not then due and
payable (subject to the last sentence of Section 9.9(f)). The current assets and
liabilities referred to in clause (i), the costs referred to in clause (ii), and
the reserves referred to in clause (iii) shall all be determined in accordance
with the procedures set forth in Section 9.9(d).
"Exclusive Internet Services" means Internet Services which would
constitute a Restricted Business (as defined in the @Home Distribution
Agreement) to the extent engaged in or distributed by TCI Cable Parent or their
controlled affiliates (as defined in the @Home Distribution Agreement).
"FCC" means the Federal Communications Commission.
"Fiscal Year" means the fiscal year of the Partnership, which shall be the
calendar year.
"General Partner" means Insight or, following any conversion by TCI of its
Partnership Interest to that of a General Partner in accordance with the terms
of this Agreement, TCI.
"Gross Asset Value" means with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership pursuant to the Contribution Agreement shall be the
gross fair market value of such asset, as determined pursuant to Section 3.1;
(ii) The Gross Asset Values of all assets of the Partnership shall be
adjusted to equal their respective gross fair market values, as determined by
the mutual agreement of the
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<PAGE>
Partners, as of the following times: (A) the acquisition of an additional
interest in the Partnership by any new or existing Partner in exchange for more
than a de minimis Capital Contribution; (B) the distribution by the Partnership
to a Partner of more than a de minimis amount of property of the Partnership as
consideration for an interest in the Partnership; and (C) the liquidation of the
Partnership within the meaning of Treasury Regulations Section
1.704-1(b)(2)(ii)(g); provided, however, that the adjustments pursuant to
clauses (A) and (B) above shall be made only if the Partners determine by mutual
agreement that such adjustments are necessary or appropriate to reflect the
relative economic interests of the Partners in the Partnership;
(iii) The Gross Asset Value of any asset of the Partnership
distributed to either Partner shall be the gross fair market value of such asset
on the date of distribution; and
(iv) The Gross Asset Value of the assets of the Partnership shall be
increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and
Section 4.3(g); provided, however, that Gross Asset Value shall not be adjusted
pursuant to this paragraph (iv) to the extent that the Partners determine by
mutual agreement that an adjustment pursuant to paragraph (ii) of this
definition is necessary or appropriate in connection with a transaction that
would otherwise result in an adjustment pursuant to this paragraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to paragraph (i), (ii), or (iv) of this definition, the Gross Asset
Value of such asset shall thereafter be adjusted by the Depreciation taken into
account with respect to such asset for purposes of computing Net Profit and Net
Loss.
"Indebtedness" means, as to any Person, (without duplication) (i) all
indebtedness of such Person for borrowed money; (ii) obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments; (iii)
obligations of such Person to pay the deferred purchase price of property or
services (other than trade payables incurred in the ordinary course of
business); (iv) all capitalized lease obligations of such Person; (v)
obligations of such Person in respect of letters of credit or other similar
forms of surety obligations to the extent treated as debt for purposes of
calculating applicable financial leverage covenants under the Insight Credit
Agreement, as in effect at the time of determination (but excluding any such
obligations under any cable television franchise, pole attachment agreement,
lease, or other similar agreement or license entered into in connection with the
day-to-day operations of a cable television system); and (vi) obligations of
such Person under guarantees in respect of, and obligations of such Person to
purchase or otherwise acquire, or otherwise to assure a creditor against loss in
respect of, indebtedness or obligations of other Persons (excluding any
obligations of any Subsidiary of the Partnership) of the kind referred to in
clauses (i) through (v) above; provided that the term guarantee shall not
include endorsements for collection or deposit in the ordinary course of
business or obligations under or related to cable television franchises, pole
attachment agreements, leases, or other similar agreements or licenses entered
into in connection with the day-to-day operations of a cable television system.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations or liabilities as
described in the foregoing sentence and shall be the
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<PAGE>
amount that would appear as a liability on the balance sheet of such Person
prepared in accordance with generally accepted accounting principles.
"Indiana Contribution Agreement" means the Asset Contribution and Formation
Agreement dated as of May 14, 1998 between TCI Indiana and Insight
Communications.
"Initiating Partner" means the Partner that elects pursuant to Section
9.1(a) to commence the process described in Article 9.
"Insight" means Insight Communications or any other Person that succeeds to
its Partnership Interest and is admitted as a Partner in accordance with the
provisions of this Agreement, provided that to the extent Insight Communications
transfers less than all of its Partnership Interest to any other Person(s) and
such Person(s) is/are admitted as a Partner in accordance with the provisions of
this Agreement, "Insight" shall refer to Insight Communications and such other
Person(s) collectively.
"Insight Credit Agreement" means the Third Amended and Restated Credit
Agreement by and among Insight, the lenders party thereto, CIBC Inc., and Fleet
Bank, N.A., as Co-Agents, and The Bank of New York, as Issuing Bank and as
Agent, dated as of January 22, 1998, as such agreement may be amended from time
to time in accordance with its terms.
"Insight Indiana" means Insight Communications of Indiana, LLC.
"Insight Kentucky" means Insight Communications of Kentucky, L.P., f/k/a
InterMedia Partners Group VI, L.P.
"Insight Kentucky I" means Insight Kentucky Partners I, L.P., f/k/a
InterMedia Partners VI, L.P.
"Insight Kentucky II" means Insight Kentucky Partners II, L.P., f/k/a
InterMedia Partners of Kentucky, L.P.
"Insight Kentucky Capital" means Insight Kentucky Capital, LLC, a Delaware
limited liability company, the sole members of which are Insight Communications
and TCI Indiana.
"Insight Kentucky Capital Agreement" means the Operating Agreement of
Insight Kentucky Capital dated as of October 1, 1999 between Insight
Communications and TCI Indiana.
"Internet Backbone" means a network which: (i) can or does (A) assign IP
addresses or manage IP address assignments for machines or networks to which it
is connected, (B) accept or deliver IP datagrams from machines or networks to
which it is connected, or (C) maintain IP packet traffic to other machines or
networks; and (ii) provides IP connectivity on a regional, national or
international basis; provided, however, that such a network which provides
connectivity solely within a single metropolitan area shall not be deemed an
Internet Backbone.
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<PAGE>
"Internet Backbone Service" means a communications service provided over an
Internet Backbone.
"Internet Service" means a communications service provided over a network
which can or does (i) assign IP addresses or manage IP address assignments for
machines or networks to which it is connected, (ii) accept or deliver IP
datagrams from machines or networks to which it is connected, or (iii) maintain
IP package traffic to other machines or networks.
"IP" means the Internet Protocols as defined by the document titled RFC-
---
791, by John Pastell of the University of Southern California, dated 1981, or
subsequent revisions thereof.
"Limited Partner" means TCI or, following any conversion of Insight's
Partnership to that of a Limited Partner in accordance with the terms of this
Agreement, Insight.
"LLC Interest" means the membership interest of TCI or Insight, as
applicable, in Insight Kentucky Capital.
"Management Agreements" means the Amended and Restated Management Agreement
dated as of the date of this Agreement between Insight Indiana and Insight
Communications and the Management Agreement dated as of the date of this
Agreement between Insight Kentucky II and Insight Communications, as each may be
amended from time to time in accordance with its terms.
"Management Incentive Plan" means the Management Incentive Plan dated as of
_______, as it may be amended from time to time in accordance with its terms and
the provisions of this Agreement.
"Manager" means Insight Communications or any other Person that succeeds it
as Manager under the Management Agreements in accordance with the terms thereof.
"Net Profit and Net Loss" means for each Fiscal Year or other period, an
amount equal to the Partnership's taxable income or loss for such Fiscal Year or
other period, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss, or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(i) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Net Profit or Net Loss
shall be added to such taxable income or loss;
(ii) Code Section 705(a)(2)(B) expenditures of the Partnership that
are not otherwise taken into account in computing Net Profit or Net Loss shall
be subtracted from such taxable income or loss;
(iii) If the Gross Asset Value of any asset of the Partnership is
adjusted pursuant to paragraph (ii) or (iii) of the definition of Gross Asset
Value, the amount of such adjustment shall
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<PAGE>
be taken into account as gain or loss from the disposition of such asset for
purposes of computing Net Profit or Net Loss;
(iv) Gain or loss resulting from any disposition of property of the
Partnership with respect to which gain or loss is recognized for federal income
tax purposes shall be computed by reference to the Gross Asset Value of the
property disposed of, notwithstanding that the adjusted tax basis of such
property differs from its Gross Asset Value;
(v) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such Fiscal Year or other period;
(vi) Notwithstanding anything to the contrary in the definition of the
terms "Net Profit" and "Net Loss," any items that are specially allocated
pursuant to Section 4.3 of this Agreement shall not be taken into account in
computing Net Profit or Net Loss; and
(vii) For purposes of this Agreement, any deduction for a loss on a
sale or exchange of property of the Partnership that is disallowed to the
Partnership under Code Section 267(a)(1) or Code Section 707(b) shall be treated
as a Code Section 705(a)(2)(B) expenditure.
"Non-Initiating Partner" means TCI, if Insight is the Initiating Partner,
and Insight, if TCI is the Initiating Partner.
"Nonrecourse Deductions" means losses, deductions, or Code Section
705(a)(2)(B) expenditures attributable to Nonrecourse Liabilities of the
Partnership. The amount of Nonrecourse Deductions shall be determined pursuant
to Treasury Regulations Section 1.704-2(c), which provides generally that the
amount of Nonrecourse Deductions for a Fiscal Year shall equal the net increase,
if any, in Partnership Minimum Gain during that Fiscal Year, reduced (but not
below zero) by the aggregate distributions made during that Fiscal Year of
proceeds of a Nonrecourse Liability that are allocable to an increase in
Partnership Minimum Gain.
"Nonrecourse Liability" has the meaning set forth in Treasury Regulations
Section 1.752-1(a)(2).
"Operating Cash Flow" means, for any Person, for any period, an amount
equal to (i) the net income (or loss) of such Person (exclusive of any non-
recurring items and any extraordinary gain or loss and of any gain or loss
realized in such period upon an Asset Disposition), plus (ii) the sum of
----
depreciation, amortization, income tax expense (other than income tax expense
(either positive or negative) attributable to extraordinary or nonrecurring
gains or losses or sales of assets), interest expense, management fees paid or
payable under the Management Agreements or otherwise, the fees paid or payable
to SSI under the Programming Agreements and other non-cash charges, in each case
to the extent deducted in determining such net income, all as determined on a
consolidated basis in accordance with generally accepted accounting principles
consistently applied.
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<PAGE>
"Operating Cash Flow Ratio" means, for the Partnership, on any applicable
date, the ratio of (i) the aggregate amount of Indebtedness of the Partnership
and its Subsidiaries on a consolidated basis on such date to (ii) four times the
Operating Cash Flow of the Partnership and its Subsidiaries on a consolidated
basis for the most recent fiscal quarter for which financial information in
respect thereof is available immediately prior to such date. In making the
foregoing calculation, (1) pro forma effect shall be given to any Asset
--- -----
Acquisition or Asset Disposition to the extent that either the outstanding
Indebtedness incurred in connection therewith or income or loss generated
therefrom were not included for the whole period in computing the Operating Cash
Flow Ratio and (2) Operating Cash Flow shall be adjusted to give effect to any
pro forma cost reductions arising out of any such Asset Acquisition or Asset
- --- -----
Disposition, in such amount as Insight shall reasonably and in good faith
determine.
"Ownership Restriction" means any provision of the Communications Act of
1934, as amended, or any other law subsequently enacted, or any rule,
regulation, or policy of the FCC promulgated thereunder restricting the
ownership and control of communications properties (including cable television
systems, television broadcast stations, radio broadcast stations, telephone
companies, and newspapers), including those relating to multiple ownership,
cross-ownership and cross-interest, as those terms are commonly understood in
the communications industry.
"Partner" means each of the signatories hereto in their respective
capacities as partners of the Partnership, and any additional Person that is
admitted as a partner in accordance with the provisions of this Agreement.
"Partner Nonrecourse Debt" has the meaning set forth in Treasury
Regulations Section 1.704-2(b)(4), which generally defines "Partner Nonrecourse
Debt" as any Partnership liability to the extent such liability is nonrecourse
and a Partner (or related Person) bears the economic risk of loss pursuant to
Treasury Regulations Section 1.752-2.
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulations Section 1.704-2(i)(2), which generally defines "Partner
Nonrecourse Debt Minimum Gain" as the Partnership Minimum Gain attributable to
Partner Nonrecourse Debt. The amount of Partner Nonrecourse Debt Minimum Gain
shall be determined in accordance with Treasury Regulations Section 1.704-
2(i)(3).
"Partner Nonrecourse Deductions" means losses, deductions, or Code Section
705(a)(2)(B) expenditures attributable to Partner Nonrecourse Debt. The amount
of Partner Nonrecourse Deductions shall be determined pursuant to Treasury
Regulations Section 1.704-2(i)(2), which provides generally that the amount of
Partner Nonrecourse Deductions for a Fiscal Year shall equal the net increase,
if any, in Partner Nonrecourse Debt Minimum Gain during that Fiscal Year,
reduced (but not below zero) by the proceeds of Partner Nonrecourse Debt
distributed during the Fiscal Year to the Partner bearing the economic risk of
loss for such Partner Nonrecourse Debt that are both attributable to such
Partner Nonrecourse Debt and allocable to an increase in Partner Nonrecourse
Debt Minimum Gain.
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<PAGE>
"Partnership" means the limited partnership formed by TCI Indiana and
Insight Communications pursuant to an Agreement of Limited Partnership dated
September 28, 1999, and continued under this Agreement.
"Partnership Interest" means the entire ownership interest of a Partner in
the Partnership at any particular time, including all of its rights and
obligations hereunder and under the Act.
"Partnership Minimum Gain" means the excess of the Nonrecourse Liabilities
of the Partnership over the adjusted tax basis of property securing such
Nonrecourse Liabilities of the Partnership. The amount of Partnership Minimum
Gain shall be determined in accordance with Treasury Regulations Section 1.704-
2(d), which provides generally that the amount of Partnership Minimum Gain shall
be determined by first computing for each Nonrecourse Liability any gain the
Partnership would realize if it disposed of the property subject to that
Nonrecourse Liability for no consideration other than full satisfaction of such
Nonrecourse Liability, and then aggregating the separately computed gains.
"Percentage Interest" means initially, with respect to each Partner, the
respective percentage specified on Schedule II hereto, subject to any
adjustments made in accordance with the provisions of this Agreement.
"Person" means an individual, partnership, joint venture, association,
corporation, trust, estate, limited liability company, limited liability
partnership, or any other legal entity.
"Programming Agreements" means (a) the Programming Supply Agreement dated
as of April 30, 1998 between the Partnership and SSI and (b) the Programming
Supply Agreement dated as of April 30, 1998 between Insight Kentucky I and SSI
and the related Programming Supply Agreement dated as of April 30, 1998 between
Insight Kentucky I and Insight Kentucky II, in each case as such agreement may
be amended from time to time in accordance with its terms.
"Securities Act" means the Securities Act of 1933, as amended.
"SSI" means Satellite Services, Inc., a Delaware corporation and an
indirect wholly-owned subsidiary of Tele-Communications, Inc.
"Subsidiary" means, at any time, any Person that is controlled by the
Partnership at such time.
"Tax Amount" means, subject to the last sentence of this definition, the
sum of Insight's tax liabilities for the current Fiscal Year and all previous
Fiscal Years. For this purpose, Insight's tax liability for any Fiscal Year
shall be the greater of Insight's "Regular Tax Liability" or its "AMT Liability"
for such Fiscal Year. "Regular Tax Liability" for a Fiscal Year shall be
determined separately for ordinary income and each character of capital gain
income to which separate federal income tax rates may apply, and for each such
type of income shall be computed as the product of (i) the excess of (A) the
aggregate amount of taxable income (if
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any) allocated to Insight with respect to the Partnership in such Fiscal Year
over (B) the aggregate amount of taxable losses (if any) allocated to Insight
with respect to the Partnership for all prior Fiscal Years since the beginning
of the Partnership and not previously taken into account for purposes of
computing Insight's Tax Amount, and (ii) the highest marginal combined federal,
state and local tax rate (taking into account the provisions of Section 68 of
the Tax Code) imposed on an individual resident in New York City for income of
such type. Insight's "AMT Liability" for a Fiscal Year shall be computed as the
product of (x) the aggregate amount of alternative minimum taxable income (if
any) allocated to Insight with respect to the Partnership in such Fiscal Year
(less any alternative minimum tax losses allocated to Insight with respect to
the Partnership for all prior Fiscal Years since the beginning of the
Partnership and not previously taken into account for purposes of computing
Insight's Tax Amount) and (y) the highest marginal combined federal, state and
local tax rate imposed on the alternative minimum taxable income of an
individual resident in New York City (taking into account the lack of
deductibility for state and local taxes under the federal alternative minimum
tax).
"TCI" means TCI Indiana or any other Person that succeeds to its
Partnership Interest and is admitted as a Partner in accordance with the
provisions of this Agreement, provided that to the extent TCI Indiana transfers
less than all of its Partnership Interest to any other Person(s) and such
Person(s) is/are admitted as a Partner in accordance with the provisions of this
Agreement, "TCI" shall refer to TCI Indiana and such other Person(s)
collectively.
"TCI Cable Parent" means TCI Internet Services, Inc., TCI NET, Inc., Tele-
Communications, Inc. and TCI Cable Investments, Inc., individually and
collectively as the context requires.
"TCI Systems" means (i) the cable television systems contributed to Insight
Indiana by TCI Indiana pursuant to the Indiana Contribution Agreement and (ii)
any cable television system acquired by the Partnership upon the disposition of
a TCI System or an exchange of a TCI System (including an acquisition by the
Partnership using the proceeds of any disposition of a TCI System).
"Transferee" means any Person (other than a Successor) that acquires a
Partnership Interest from a Partner in accordance with the provisions of this
Agreement.
"Treasury Regulations" means the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
"Voting Stock" means ownership interests in a Person of any class or kind
ordinarily giving the holder the power to vote for the election of directors,
managers, or other members of the governing body of such Person or (as may be
the case with general partnership interests in a partnership) giving the holder
the power to exercise rights typically exercised by directors of a corporation.
1.2 Terms Defined Elsewhere in this Agreement.
-----------------------------------------
For purposes of this Agreement, the following terms have the meanings set
forth in the sections indicated:
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Term Section
- ---- -------
Alternative Structure Section 9.3
Exit Notice Section 9.1(a)
Fair Market Value of the Partnership and Insight Section 9.8(b)
Kentucky Capital
Formal Determination Section 10.1(b)
ICP-VI Recital B
Indemnified Persons Section 12.1
Insight Communications Preamble
Insight Indiana Recital A
Insight Indiana Operating Agreement Recital A
Initial Election Notice Section 9.3
Liquidator Section 11.2(b)
Purchase Agreement Recital B
Regulatory Allocations Section 4.3(i)
Secretary Section 5.4(b)
Stated Value of the Partnership and Insight Kentucky Section 9.1(a)
Capital
Successor Section 8.1(b)(2)
TCI Indiana Preamble
Transfer Section 8.1(a)
Withholding Advance Section 4.1(c)(2)
1.3 Terms Generally.
---------------
The definitions in Section 1.1 and elsewhere in this Agreement shall apply
equally to both the singular and plural forms of the terms defined. Whenever
the context requires, any pronoun includes the corresponding masculine,
feminine, and neuter forms. The words "include," "includes," and "including"
are not limiting. Any reference in this Agreement to a "day" or number of
"days" (without the explicit qualification of "Business") shall be interpreted
as a reference to a calendar day or number of calendar days. If any action or
notice is to be taken or given on or by a particular calendar day, and such
calendar day is not a Business Day, then such action or notice shall be deferred
until, or may be taken or given on, the next Business Day.
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ARTICLE 2
FORMATION AND PURPOSE
---------------------
2.1 Formation.
---------
The Partners formed the Partnership as a limited partnership pursuant to
the Act on September 28, 1999. The rights and liabilities of the Partners shall
be determined pursuant to the Act and this Agreement. To the extent that the
rights or obligations of either Partner are different by reason of any provision
of this Agreement than they would be in the absence of such provision, this
Agreement shall, to the extent permitted by the Act, control.
2.2 Name.
----
(a) The name of the Partnership is Insight Midwest, L.P. Except as
provided in Section 2.2(b), the business of the Partnership may be conducted
under that name or, upon compliance with applicable laws, any other name that
the General Partner deems appropriate or advisable. The Partnership shall file
any assumed name certificates and similar filings, and any amendments thereto,
that the General Partner considers appropriate or advisable. Such names and any
trade or service names, marks, emblems or logos used by the Partnership shall be
exclusive property of the Partnership and no Person shall have any right to use,
and each Partner agrees not to use, any of said names, marks, emblems or logos
other than on behalf of the Partnership (other than any of the foregoing that
incorporates the name "Insight" or any variant thereof, which shall remain the
exclusive property of Insight Communications and its Affiliates and may be used
by Insight Communications and its Affiliates without limitation).
(b) Neither the Partnership nor any Subsidiary shall conduct business
under the name "Tele-Communications, Inc.," "TCI," or any variation thereof
without the approval of TCI. The parties agree that "Communications" is not a
variation of "Tele-Communications, Inc." for purposes of this Section 2.2(b).
2.3 Principal and Registered Office.
-------------------------------
The office required to be maintained by the Partnership in the State of
Delaware pursuant to Section 17-104 of the Act shall initially be located at
1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The resident
agent of the Partnership pursuant to Section 17-104 of the Act shall initially
be The Corporation Trust Company. The Partnership may, upon compliance with the
applicable provisions of the Act, change its principal office or resident agent
from time to time in the discretion of the General Partner. The principal
office of the Partnership shall be located at 126 E. 56th Street, New York, New
York 10022, or at such other place as the General Partner shall from time to
time designate by written notice to the other Partner. The Partnership may
conduct business at such additional places as the General Partner shall deem
advisable.
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<PAGE>
2.4 Term.
----
The term of the Partnership commenced on September 28, 1999, when the
Certificate was filed with the Secretary of State of Delaware, and shall
continue until October 1, 2011, unless sooner terminated as provided in this
Agreement.
2.5 Purposes of Partnership.
-----------------------
Subject to Sections 10.1 and 16.1, the purposes of the Partnership are:
(a) to engage in the business, directly or indirectly through
interests in one or more Subsidiaries, of acquiring, developing, owning,
operating, managing, and selling cable television systems in the State of
Indiana and in the Commonwealth of Kentucky;
(b) to acquire, develop, own, operate, manage, and sell additional
cable television systems in the State of Indiana and the Commonwealth of
Kentucky and such other States as the General Partner may determine (subject to
the provisions of Section 6.6(l));
(c) to acquire, develop, own, operate, manage, and sell, or invest in,
businesses related to and ancillary to the ownership and operation of the cable
television systems referred to above (including, but not limited to, high speed
data service, Internet access, telephony services and other telephony-related
investments or businesses, and video wireless services and wireless
communications services and other wireless-related investments or businesses but
not including multipoint distribution systems ("MDS"), multichannel multipoint
distribution systems ("MMDS"), direct-to-home satellite systems ("DTH") or
Internet Backbone Services), it being agreed that the use of IP technology to
provide telephone, fax, video, video conferencing, telecommuting, virtual
private networks, security and energy management services to subscribers of the
Partnership's cable television systems does not constitute engaging in an
Internet Backbone Service and, subject to Section 16.1(b), is within the
purposes of the Partnership;
(d) to conduct other businesses as determined by mutual agreement of
the Partners;
(e) in connection with the businesses described in Section 2.5(a)-(d),
to possess, transfer, mortgage, pledge, or otherwise deal in, and to exercise
all rights, powers, privileges, and other incidents of ownership or possession
with respect to securities or other assets held or owned by the Partnership, and
to hold securities or assets in the name of a nominee or nominees;
(f) in connection with the businesses described in Section 2.5(a)-(d),
to borrow or raise money, and from time to time to issue, accept, endorse, and
execute promissory notes, loan agreements, options, stock purchase agreements,
contracts, documents, checks, drafts, bills of exchange, warrants, bonds,
debentures, and other negotiable or non-negotiable instruments and evidences of
indebtedness, and to secure the payment of any thereof and of the interest
thereon by mortgage upon or pledge, conveyance, or assignment in trust of, the
whole or any part of the property of the Partnership whether at the time owned
or thereafter acquired and to guarantee the
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obligations of others and to sell, pledge, or otherwise dispose of such bonds or
other obligations of the Partnership for its purposes;
(g) in connection with the businesses described in Section 2.5(a)-(d),
to guarantee the obligations of others in connection with the purchase or
acquisition by the Partnership of securities or assets;
(h) to maintain an office or offices in such place or places as the
General Partner shall determine and in connection therewith to rent or acquire
office space, engage personnel, and do such other acts and things as may be
necessary or advisable in connection with the maintenance of such office, and on
behalf of and in the name of the Partnership to pay and incur reasonable
expenses and obligations for legal, accounting, investment advisory,
consultative and custodial services, and other reasonable expenses including
taxes, travel, insurance, rent, supplies, interest, salaries and wages of
employees, and all other reasonable costs and expenses incident to the operation
of the Partnership;
(i) to form and own one or more corporations, trusts, partnerships or
other entities (but no entity so formed or owned, while it is a Subsidiary, may
do what the Partnership is prohibited by this Agreement from doing); and
(j) to own, lease, or otherwise acquire any and all assets and
services related to the foregoing purposes and to engage in such other
activities related either directly or indirectly to the foregoing purposes as
may be necessary, advisable, or appropriate, in the opinion of the General
Partner, for the promotion or conduct of the business of the Partnership.
2.6 Certificate.
-----------
The General Partner caused the Certificate to be filed with the Secretary
of State of Delaware on September 28, 1999 and shall cause the Certificate to be
filed or recorded in any other public office where filing or recording is
required or is deemed by the General Partner to be advisable.
2.7 Addresses of the Partners.
-------------------------
The respective addresses of the Partners are set forth on Schedule I.
2.8 Foreign Qualification.
---------------------
The General Partner shall take all necessary actions to cause the
Partnership to be authorized to conduct business legally in all appropriate
jurisdictions, including registration or qualification of the Partnership as a
foreign limited partnership in those jurisdictions that provide for registration
or qualification and the filing of a certificate of limited partnership in the
appropriate public offices of those jurisdictions that do not provide for
registration or qualification.
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2.9 Tax Classification.
------------------
Notwithstanding any other provision of this Agreement, no Partner or
employee of the Partnership may take any action (including the filing of a U.S.
Treasury Form 8832 Entity Classification Election) that would cause the
Partnership or any Subsidiary to be characterized as an entity other than a
partnership for federal income tax purposes without the mutual agreement of the
Partners. A determination of whether any action will have the effect described
in the preceding sentence will be based upon a declaratory judgement or similar
relief obtained from a court of competent jurisdiction, a favorable ruling from
the Internal Revenue Service, or the receipt of an opinion of counsel reasonably
satisfactory to the Partners.
ARTICLE 3
PARTNERSHIP CAPITAL
-------------------
3.1 Contributions.
-------------
(a) Initial Capital Contributions. Pursuant to the Contribution
-----------------------------
Agreement, each of TCI Indiana and Insight Communications contributed to the
Partnership at the Closing thereunder, a 50% membership interest in Insight
Indiana and a 50% partnership interest in ICP-VI.
(b) Capital Account Balances, Applicable Percentages. Schedule II
------------------------------------------------
sets forth (1) the Percentage Interest of each Partner as of the date of this
Agreement. The balance in each Partner's Capital Account as of the date of this
Agreement equals the sum of (i) the fair market value of the membership interest
in Insight Indiana contributed to the Partnership by such Partner, determined in
accordance with Section 3.1(c), and (ii) the fair market value of the
partnership interest in ICP-VI contributed to the Partnership by such Partner,
with each such ICP-VI partnership interest being valued at the Purchase Price
(as defined in the Purchase Agreement) for Insight's ICP-VI partnership
interest, as finally determined pursuant to the Purchase Agreement. Within six
months after the date of this Agreement (or such longer period as may be
applicable pursuant to Section 3.1(c)(2)), the Partners will mutually agree on a
Schedule setting forth the Capital Accounts of the Partners and the capital
accounts of the partners of each Subsidiary.
(c) Determining Fair Market Value of Additional Contributed Assets.
--------------------------------------------------------------
Except as otherwise mutually agreed to by the Partners, the fair market value of
any asset contributed by a Partner to the Partnership (other than the ICP-VI
partnership interests contributed pursuant to Section 3.1(a)) shall be
determined for purposes of this Agreement as follows:
(1) For purposes of this Agreement, other than under Article 9 and
except as provided in Section 3.1(c)(2), the fair market value of an asset shall
be that value mutually agreed to by the Partners within ten days after either
Partner requests such determination or, in the case of the membership interests
in Insight Indiana, that value mutually agreed to by the Partners within six
months after the date of this Agreement.
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(2) In the event the Partners are unable to agree on the value
during such ten-day or six-month period, fair market value shall be determined
within twenty days thereafter by an investment banker mutually selected by the
Partners within five days of the end of such ten-day or six-month period and
such determination shall be conclusive and binding on both Partners. Each
Partner shall pay its pro rata portion (based on the Partners' Percentage
Interests) of the expenses of the investment banker. If the investment banker is
only able to provide a range in which fair market value would exist, fair market
value shall be the average value of the highest and lowest values of such range.
3.2 Additional Capital Contributions.
--------------------------------
There shall be no further assessments for additional Capital Contributions
by the Partners to the Partnership.
3.3 Return of Contributions.
-----------------------
Neither Partner shall have the right to demand a return of all or any part
of its Capital Contribution during the term of the Partnership, and any return
of the Capital Contribution of either Partner shall be made solely from the
assets of the Partnership and only in accordance with the terms of this
Agreement. No interest shall be paid to either Partner with respect to its
Capital Contribution to the Partnership.
ARTICLE 4
DISTRIBUTIONS; ALLOCATIONS OF PROFIT AND LOSS
---------------------------------------------
4.1 Distributions of Cash.
---------------------
(a) Amount and Timing of Distributions.
----------------------------------
(1) The Partnership shall, with respect to each Fiscal Year (other
than the fiscal quarter in which the Partnership is liquidated), distribute to
Insight, (i) at least ten days prior to each quarterly due date for individual
estimated tax payments for the Fiscal Year, an amount equal to the estimated Tax
Amount for Insight for such quarter, computed on an annualized basis and
prorated for the cumulative number of months in the Fiscal Year that have passed
as of the end of the quarter for which such estimated Tax Amount is being
computed; and (ii) not later than ninety days after the end of such Fiscal Year
an aggregate amount equal to the Tax Amount for Insight for such Fiscal Year (to
the extent not previously distributed to Insight pursuant to the preceding
clause (i) with respect to such Fiscal Year). For purposes of making the
computation in Section 4.1(a)(1)(i) for the first, second, and third quarters of
each Fiscal Year, such computation shall be based upon the Partnership's
estimated taxable income for the first three, five and eight months of the
Fiscal Year, respectively. The Partnership shall make a pro rata distribution
to TCI in proportion to the Partners' relative Percentage Interests in respect
of each distribution to Insight pursuant to the preceding sentence.
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(2) No cash of the Partnership not required to be distributed
pursuant to Section 4.1(a)(1) or Section 11.2(d)(3) shall be distributed except
with the written consent of all Partners.
(b) Allocation of Distributions. All distributions of cash pursuant
---------------------------
to Section 4.1(a), Section 11.2(d)(3) or otherwise approved by the Partners
shall be made to the Partners in proportion to their Percentage Interests.
(c) Tax Withholding.
---------------
(1) The Partnership shall seek to qualify for and obtain exemptions
from any provision of the Code or any provision of state, local, or foreign tax
law that would otherwise require the Partnership to withhold amounts from
payments or distributions to the Partners. If the Partnership does not obtain
any such exemption, the Partnership is authorized to withhold from any payment
or distribution to either Partner any amounts that are required to be withheld
pursuant to the Code or any provision of any state, local, or foreign tax law
that is binding on the Partnership.
(2) Any amount withheld with respect to any payment or distribution
to either Partner shall be credited against the amount of the payment or
distribution to which the Partner would otherwise be entitled. If the Code or
any provision of any state, local, or foreign tax law that is binding on the
Partnership requires that the Partnership remit to any taxing authority any
withholding tax with respect to, or for the account of, either Partner in its
capacity as a Partner, the Partnership shall, to the extent that Partnership
funds are available therefor, remit the full required amount of such withholding
tax to the taxing authority and shall notify such Partner in writing of its
obligation to pay to the Partnership such withholding tax to the extent it
exceeds the amount of any payment or distribution to which such Partner would
otherwise then be entitled. Each Partner shall pay to the Partnership, within
five Business Days after its receipt of written notice from the Partnership that
withholding is required with respect to such Partner, any amounts required to be
remitted by the Partnership to any taxing authority with respect to such Partner
that are in excess of the amount of any payment or distribution to which such
Partner would otherwise be entitled. If the Partnership is required to remit any
withholding tax with respect to, or for the account of, either Partner prior to
the Partnership's receipt of any payment required to be made by such Partner
pursuant to the preceding sentence, the amount of the payment required to be
made by such Partner shall be treated as a loan (the "Withholding Advance") from
the Partnership to the Partner, which shall accrue interest from the date the
Partnership is required to remit such withholding tax until paid by such Partner
or credited against payments or distributions to which such Partner would
otherwise be entitled as provided in Section 4.1(c)(3) at a rate of fifteen
percent per year, compounded semi-annually.
(3) Any Withholding Advance made to a Partner and any interest accrued
thereon shall be credited against, and shall be offset by, the amount of any
later payment or distribution to which the Partner would otherwise be entitled
(without duplication of the credit provided in the first sentence of Section
4.1(c)(2)), with any credit for accrued and unpaid interest as of the date such
payment or distribution would otherwise have been made being applied before any
credit for the amount of the Withholding Advance. Any Withholding Advance made
to a Partner and any interest accrued thereon, to the extent it has not
previously been paid by the Partner
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in cash or fully credited against payments or distributions to which the Partner
would otherwise be entitled, shall be paid by the Partner to the Partnership
upon the earliest of (A) the dissolution of the Partnership, (B) the date on
which the Partner ceases to be a Partner of the Partnership, or (C) demand for
payment by the Partnership.
(4) All amounts that are credited against payments or distributions
to which a Partner would otherwise be entitled pursuant to this Section 4.1(c)
shall be treated as amounts distributed to such Partner pursuant to Section
4.1(a) for all purposes of this Agreement.
4.2 Allocations of Net Profit and Net Loss.
--------------------------------------
(a) Allocations of Net Profit and Net Loss. Except as provided in
--------------------------------------
Section 4.2(b), Net Profit and Net Loss for each Fiscal Year (or portion
thereof) shall be allocated between the Partners in proportion to their
Percentage Interests.
(b) Allocations of Net Profit and Net Loss Following Dissolution.
------------------------------------------------------------
Notwithstanding Section 4.2(a), following the dissolution of the Partnership
pursuant to Section 11.1, beginning in the Fiscal Year in which such dissolution
occurs or beginning in any Fiscal Year prior to the Fiscal Year in which such
dissolution occurs if the Partnership's Federal income tax return for such prior
Fiscal Year has not yet been required to be filed (not including extensions),
items of income and gain, loss, and deduction shall be allocated between the
Partners so as to cause the credit balances in the Partners' Capital Accounts to
be in proportion to their Percentage Interests.
4.3 Special Provisions Regarding Allocations of Profit and Loss.
-----------------------------------------------------------
(a) Minimum Gain Chargeback. Notwithstanding any other provision of
-----------------------
this Article 4, if there is a net decrease in Partnership Minimum Gain for any
Fiscal Year, each Partner shall be specially allocated items of Partnership
income and gain for such Fiscal Year (and if necessary for succeeding Fiscal
Years) in an amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain, determined in accordance with Treasury Regulations
Section 1.704-2(g); provided, however, that this Section 4.3(a) shall not apply
to the extent the circumstances described in Treasury Regulations Sections
1.704-2(f)(2), 1.704-2(f)(3), 1.704-2(f)(4), or 1.704-2(f)(5) exist.
Allocations made pursuant to the preceding sentence shall be made in proportion
to the respective amounts required to be allocated to each Partner pursuant
thereto. The items of Partnership income and gain to be allocated pursuant to
this Section 4.3(a) shall be determined in accordance with Treasury Regulations
Section 1.704-2(f)(6). This Section 4.3(a) is intended to comply with the
minimum gain chargeback requirement in Treasury Regulations Section 1.704-2(f)
and shall be interpreted consistently therewith.
(b) Partner Minimum Gain Chargeback. Notwithstanding any other
-------------------------------
provision of this Article 4 except Section 4.3(a), if during any Fiscal Year
there is a net decrease in Partner Nonrecourse Debt Minimum Gain, each Partner
with a share of that Partner Nonrecourse Debt Minimum Gain (determined in
accordance with Treasury Regulations Section 1.704-2(i)(5)) as of the beginning
of such Fiscal Year must be allocated items of Partnership income and gain for
the Fiscal Year (and, if necessary, for succeeding Fiscal Years) equal to that
Partner's share of the net
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decrease in the Partner Nonrecourse Debt Minimum Gain (determined in accordance
with Treasury Regulations Section 1.704-2(i)(4)); provided, however, that this
Section 4.3(b) shall not apply to the extent the circumstances described in the
third and fifth sentences of Treasury Regulations Section 1.704-2(i)(4) exist.
Allocations pursuant to the preceding sentence shall be made in proportion to
the respective amounts required to be allocated to each Partner pursuant
thereto. The items of Partnership income and gain to be allocated pursuant to
this Section 4.3(b) shall be determined in accordance with Treasury Regulations
Section 1.704-2(i)(4). This Section 4.3(b) is intended to comply with the
minimum gain chargeback requirement in Treasury Regulations Section
1.704-2(i)(4) and shall be interpreted consistently therewith.
(c) Qualified Income Offset. If a Partner unexpectedly receives any
-----------------------
adjustments, allocations, or distributions described in Treasury Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-
1(b)(2)(ii)(d)(6), items of Partnership income and gain shall be specially
allocated to such Partner in an amount and manner sufficient to eliminate, to
the extent required by the Treasury Regulations, the Adjusted Capital Account
Deficit of such Partner as quickly as possible; provided, however, that an
allocation pursuant to this Section 4.3(c) shall be made if and only to the
extent that such Partner would have an Adjusted Capital Account Deficit after
all other allocations provided for in this Article 4 have been tentatively made
as if this Section 4.3(c) were not in this Agreement. Allocations made pursuant
to the preceding sentence shall be made in proportion to the respective amounts
required to be allocated to each Partner pursuant thereto.
(d) Gross Income Allocation. If a Partner has a deficit Capital
-----------------------
Account at the end of any Fiscal Year that is in excess of the sum of (1) the
amount such Partner is obligated to restore to the Partnership pursuant to
Treasury Regulations Section 1.704-1(b)(2)(ii)(c), (2) the amount such Partner
is deemed to be obligated to restore pursuant to the penultimate sentence of
Treasury Regulations Section 1.704-2(g)(1), and (3) the amount such Partner is
deemed to be obligated to restore pursuant to the penultimate sentence of
Treasury Regulations Section 1.704-2(i)(5), such Partner shall be specially
allocated items of Partnership income and gain in the amount of such excess as
quickly as possible; provided, however, that an allocation pursuant to this
Section 4.3(d) shall be made if and only to the extent that such Partner would
have a deficit Capital Account in excess of such sum after all other allocations
provided for in this Article 4 have been tentatively made as if Section 4.3(c)
and this Section 4.3(d) were not in this Agreement. Allocations made pursuant
to the preceding sentence shall be made in proportion to the respective amounts
required to be allocated to each Partner pursuant thereto.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal
----------------------
Year or other period shall be specially allocated between the Partners in
proportion to their Percentage Interests.
(f) Partner Nonrecourse Deductions. Any Partner Nonrecourse
------------------------------
Deductions for any Fiscal Year or other period shall be specially allocated to
the Partner that bears the economic risk of loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable
in accordance with Treasury Regulations Section 1.704-2(i).
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<PAGE>
(g) Section 754 Adjustment. To the extent any adjustment to the
----------------------
adjusted tax basis of any asset of the Partnership pursuant to Code Section
734(b) or Code Section 743(b) is required, pursuant to Treasury Regulations
Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment shall be treated as an item of gain (if
the adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such gain or loss shall be specially allocated to the
Partners in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such section of the Treasury
Regulations.
(h) Excess Nonrecourse Liabilities. For purposes of determining a
------------------------------
Partner's proportionate share of the "excess nonrecourse liabilities" of the
Partnership within the meaning of Treasury Regulations Section 1.752-3(a)(3),
each Partner's interest in Partnership profits shall be deemed to be equal to
such Partner's Percentage Interest.
(i) Curative Allocations. The allocations set forth in this Article
--------------------
4 (other than Section 4.3(g), Section 4.3(h), and this Section 4.3(i)) (the
"Regulatory Allocations") are intended to comply with certain requirements of
the Treasury Regulations. The Partners intend that, to the extent possible, all
Regulatory Allocations shall be offset either with other Regulatory Allocations
or with special allocations of other items of Partnership income, gain, loss, or
deduction pursuant to this Section 4.3(i). Therefore, notwithstanding any other
provision of this Article 4 (other than the Regulatory Allocations), offsetting
special allocations of Partnership income, gain, loss, or deduction shall be
made so that, after such offsetting allocations are made, each Partner's Capital
Account balance is, to the extent possible, equal to the Capital Account balance
such Partner would have had if the Regulatory Allocations were not part of this
Agreement and all Partnership items were allocated pursuant to Section 4.2. In
making such offsetting special allocations, future Regulatory Allocations under
Section 4.3(a) and Section 4.3(b) that, although not yet made, are likely to
offset Regulatory Allocations made under Section 4.3(e) and Section 4.3(f),
shall be taken into account.
4.4 Tax Allocations: Code Section 704(c).
------------------------------------
(a) In accordance with Code Section 704(c) and the Treasury
Regulations thereunder, income, gain, loss, and deduction with respect to any
property contributed to the capital of the Partnership shall, solely for tax
purposes, be allocated between the Partners so as to take account of any
variation between the adjusted basis of such property to the Partnership for
federal income tax purposes and its initial Gross Asset Value using the
traditional allocation method described in Treasury Regulations Section 1.704-
3(b).
(b) If the Gross Asset Value of any asset of the Partnership is
adjusted pursuant to paragraph (ii) of the definition of Gross Asset Value,
subsequent allocations of income, gain, loss, and deduction with respect to such
asset shall take account of any variation between the adjusted basis of such
asset for federal income tax purposes and its Gross Asset Value in the same
manner as under Code Section 704(c) and the Treasury Regulations thereunder.
(c) Allocations pursuant to this Section 4.4 are solely for purposes
of federal, state, and local taxes and shall not affect, or in any way be taken
into account in computing, either
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Partner's Capital Account or share of Net Profit, Net Loss, other items, or
distributions pursuant to any provision of this Agreement.
4.5 Allocation in Event of Transfer.
-------------------------------
If an interest in the Partnership is transferred in accordance with Article
8 or 9 of this Agreement, the Net Profit and Net Loss of the Partnership and
each item thereof, and all other items attributable to the transferred interest
for such Fiscal Year, shall be divided and allocated between the transferor and
the transferee pursuant to the interim closing of the Partnership books method
set forth in Treasury Regulation Section 1.706-1(c)(2)(ii) unless the parties
otherwise mutually agree. This Section shall apply for purposes of computing a
Partner's Capital Account and for federal income tax purposes.
4.6 Alternative Allocations.
-----------------------
The General Partner is authorized and directed to allocate items of income,
gain, loss, or deduction arising in any Fiscal Year differently from the manner
that is otherwise provided for in this Agreement if, and to the extent that, the
General Partner believes that the allocation of items of income, gain, loss, or
deduction in the manner otherwise provided for in this Agreement would cause the
credit balances in the Partners' Capital Accounts not to be in proportion to
their Percentage Interests immediately prior to any distributions pursuant to
Section 11.2(d)(3) if the Partnership were dissolved and terminated on the last
day of such Fiscal Year. Any allocation that is made pursuant to this Section
4.6 shall be deemed to be a complete substitute for any allocation that is
otherwise provided for in this Agreement and no amendment to this Agreement
shall be required.
ARTICLE 5
AUTHORITY OF THE GENERAL PARTNER;
---------------------------------
OTHER MATTERS AFFECTING GENERAL PARTNER
---------------------------------------
5.1 Authority of General Partner.
----------------------------
(a) Except as otherwise expressly provided for herein, the business
of the Partnership shall be managed by the General Partner pursuant to the
provisions of this Agreement. The General Partner shall have exclusive
authority and full discretion with respect to the management of the business of
the Partnership and the Subsidiaries, subject to Sections 5.1(b) and (c).
(b) The General Partner may delegate such general or specific
authority to the officers of the Partnership with respect to the business and
day-to-day operations of the Partnership as it from time to time considers
desirable, and the officers of the Partnership may exercise the authority
granted to them, subject to any restraints or limitations imposed by the
provisions of Sections 6.5 and 6.6 and any other express provisions of this
Agreement.
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(c) The General Partner agrees that acting alone it shall not give
any consent on any matter or take any other action as the General Partner,
including, without limitation, acting on behalf of or binding the Partnership or
any Subsidiary with respect to any matter in respect of which approval by the
Limited Partner is required by the provisions of this Agreement or the Act,
unless such consent, matter or other action shall first have been adopted or
approved by the Limited Partner in accordance with the provisions of this
Agreement or the Act as applicable.
5.2 No Personal Liability.
---------------------
The General Partner shall not have any personal liability for the repayment
of the Capital Contributions of any other Partner; provided that the General
Partner shall promptly return to the Partnership or to the Partner or Partners
entitled thereto any distributions received by the General Partner in excess of
those to which the General Partner is entitled under this Agreement.
5.3 Withdrawal of General Partner.
-----------------------------
(a) The General Partner may not resign or withdraw from the
Partnership without the consent of the Limited Partner (subject to the rights of
transfer set forth elsewhere in this Agreement and it being understood that no
transfer permitted by the terms of this Agreement shall be deemed to be a
withdrawal for any purpose except as provided in Section 5.3(d)), other than
upon the dissolution and winding up of the Partnership in accordance with the
provisions of Article 11. If the General Partner so resigns or withdraws from
the Partnership, the Partnership shall dissolve in accordance with the
provisions of Article 11 unless, within ninety days after the withdrawal of the
General Partner, the Limited Partner elects in writing to continue the business
of the Partnership pursuant to the terms and provisions of this Agreement and
consents to the admission of at least one General Partner (which may be effected
by the Limited Partner converting a portion of its Partnership Interest to that
of a General Partner).
(b) For purposes of this Agreement, the term "withdrawal" does not
include the happening of any event described in Section 17-402(a)(4) or (5) of
the Act, and no Partner shall cease to be a Partner solely upon the happening of
such event(s); provided, that upon the happening of any such event that results
in the appointment of a trustee, receiver or liquidator of a Partner or of all
or substantially all of a Partner's properties and the loss by such Partner of
its management authority with respect to all or substantially all of its
properties, then (x) if the Partner to which such event occurs (the "Affected
Partner") is the General Partner, the Limited Partner shall have the right to
convert all or a portion of its Partnership Interest to that of a General
Partner, whereupon the General Partner's Partnership Interest will automatically
be converted to that of a Limited Partner; (y) all representatives of the
Affected Partner shall be deemed to have resigned from the Advisory Committee
and such Partner shall have no further right to designate any representatives;
and (z) no consent of the Affected Partner required under any provision of this
Agreement shall any longer be required and the other Partner shall be entitled
to grant all such consents and take all actions relating to the Partnership and
its business; provided, that clauses (y) and (z) will not apply if the Affected
Partner is the General Partner and the Limited Partner does not elect pursuant
to clause (x) to convert its Partnership Interest to that of a General Partner.
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<PAGE>
(c) Without limiting any other rights or remedies that the
Partnership or the Limited Partner may have at law or in equity, if the
Partnership is continued pursuant to Section 5.3(a) following the withdrawal of
the General Partner, the General Partner shall continue to be a Partner of the
Partnership; provided, that its Partnership Interest shall be converted to that
of a Limited Partner and, if the former General Partner withdrew without the
consent of the Limited Partner, (1) its representatives to the Advisory
Committee shall be deemed to have resigned and the former General Partner shall
have no further right as Limited Partner to designate any representatives, and
(2) no consent of the former General Partner required under any provision of
this Agreement shall any longer be required and the new General Partner shall be
entitled to grant all such consents and take all actions relating to the
Partnership and its business. Notwithstanding the foregoing, any change in the
identity of the General Partner shall be subject to and conditioned upon receipt
of all necessary governmental approvals and other material third party consents.
The withdrawal of the General Partner shall not alter the allocations and
distributions to be made to the Partners pursuant to this Agreement.
(d) Notwithstanding Section 5.3(a), the General Partner may withdraw
from the Partnership upon the transfer of all of its Partnership Interest to any
Transferee or Successor that is admitted to the Partnership as a Partner and
substituted for the General Partner in accordance with Section 8.2(b).
5.4 Tax Matters Partner.
-------------------
(a) The General Partner is hereby designated as the Tax Matters
Partner of the Partnership, as provided in Treasury Regulations pursuant to Code
Section 6231 and analogous provisions of state law. Each Partner, by the
execution of this Agreement, consents to such designation of the Tax Matters
Partner and agrees to execute, certify, acknowledge, deliver, swear to, file,
and record at the appropriate public offices such documents as may be necessary
or appropriate to evidence such consent.
(b) To the extent and in the manner provided by applicable law and
Treasury Regulations, the Tax Matters Partner shall furnish the name, address,
profits interest, and taxpayer identification number of each Partner and any
Transferee to the Secretary of the Treasury or his delegate (the "Secretary").
(c) The Tax Matters Partner shall notify each Partner of any audit
that is brought to the attention of the Tax Matters Partner by notice from the
Internal Revenue Service, and shall forward to each Partner copies of any
written notices, correspondence, reports, or other documents received by the Tax
Matters Partner in connection with such audit within ten Business Days following
its notification by the Internal Revenue Service or its receipt, as the case may
be. The Tax Matters Partner shall provide TCI with reasonable advance notice of
administrative proceedings with the Internal Revenue Service, including any
closing conference with the examiner and any appeals conference.
(d) The Tax Matters Partner shall give the Partners written notice of
its intent to initiate judicial review, file a request for administrative
adjustment on behalf of the Partnership,
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extend the period of limitations for making assessments of any tax against a
Partner with respect to any Partnership item, or enter into any agreement with
the Internal Revenue Service that would result in the settlement of any alleged
tax deficiency or other tax matter, or to any adjustment of taxable income or
loss or any item included therein, affecting the Partnership or any Partner. The
Tax Matters Partner shall not take any such action if TCI elects within thirty
days after its receipt of the Tax Matters Partner's notice to require that the
Tax Matters Partner refrain from taking such action.
(e) Subject to the foregoing provisions of this Section 5.4, the Tax
Matters Partner is hereby authorized, but not required:
(1) to enter into any settlement with the Internal Revenue Service
or the Secretary with respect to any tax audit or judicial review, in which
agreement the Tax Matters Partner may expressly state that such agreement shall
bind the other Partners, except that such settlement agreement shall not bind
either Partner that (within the time prescribed pursuant to the Code and
Treasury Regulations thereunder) files a statement with the Secretary providing
that the Tax Matters Partner shall not have the authority to enter into a
settlement agreement on the behalf of such Partner;
(2) if a notice of a final administrative adjustment at the
Partnership level of any item required to be taken into account by a Partner for
tax purposes (a "final adjustment") is mailed to the Tax Matters Partner, to
seek judicial review of such final adjustment, including the filing of a
petition for readjustment with the Tax Court, the District Court of the United
States for the district in which the Partnership's principal place of business
is located, or elsewhere as allowed by law, or the United States Claims Court;
(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the
Secretary at any time and, if any part of such request is not allowed by the
Secretary, to file a petition for judicial review with respect to such request;
(5) to enter into an agreement with the Internal Revenue Service to
extend the period for assessing any tax that is attributable to any item
required to be taken into account by a Partner for tax purposes, or an item
affected by such item; and
(6) to take any other action on behalf of the Partners (with respect
to the Partnership) or the Partnership in connection with any administrative or
judicial tax proceeding to the extent permitted by applicable law or Treasury
Regulations.
(f) The Partnership shall indemnify and reimburse the Tax Matters
Partner for all expenses (including legal and accounting fees) incurred pursuant
to this Section 5.4 in connection with any administrative or judicial proceeding
with respect to the tax liability of the Partners. The payment of all such
reasonable expenses shall be made before any distributions are made to the
Partners. The taking of any action and the incurring of any expense by the Tax
Matters Partner in
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connection with any such proceeding, except to the extent provided herein or
required by law, is a matter in the sole discretion of the Tax Matters Partner
and the provisions on limitations of liability of the General Partner and
indemnification set forth in Article 12 shall be fully applicable to the General
Partner in its capacity as the Tax Matters Partner.
(g) Any Partner that receives a notice of an administrative
proceeding under Code Section 6233 relating to the Partnership shall promptly
notify the Tax Matters Partner of the treatment of any Partnership item on such
Partner's federal income tax return that is or may be inconsistent with the
treatment of that item on the Partnership's return.
(h) Either Partner that enters into a settlement agreement with the
Secretary with respect to any Partnership item shall notify the Tax Matters
Partner of such agreement and its terms within thirty days after its date, and
the Tax Matters Partner shall notify the other Partners of the settlement
agreement within thirty days of such notification.
5.5 Operating and Capital Expenditure Budgets.
-----------------------------------------
At least thirty days prior to the end of each Fiscal Year during the term
of this Agreement, the General Partner will submit to the Limited Partner
proposed operating and capital expenditure budgets for the Partnership and its
Subsidiaries for the following Fiscal Year and will negotiate in good faith with
the Limited Partner regarding any changes to such budgets requested by the
Limited Partner. If the General Partner and the Limited Partner are unable to
reach agreement on the changes proposed by the Limited Partner, the operating
and capital expenditure budgets for the Partnership and its Subsidiaries
proposed by the General Partner will be the budgets of the Partnership and its
Subsidiaries.
ARTICLE 6
STATUS OF LIMITED PARTNER; OTHER LIMITATIONS ON PARTNERS
--------------------------------------------------------
6.1 No Management and Control.
-------------------------
Except as expressly provided in this Agreement, no Limited Partner shall
take part in or interfere in any manner with the control, conduct, or operation
of the Partnership or have any right or authority to act for or bind the
Partnership or to vote on matters relating to the Partnership.
6.2 Limited Liability.
-----------------
No Limited Partner shall be bound by or personally liable for the expenses,
liabilities, or obligations of the Partnership. In no event shall any Partner
be required to make up a deficiency in its Capital Account upon the dissolution
and termination of the Partnership.
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6.3 Return of Distributions of Capital.
----------------------------------
A Limited Partner may, under certain circumstances, be required by law to
return to the Partnership, for the benefit of the Partnership's creditors,
amounts previously distributed. No Limited Partner shall be obligated by this
Agreement to pay those distributions to or for the account of the Partnership or
any creditor of the Partnership. However, if any court of competent
jurisdiction holds that, notwithstanding the provisions of this Agreement, a
Limited Partner must return or pay over any part of those distributions, the
obligation shall be that of such Limited Partner alone and not of any other
Partner. Any payment returned to the Partnership by a Partner or made directly
by a Partner to a creditor of the Partnership shall be deemed a Capital
Contribution by such Partner.
6.4 Specific Limitations.
--------------------
No Partner shall have the right or power to: (a) (i) withdraw as a Partner
(subject to the rights of transfer set forth elsewhere in this Agreement and
subject to Section 5.3(a) with respect to the General Partner) or (ii) reduce
its Capital Contribution except as a result of the dissolution of the
Partnership or as otherwise provided by law, (b) bring an action for partition
against the Partnership or any assets of the Partnership, (c) cause the
termination and dissolution of the Partnership, except as set forth in this
Agreement, or (d) demand or receive property other than cash in return for its
Capital Contribution. Except as otherwise set forth in this Agreement or in any
agreement permitted to be entered into under this Agreement with respect to the
purchase, redemption, retirement, or other acquisition of Partnership Interests,
no Partner shall have priority over any other Partner either as to the return of
its Capital Contribution or as to Net Profit, Net Loss, or distributions. Other
than upon the termination and dissolution of the Partnership as provided by this
Agreement, there has been no time agreed upon when the Capital Contribution of
any Partner will be returned.
6.5 Matters Requiring TCI Approval.
------------------------------
Notwithstanding any provision in this Agreement to the contrary, and in
addition to any other consent or approval that may be required by the express
terms of this Agreement, without the consent of TCI, which may be withheld by
TCI in its sole discretion, the Partnership shall not take, and the General
Partner shall have no authority to cause the Partnership to, or cause or permit
any Subsidiary to, consummate an Asset Disposition if such Asset Disposition
would result in the allocation of income or gain to TCI pursuant to Section 4.4
and Code Section 704(c), unless Insight reimburses TCI for the amount of such
adverse tax consequence as reasonably determined by TCI. Notwithstanding the
foregoing, the limitations of this paragraph shall not apply (i) upon the
liquidation and dissolution of the Partnership in accordance with Articles 9 and
11; (ii) to any pledging of assets by any Person to secure any Indebtedness of
such Person permitted by this Agreement or to any disposition of assets upon the
exercise of any rights granted by such a pledge; or (iii) to exchanges of assets
that cumulatively are equal to or less than twenty percent of the value of the
Partnership's assets, if any such exchanges of assets are made pursuant to Code
Section 1031 and do not result in an adverse tax consequence to TCI as
reasonably determined by TCI, unless Insight reimburses TCI for the amount of
such adverse tax consequence as reasonably determined by TCI.
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6.6 Additional Matters Requiring Limited Partner Approval.
-----------------------------------------------------
Notwithstanding any provision in this Agreement to the contrary, and in
addition to any other consent or approval that may be required by the express
terms of this Agreement, the Partnership shall not take, and the General Partner
shall have no authority to cause the Partnership to take, or cause or permit any
Subsidiary to take, any of the following actions without the consent of the
Limited Partner:
(a) (i) incur any Indebtedness, or consummate any Asset Acquisition,
such that immediately after the incurrence of such Indebtedness or consummation
of such Asset Acquisition, the Partnership's Operating Cash Flow Ratio would
exceed 7.0 to 1; (ii) enter into any agreement evidencing Indebtedness or any
amendment to an agreement governing Indebtedness that includes any borrower
other than the Partnership or its Subsidiaries or that provides that the
Partnership or its Subsidiaries may be deemed to be in default thereunder as the
result of a default by the General Partner, its Affiliates or any other Person
under any other agreement to which neither the Partnership nor any of its
Subsidiaries is a party or (iii) enter into any amendment to, or refinancing of,
any Indebtedness that would affect any keepwell or guarantee issued by TCI
(provided, that the limitations of this paragraph shall not apply to the
Purchase Agreement, dated as of September 28, 1999, between the Partnership and
Donaldson, Lufkin & Jenrette Securities Corporation, Morgan Stanley & Co.
Incorporated, BNY Capital Markets, Inc., and Wasserstein Parella Securities,
Inc., the Amended and Restated Revolving Credit and Term Loan Agreement dated as
of October 1, 1999 among Insight Kentucky I and the financial institutions party
thereto, and Toronto Dominion (Texas), Inc., as Administrative Agent, and any
Indebtedness incurred pursuant to such agreements; and provided, further, that
such agreements are hereby consented to by TCI for purposes of Section 4.2 of
the Contribution Agreement); or
(b) consummate one or more Asset Dispositions, in any consecutive
twelve month period, having an aggregate value in excess of $25,000,000.
Notwithstanding the foregoing, the limitations of this paragraph shall not apply
(i) upon the liquidation and dissolution of the Partnership in accordance with
Articles 9 and 11; (ii) to any pledging of assets by any Person to secure any
Indebtedness of such Person permitted by this Agreement, or to any disposition
of assets upon the exercise of any rights granted by such a pledge; or (iii) to
exchanges of assets that cumulatively are equal to or less than twenty percent
of the value of the Partnership's assets, if any such exchanges of assets are
made pursuant to Code Section 1031 and do not result in an adverse tax
consequence to TCI as reasonably determined by TCI, unless Insight reimburses
TCI for the amount of such adverse tax consequence as reasonably determined by
TCI; or
(c) merge with or consolidate into any Person or become a party to
any recapitalization or other form of reorganization, or cause or permit any
Subsidiary to merge with or consolidate into any Person or become a party to any
recapitalization or other form of reorganization (except that, without the
consent of the Limited Partner, (1) a Subsidiary may merge with another
Subsidiary or with the Partnership and the Partnership may merge with a
Subsidiary; and (2) a Subsidiary may merge with a Person other than a Subsidiary
as a means of effecting any acquisition or disposition of assets that is
otherwise permitted by this Agreement); or
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(d) enter into any transaction with either Partner or any Affiliate
of either Partner unless the transaction is in the ordinary course of the
Partnership's or Subsidiary's business, is on terms that are no less favorable
to the Partnership or Subsidiary than could have been obtained in a comparable
arm's-length transaction with a Person that is not a Partner or an Affiliate of
either Partner, and contemplates payments to or by the Partnership and its
Subsidiaries in any twelve month period not in excess of $500,000, individually
or in the aggregate (provided that (1) the Management Agreements are hereby
approved, (2) the Advertising Sales Agreements are hereby approved, (3) any
other agreement of the Partnership or its Subsidiaries that is already in effect
on the date of this Agreement is hereby approved and (4) transactions described
in the Contribution Agreement, the Indiana Contribution Agreement or in this
Agreement, including without limitation the transactions contemplated by Section
16.1(b) hereof, under the circumstances specified therein or herein, and in
accordance with the terms provided therein or herein, are hereby approved), or
enter into any transaction with either Partner or any Affiliate of either
Partner pursuant to which such Partner or any Affiliate of such Partner would be
authorized or permitted to use the Partnership's or any Subsidiary's cable
television system distribution facilities in connection with such Partner
engaging in any business (other than through the Partnership) that is ancillary
to the ownership or operation of cable television systems, including, without
limitation, those businesses described in Section 2.5(c); or
(e) select a new General Partner of the Partnership or select a new
general partner of a Subsidiary; or
(f) liquidate or dissolve the Partnership except in accordance with
Articles 9 and 11 or liquidate or dissolve Insight Indiana or liquidate or
dissolve any other Subsidiary except in accordance with the express provisions
of such other Subsidiary's partnership agreement; or
(g) issue any Partnership Interest or other equity interest in the
Partnership or any Subsidiary (including the creation of a new Subsidiary), or
any option, warrant or other debt or equity interest convertible into or
evidencing the right to acquire (whether for not for additional consideration)
any Partnership Interest or other equity interest in the Partnership or any
Subsidiary, except pursuant to the Management Incentive Plan; or
(h) admit any additional Partners to the Partnership or any
additional partners or members to any Subsidiary except in the case of the
Partnership, in accordance with Article 8; or
(i) convert the Partnership or any Subsidiary to corporate form or to
any other form or change the partnership tax classification of the Partnership
or any Subsidiary; or
(j) commence any bankruptcy or insolvency proceeding, acquiesce in
the appointment of a receiver, trustee, custodian or liquidator, admit to the
material allegations of a petition filed against the Partnership or any
Subsidiary in any bankruptcy proceeding or make, execute or deliver any general
assignment for the benefit of the Partnership's or any Subsidiary's creditors;
or
(k) commence, institute, settle or release any claim or lawsuit (or
series of related claims and/or lawsuits) on behalf of the Partnership or any
Subsidiary, or the confession of a
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judgment against the Partnership or any Subsidiary or either Partner (or any
partners of a Subsidiary) in connection with its relationship with the
Partnership or any Subsidiary, for any amount in excess of $3,000,000 or
involving the potential granting of equitable relief that, if granted, would
have a material adverse effect on the business of the Partnership and the
Subsidiaries, taken as a whole (except that (1) Insight may, without the consent
of TCI, cause the Partnership or its Subsidiaries to take action pursuant to
Section 7.19 of the Indiana Contribution Agreement subject to the terms and
conditions thereof, and (2) notwithstanding any other provision in this
Agreement to the contrary, TCI may, without the consent of Insight, cause the
Partnership or its Subsidiaries to make a good faith claim against Insight
Communications pursuant to the indemnification provisions of the Indiana
Contribution Agreement or against the Manager pursuant to the Management
Agreements, and Insight may, without the consent of TCI, cause the Partnership
or its Subsidiaries to make a good faith claim against TCI Indiana pursuant to
the indemnification provisions of the Indiana Contribution Agreement); or
(l0) (1) engage in any line of business not described in Section 2.5
or (2) acquire, operate or manage cable television systems or otherwise conduct
business in any area other than the Commonwealth of Kentucky and that geographic
portion of the State of Indiana that is located below the bold line drawn on the
map of the State of Indiana attached hereto as Schedule IV unless in either case
any such systems or businesses that relate to any other area were acquired in a
transaction or series of transactions in which any such systems or businesses
did not constitute more than twenty percent of the total assets (as determined
by cash flow, the number of subscribers or such other reasonable method, as
determined by the General Partner in its reasonable discretion) acquired in such
transaction or series of transactions; or
(m) make a call for additional Capital Contributions; or
(n) purchase, redeem, retire, or otherwise acquire any Partnership
Interests or other equity interest in the Partnership or any Subsidiary, except
for the purchase, redemption, retirement, or other acquisition of any equity
interest where the terms of such interest, as approved in accordance with this
Section 6.6, permit or require such purchase, redemption, retirement, or other
acquisition; or
(o) make any distribution to the Partners other than distributions
permitted pursuant to Section 4.1(a)(1) or required by Section 11.2(d)(3); or
(p) amend the Management Incentive Plan, the Management Agreements or
the partnership or operating agreement of any Subsidiary; or
(q) enter into, conduct, engage in or participate in the business of
providing or engaging in any Internet Backbone Service, or obtain or acquire any
record or beneficial equity interest in any Person which conducts, engages in or
participates in any Internet Backbone Service, it being agreed that the use of
IP technology to provide telephone, fax, video, video conferencing,
telecommuting, virtual private networks, security and energy management services
to subscribers of the Partnership's or its Subsidiaries' cable television
systems does not constitute such conducting,
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engaging in, or participating in an Internet Backbone Service and does not,
subject to Section 16.1(b), require the consent or approval of the Limited
Partner pursuant to this Section 6.6(q); or
(r) take any action that would make it impossible or impracticable to
carry on the business of the Partnership or any Subsidiary, except upon the
dissolution of the Partnership or any Subsidiary in accordance with this
Agreement or the applicable Subsidiary partnership or operating agreement (it
being agreed that the exercise by the Partnership of its right to cause the
dissolution of Insight Indiana is subject to the consent of the Limited
Partner); or
(s) use any funds or assets of the Partnership or any Subsidiary
other than for the benefit of the Partnership and the Subsidiaries; or
(t) take any action that would subject any Limited Partner to
personal liability in any jurisdiction; or
(u) make any change in the Partnership's or any Subsidiary's public
accountants; or
(v) sell, assign or otherwise Transfer any equity interest in any
Subsidiary, except a Transfer of all of the equity interests in a Subsidiary as
a means of effecting any Asset Disposition that does not require the Limited
Partner's consent pursuant to this Agreement and except in connection with a
pledge of such equity interest (and any subsequent foreclosure made by the
pledgee) that is permitted under the terms of the applicable Subsidiary
partnership or operating agreement; or
(w) make any determination of "Gross Asset Value" with respect to a
Subsidiary, any determination that an adjustment to "Gross Asset Value" with
respect to a Subsidiary should be made ("Gross Asset Value" for this purpose
being as defined in the applicable Subsidiary partnership agreement) or any
determination of the fair market value of any asset contributed to such
Subsidiary; or
(x) withdraw as the general partner or member of a Subsidiary.
6.7 Limited Partner Consent Definedz.
-------------------------------
For purposes of this Agreement, including Sections 6.5 and 6.6, the Limited
Partner shall be deemed to have approved any action or proposed action by or on
behalf of the General Partner, the Partnership, or any Subsidiary only if the
Limited Partner has affirmatively approved the taking of such action in writing.
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ARTICLE 7
ADVISORY COMMITTEE
------------------
7.1 Appointment and Removal of Representatives.
------------------------------------------
(a) The Partnership shall have an Advisory Committee consisting of
five individual representatives of the Partners, three representatives to be
appointed by the General Partner and two representatives to be appointed by the
Limited Partner. The function of the Advisory Committee shall be to consult
with and advise the General Partner regarding significant decisions relating to
the Partnership, its Subsidiaries and their business and to make recommendations
to the General Partner with respect thereto; provided that ultimate decision
making power is vested in the General Partner, subject to the rights of the
Limited Partner specified elsewhere in this Agreement and provided further that
the Advisory Committee will not perform any functions or duties which, if
performed by a Limited Partner, would constitute participation in the control of
the business of the Partnership under the Act. The initial representatives of
the Partners, together with their respective business addresses and telephone
numbers are specified in Schedule III. The Chairman and Secretary of the
Advisory Committee shall be chosen by the Advisory Committee.
(b) Each Partner shall use its good faith efforts to designate its
representatives as promptly as is reasonably practicable so that the Advisory
Committee shall at all times contain the number of representatives provided for
in Section 7.1(a).
(c) Either Partner may at any time, by written notice to the other
Partner, remove its representatives, with or without cause, and substitute
representatives to serve in their stead. No representative shall be removed
from office, with or without cause, without the consent of the Partner that
designated him.
(d) The written notice of the Partner appointing a substitute
representative shall in each case set forth such representative's business
address and business telephone number.
(e) Each Partner shall promptly give written notice to the other
Partner of any change in the business address or business telephone number of
any of its representatives.
(f) The representatives appointed by the Partners shall be entitled
to reimbursement from the Partnership for their travel expenses incident to
their duties and responsibilities as such under this Agreement.
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7.2 Meetings of the Advisory Committee.
----------------------------------
The Advisory Committee shall hold one regular meeting each quarter at such
time and place as shall be determined by the Advisory Committee. Special
meetings of the Advisory Committee may be called at any time by any
representative upon not less than three Business Days' prior notice. Except as
otherwise determined by the Advisory Committee, all special and regular meetings
of the Advisory Committee shall be held at the principal office of the
Partnership.
7.3 Procedural Matters.
------------------
(a) Unless waived in writing by all of the representatives (before or
after a meeting) at least three Business Days' prior notice of any meeting shall
be given to each representative. Such notice shall state the purpose for which
such meeting has been called.
(b) The General Partner must consult the Advisory Committee in
advance with respect to any significant action or decision to be taken by the
General Partner.
(c) Members of the Advisory Committee shall have the right to
participate in a meeting of the Advisory Committee by means of a conference
telephone or similar communications equipment by means of which all
representatives participating in the meeting can hear each other and be heard,
and such participation shall constitute presence in person at the meeting.
(d) The Advisory Committee shall cause to be kept a book of minutes
of all of its meetings in which there shall be recorded the time and place of
each such meeting, whether regular or special, and if special, by whom called,
the notice thereof given, the names of those present, and the proceedings
thereof.
ARTICLE 8
TRANSFER OF PARTNERSHIP INTERESTS
---------------------------------
8.1 Limitations on Transfers.
------------------------
(a) Except as provided in Section 8.1(b) and 8.1(c), neither Partner
may sell, assign, transfer or otherwise dispose of, or pledge, hypothecate or
otherwise encumber (any or all of the foregoing, a "Transfer") all or any part
of its Partnership Interest, the profits, losses and distributions therefrom, or
any part thereof (whether voluntarily, involuntarily or by operation of law)
unless approved by the other Partner, which consent shall not be unreasonably
withheld or delayed. Notwithstanding the approval of the non-transferring
Partner to any Transfer by a Partner, the rights of any Transferee shall be
subject at all times to the limitations set forth in Section 8.2.
(b) The restrictions of Section 8.1(a) shall not apply and no consent
of the other Partner shall be required for:
(1) a Transfer pursuant to Article 9; or
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(2) a Transfer to an Affiliate of such Partner (a "Successor") so
long as (A) such Transfer would not hinder or impair consummation of any of the
transactions contemplated by Article 9; (B) such Successor, prior to such sale
or transfer, becomes a party to this Agreement and agrees to be bound by the
terms and conditions hereof; and (C) in the case of a Transfer by TCI, Tele-
Communications, Inc. holds and maintains, directly or indirectly, an economic
ownership in such Affiliate equal to at least 50.1% of the economic interest in
such Affiliate following such Transfer and has and maintains, directly or
indirectly, voting control of such Affiliate following such Transfer; or
(3) a Transfer pursuant to Section 8.7.
(c) If Insight desires to effect a Transfer that is not permitted by
the terms of this Section 8.1 except with the approval of TCI, and if TCI grants
such approval upon Insight's request, TCI shall have the right, effective upon
the Transfer by Insight, to convert its Partnership Interest into that of a
General Partner; provided that any such change in the identity of the General
Partner shall be subject to and conditioned upon receipt of all necessary
governmental approvals and other material third party consents. TCI shall
exercise such right, if at all, by giving written notice to Insight at the same
time TCI grants its approval to the Transfer by Insight. If TCI exercises such
right, the transferee of Insight, upon becoming a Partner pursuant to Section
8.2, shall not be the General Partner but shall be a Limited Partner, and the
allocations and distributions to be made to the Partners pursuant to this
Agreement shall not be altered.
(d) Notwithstanding anything in this Agreement to the contrary,
without the consent of the other Partner, neither Partner shall effect, or agree
to effect, any Transfer that will adversely affect or change, or is reasonably
likely to adversely affect or change, the partnership tax classification of the
Partnership.
(e) Neither Partner may Transfer all or any part of its Partnership
Interest unless it simultaneously Transfers to the same Transferee or Successor
a proportionate part of its LLC Interest.
8.2 Transferees and Successors.
--------------------------
(a) No Transfer of a Partnership Interest will be effective nor will
any purported Transferee or Successor become a Partner or otherwise be entitled
to any of attributes of ownership of the Partnership purportedly Transferred
unless such Transfer is made in accordance with the provisions of this Article 8
and the transferor and Transferee or Successor have complied with the following
conditions:
(1) the transferor has executed and delivered to the Partnership a
copy of the assignment of the Partnership Interest to Transferee or Successor in
form and substance satisfactory to the Partnership;
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(2) the Transferee or Successor, if not already a party to this
Agreement, becomes a party to this Agreement, assumes all of the obligations
hereunder of its transferor and agrees to be bound by the terms and conditions
hereof in the same manner as the transferor.
(b) Upon compliance with Section 8.2(a), any Transferee or Successor
shall be substituted as a Partner for, and shall, subject to Section 8.1(c)
regarding the Transferee of Insight's Partnership Interest becoming a Limited
Partner, enjoy the same rights and be subject to the same obligations as, its
predecessor as a Partner hereunder.
(c) If there is a permitted Transfer of a Partnership Interest under
this Agreement:
(1) A Transferee's or Successor's Percentage Interest shall equal
the Percentage Interest transferred to it by the transferring Partner;
(2) A Transferee's or Successor's Capital Account shall initially be
equal to the Capital Account balance transferred to it by the transferring
Partner;
(3) If requested to do so by any transferring Partner or by the
Transferee or Successor by notice given to the Partners, the Partnership shall
make an election under Section 754 of the Code (and a corresponding election
under applicable state and local law). Upon the request of either Partner, the
Partnership shall also make a timely election under Section 754 of the Code upon
a distribution of property or money to a Partner.
8.3 Transfers of Interests in Partners.
----------------------------------
(a) Except as provided in Section 8.3(b), Tele-Communications, Inc.
agrees that it will not Transfer (whether voluntarily, involuntarily or by
operation of law) all or any part of its direct or indirect ownership interests
in TCI Indiana, without the consent of Insight.
(b) The restriction of Section 8.3(a) shall not apply and no consent
of Insight shall be required for a Transfer directly or indirectly by Tele-
Communications, Inc. to an Affiliate of Tele- Communications, Inc. so long as
(1) such Transfer would not hinder or impair consummation of any of the
transactions contemplated by Article 9; (2) such transferee, prior to such sale
or transfer, complies with the requirements of Section 8.9; and (3) Tele-
Communications, Inc. holds and maintains, directly or indirectly, an economic
ownership in such Affiliate equal to at least 50.1% of the economic interest in
such Affiliate following such Transfer and has and maintains, directly or
indirectly, voting control of such Affiliate following such Transfer.
(c) It is understood and agreed that nothing in this Section 8.3
shall be deemed to require any consent of Insight to any proposed or actual
transfer of control (however such transfer is effected, by sale of stock or
assets, merger or consolidation or otherwise) of Tele-Communications, Inc. or to
any proposed or actual distribution to the stockholders of Tele-Communications,
Inc. of direct or indirect equity interests in Tele- Communications, Inc.
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(d) It is understood and agreed that nothing in this Agreement shall
be deemed to require any consent of TCI to any proposed or actual transfer of
control (however such transfer is effected, by sale of stock or assets, merger
or consolidation or otherwise) of Insight, provided, however, in the event of
such a transfer of control, TCI shall have the right, effective upon such
transfer, to convert its Partnership Interest to that of a General Partner;
provided that any such change in the identity of the General Partner shall be
subject to and conditioned upon receipt of all necessary governmental approvals
and other material third party consents. TCI shall exercise such right, if at
all, by giving written notice to Insight within ten Business Days of TCI's
receipt of notice that such a transfer of control is contemplated. If TCI
exercises such right, Insight, effective upon such transfer of control, shall no
longer be the General Partner but shall be a Limited Partner, and the
allocations and distributions to be made to the Partners pursuant to this
Agreement shall not be altered.
(e) By executing this Agreement, Tele-Communications, Inc. represents
and warrants to Insight and the Partnership that as of the date of this
Agreement it owns, directly or indirectly, all of the outstanding equity
interests in TCI Indiana.
8.4 Other Consents and Requirements.
-------------------------------
Any Transfer must be in compliance with all requirements imposed by any
state securities administrator having jurisdiction over the Transfer and the
United States Securities and Exchange Commission and must not cause the
Partnership or any Subsidiary to be in violation of any Ownership Restriction.
8.5 Assignment Not In Compliance.
----------------------------
Any Transfer in contravention of any of the provisions of this Article 8
(whether voluntarily, involuntarily or by operation of law) shall be void and of
no effect, and shall neither bind nor be recognized by the Partnership.
8.6 Division of Partnership Interests.
---------------------------------
The several rights and obligations inherent in the Capital Account and
Percentage Interest attributable to a Partner's Partnership Interest are
indivisible except in equal proportions, such that the assignment of a specified
percentage of a Partner's Partnership Interest may only represent an equal
percentage of the total Capital Account and Percentage Interest that were
attributable to such Partner's Partnership Interest prior to the assignment.
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8.7 Pledge of Partnership Interests.
-------------------------------
At the request of the General Partner, each Partner agrees to pledge its
Partnership Interest to secure any Indebtedness of the Partnership or its
Subsidiaries that is permitted under this Agreement, on terms determined by the
General Partner, so long as all Partners are required to pledge their
Partnership Interests and the terms of the pledge do not impose any personal
liability on any Partner. In negotiating the terms of any such pledge, the
General Partner will require that the secured party agree to enforce its rights
against the Partnership Interests of the Partners proportionately (based on the
Percentage Interest of each Partner). If the secured party under any such
pledge enforces its rights against the Partnership Interests of the Partners
other than proportionately, the Partners will afford each other such rights of
contribution and indemnity as are necessary to cause all liabilities, losses,
and damages suffered by the Partners as a result of the exercise by the secured
party of its rights under such pledge to be borne by the Partners
proportionately.
8.8 Code Section 708(b)(1)(B).
-------------------------
(a) If a Transfer by a Partner of all or any portion of its
Partnership Interest (other than a Transfer pursuant to Article 9) or any action
by such Partner in violation of this Agreement results in a termination of the
Partnership or any Subsidiary pursuant to Section 708(b)(1)(B) of the Code, the
transferring Partner will indemnify the other Partner for any additional income
tax paid by such other Partner as a result of such termination (including income
tax attributable to Code Section 704(c) allocations), whether required to be
paid in or for the taxable year in which such termination occurs or in or for
any subsequent taxable year, as offset by any income tax savings to be realized
by the other Partner as a result of such termination (including income tax
savings attributable to Code Section 704(c) allocations), whether realized in or
for the taxable year in which such termination occurs or in or for any
subsequent taxable year.
(b) If a Partner desires to assign all or part of its Partnership
Interest in a transaction that, if consummated at one time, would result in the
termination of the Partnership within the meaning of Code Section 708(b)(1)(B),
such Partner may elect (1) to assign immediately as much of its Partnership
Interest as may then be assigned without resulting in the termination of the
Partnership within the meaning of Code Section 708(b)(1)(B) and (2) to assign
the remaining portion of its Partnership Interest that it desires to assign as
soon thereafter as such subsequent assignment would not result in the
termination of the Partnership within the meaning of Code Section 708(b)(1)(B).
If a Partner notifies the other Partner that it has elected to assign all or
part of its Partnership Interest in accordance with this Section 8.8(b)
specifying in its notice the portion of its Partnership Interest to be assigned
immediately in accordance with clause (1) of the preceding sentence and the
portion of its Partnership Interest to be assigned subsequently in accordance
with clause (2) of the preceding sentence (the assignment of such portion, the
"Deferred Assignment"), then, if the other Partner assigns all or any part of
its Partnership Interest prior to the Deferred Assignment by the notifying
Partner and the Deferred Assignment therefore results in the termination of the
Partnership within the meaning of Code Section 708(b)(1)(B), the other Partner
and not the notifying Partner shall be treated as the Partner causing such
termination for purposes of Section 8.8(a).
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ARTICLE 9
BUY/SELL RIGHTS
---------------
9.1 Commencement of Buy/Sell Process.
--------------------------------
(a) At any time on or after October 1, 2004 (subject to Section
9.1(b)), either TCI or Insight may elect to commence the process described in
this Article 9 by giving written notice (the "Exit Notice") of its election to
commence the process described in this Article 9 to the Non-Initiating Partner.
The Exit Notice shall also specify the Initiating Partner's determination of the
fair market value of all of the assets of the Partnership and Insight Kentucky
Capital as of the date the Initiating Partner delivers the Exit Notice (it being
understood and agreed that to the extent the Partnership has any Subsidiaries,
in making the determination of the value of the Partnership, the value of the
Subsidiaries shall be taken into account) (such determination, the "Stated Value
of the Partnership and Insight Kentucky Capital").
(b) A Partner may not elect to commence the process described in this
Article 9:
(1) at any time within twelve months of delivering a prior Exit
Notice to the Non-Initiating Partner pursuant to Section 9.1(a); or
(2) at any time within six months of the effectiveness of a valid
notice of postponement delivered by either Partner pursuant to Section 9.2; or
(3) at any time following the delivery of an Exit Notice by the
other Partner pursuant to Section 9.1(a) and prior to such time, if any, that
(A) the Initiating Partner and the Non-Initiating Partner mutually agree to
abandon the purchase and sale of Partnership Interests and LLC Interests
commenced by such Exit Notice pursuant to a subsequent election pursuant to
Section 9.1(c), or (B) TCI elects to terminate (or is deemed to have elected to
terminate) the purchase and sale of Partnership Interests and LLC Interests
commenced by such Exit Notice pursuant to a subsequent election pursuant to
Section 9.3(c)(2) or Section 9.5(b), or (C) the non-defaulting Partner elects to
terminate the purchase and sale of Partnership Interests and LLC Interests
commenced by such Exit Notice pursuant to a subsequent election pursuant to
Section 9.7(a)(3).
(c) The purchase and sale of Partnership Interests and LLC Interests
pursuant to this Article 9 may be abandoned at any time following the delivery
of an Exit Notice pursuant to Section 9.1(a) and prior to the closing thereof by
mutual agreement between the Initiating Partner and the Non-Initiating Partner.
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9.2 Non-Initiating Partner's Option to Postpone the Buy/Sell Process.
----------------------------------------------------------------
Upon receipt of a valid Exit Notice from the Initiating Partner pursuant to
Section 9.1, the Non-Initiating Partner may elect, by giving written notice to
the Initiating Partner within five Business Days of the Non-Initiating Partner's
receipt of such Exit Notice, to postpone for a period of six months the first
date on which either Partner may commence the process described in this Article
9 by delivering an Exit Notice, provided that each Partner may exercise this
option to postpone only once during the term of the Partnership. If the Non-
Initiating Partner fails to give a timely written notice of its election to
postpone pursuant to the preceding sentence (or if the Non-Initiating Partner
has already exercised its one election to postpone), the Non-Initiating Partner
shall be deemed not to have made such an election to postpone. A timely and
valid election to postpone by the Non-Initiating Partner shall become effective
immediately upon its delivery to the Initiating Partner, at which time the
Initiating Partner's Exit Notice shall automatically be rescinded and be of no
further force and effect and neither Partner shall have any further obligations
in respect of such Exit Notice and such Exit Notice shall not count against the
Initiating Partner for purposes of Section 9.1(b)(1).
9.3 TCI's Options as Non-Initiating Partner.
---------------------------------------
If TCI receives an Exit Notice from Insight pursuant to Section 9.1 and
does not make (or is deemed not to have made) an election to postpone pursuant
to Section 9.2, TCI shall elect, by giving written notice (an "Initial Election
Notice") of its election to Insight within ninety days after its receipt of the
Exit Notice, either to (1) purchase Insight's Partnership Interest and LLC
Interest, or (2) sell its Partnership Interest and LLC Interest to Insight or
to otherwise effect an exit from the Partnership and Insight Kentucky Capital
pursuant to an Alternative Structure. If TCI makes an election pursuant to
clause (2) of the preceding sentence, TCI's Initial Election Notice shall also
specify whether TCI desires to enter into negotiations with Insight to
restructure the sale of TCI's Partnership Interest and LLC Interest or its exit
from the Partnership and Insight Kentucky Capital in a manner that results in
tax-deferred or tax-advantaged treatment to TCI (for example, by the purchase by
the Partnership and Insight Kentucky Capital of assets to distribute to TCI in
redemption of TCI's Partnership Interest and LLC Interest or the distribution by
the Partnership and Insight Kentucky Capital of certain of its then existing
assets in redemption of TCI's Partnership Interest and LLC Interest) (an
"Alternative Structure").
(a) Election to Purchase. Upon the timely delivery by TCI of an
--------------------
Initial Election Notice pursuant to this Section 9.3 specifying its election to
purchase Insight's Partnership Interest and LLC Interest, Insight shall be
obligated to sell and TCI shall be obligated to purchase, in accordance with
this Article 9, all of Insight's Partnership Interest and LLC Interest for a
cash price equal to the Equity Value of such Partnership Interest and LLC
Interest. At TCI's option, TCI may designate a financially, legally and
technically qualified third party to purchase Insight's Partnership Interest and
LLC Interest, provided that TCI shall not be relieved of its obligation under
this Section 9.3(a) in the event such third party does not perform.
(b) Election to Sell Without Election to Negotiate Alternative
----------------------------------------------------------
Structure. Upon the timely delivery by TCI of an Initial Election Notice
- ---------
pursuant to this Section 9.3 specifying TCI's
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election to sell its Partnership Interest and LLC Interest to Insight without an
election by TCI to negotiate an Alternative Structure, TCI shall be obligated to
sell and Insight shall be obligated to purchase, in accordance with this Article
9, all of TCI's Partnership Interest and LLC Interest for a cash price equal to
the Equity Value of such Partnership Interest and LLC Interest.
(c) Election to Sell or Exit With an Election to Negotiate Alternative
------------------------------------------------------------------
Structure. Upon the timely delivery by TCI of an Initial Election Notice
- ---------
pursuant to this Section 9.3 specifying TCI's election to sell its Partnership
Interest and LLC Interest to Insight or otherwise effect an exit from the
Partnership and Insight Kentucky Capital and specifying TCI's election to
negotiate an Alternative Structure, the Partners will negotiate in good faith
and use commercially reasonable efforts (taking into account any tax,
regulatory, or economic considerations) for a reasonable period (not to exceed
sixty days) to mutually agree on an Alternative Structure.
(1) If the Partners mutually agree on an Alternative Structure
within such sixty-day period, TCI and Insight shall be obligated to effect TCI's
exit from the Partnership and Insight Kentucky Capital, in accordance with this
Article 9 and the terms of the Alternative Structure.
(2) If the Partners are unable to reach mutual agreement on an
Alternative Structure within such sixty-day period, then TCI shall elect, by
giving written notice to Insight within fifteen Business Days of the end of such
sixty-day period, either to (1) sell its Partnership Interest and LLC Interest
to Insight, in which event TCI shall be obligated to sell and Insight shall be
obligated to purchase, in accordance with this Article 9, all of TCI's
Partnership Interest and LLC Interest for a cash price equal to the Equity Value
of such Partnership Interest and LLC Interest, or (2) terminate the purchase and
sale process commenced pursuant to Insight's Exit Notice, subject to Section
9.6. If TCI fails to give a timely notice to Insight pursuant to the preceding
sentence, TCI shall be deemed to have made an election pursuant to clause (2) of
the preceding sentence.
(d) Failure to Make a Timely Election. If TCI fails to give an
---------------------------------
Initial Election Notice to Insight within ninety days after its receipt of
Insight's Exit Notice, TCI shall be deemed to have made an election pursuant to
either Section 9.3(a), 9.3(b) or 9.3(c) as Insight shall determine in its sole
discretion by giving written notice to TCI within five Business Days after the
end of such ninety-day period.
9.4 Insight's Options as Non-Initiating Partner.
-------------------------------------------
If Insight receives an Exit Notice from TCI pursuant to Section 9.1 and
does not make (or is deemed not to have made) an election to postpone pursuant
to Section 9.2, Insight shall elect, by giving written notice (an "Initial
Election Notice") of its election to TCI within ninety days after its receipt of
the Exit Notice, either to (1) sell its Partnership Interest and LLC Interest to
TCI, or (2) purchase TCI's Partnership Interest and LLC Interest.
(a) Election to Sell. Upon the timely delivery by Insight of an
----------------
Initial Election Notice pursuant to this Section 9.4 specifying its election to
sell its Partnership Interest and LLC
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Interest to TCI, Insight shall be obligated to sell and TCI shall be obligated
to purchase, in accordance with this Article 9, all of Insight's Partnership
Interest and LLC Interest, for an amount in cash equal to the Equity Value of
such Partnership Interest and LLC Interest.
(b) Election to Purchase. Upon the timely delivery by Insight of an
--------------------
Initial Election Notice pursuant to this Section 9.4 specifying its election to
purchase TCI's Partnership Interest and LLC Interest, and upon the failure (or
deemed failure) of TCI to make an election to negotiate an Alternative Structure
pursuant to Section 9.5, TCI shall be obligated to sell and Insight shall be
obligated to purchase, in accordance with this Article 9, all of TCI's
Partnership Interest and LLC Interest, for an amount in cash equal to the Equity
Value of such Partnership Interest and LLC Interest.
(c) Failure to Make a Timely Election If Insight fails to give an
---------------------------------
Initial Election Notice to TCI within ninety days after its receipt of TCI's
Exit Notice, Insight shall be deemed to have made an election pursuant to either
Section 9.4(a) or 9.4(b) as TCI shall determine in its sole discretion by giving
written notice to Insight within five Business Days after the end of such
ninety-day period.
9.5 TCI's Option to Negotiate Alternative Structure.
-----------------------------------------------
Upon its receipt of an Initial Election Notice from Insight pursuant to
Section 9.4 specifying Insight's election to purchase TCI's Partnership Interest
and LLC Interest, TCI may elect, by giving written notice to Insight within
fifteen Business Days of its receipt of Insight's Initial Election Notice, to
enter into negotiations with Insight to agree on an Alternative Structure. If
TCI fails to give a timely notice pursuant to the preceding sentence specifying
such an election, TCI shall be deemed not to have made such an election. Upon
TCI's timely delivery of its election to negotiate an Alternative Structure, the
Partners will negotiate in good faith and use commercially reasonable efforts
(taking into account any tax, regulatory, or economic considerations) for a
reasonable period (not to exceed sixty days) to agree on an Alternative
Structure.
(a) If the Partners mutually agree on an Alternative Structure within
such sixty-day period, TCI and Insight shall be obligated to effect TCI's exit
from the Partnership and Insight Kentucky Capital in accordance with this
Article 9 and the terms of the Alternative Structure.
(b) If the Partners are unable to reach mutual agreement on an
Alternative Structure within such sixty-day period, then TCI shall elect, by
giving written notice to Insight within fifteen Business Days of the end of such
sixty-day period, either to (1) sell its Partnership Interest and LLC Interest
to Insight, in which event TCI shall be obligated to sell and Insight shall be
obligated to purchase, in accordance with this Article 9, all of TCI's
Partnership Interest and LLC Interest for a cash price equal to the Equity Value
of such Partnership Interest and LLC Interest, or (2) terminate the purchase and
sale process commenced pursuant to Insight's Exit Notice, subject to Section
9.6. If TCI fails to give a timely notice to Insight pursuant to the preceding
sentence, TCI shall be deemed to have made an election pursuant to clause (2) of
the preceding sentence.
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9.6 Insight's Option to Require TCI to Purchase Insight's Partnership
-----------------------------------------------------------------
Interest.
- --------
If TCI elects (or is deemed to have elected) to terminate the purchase and
sale process pursuant to Section 9.3(c)(2) or Section 9.5(b), Insight may elect,
by giving written notice to TCI within five Business Days of Insight's receipt
of TCI's election to terminate (or within five Business Days of TCI's deemed
election to terminate), to require TCI to purchase Insight's Partnership
Interest and LLC Interest. Upon the timely delivery by Insight of a notice
pursuant to the preceding sentence specifying Insight's election to require TCI
to purchase Insight's Partnership Interest and LLC Interest, Insight shall be
obligated to sell and TCI shall be obligated to purchase, in accordance with
this Article 9, all of Insight's Partnership Interest and LLC Interest for a
cash price equal to the Equity Value of such Partnership Interest and LLC
Interest. If Insight fails to make a timely election pursuant to the first
sentence of this Section 9.6, Insight shall be deemed to have agreed to the
termination of the purchase and sale process commenced by the Initiating
Partner's Exit Notice.
9.7 Default by Partner.
------------------
(a) If either Partner becomes obligated to purchase the other
Partner's Partnership Interest and LLC Interest under this Article 9 pursuant to
an Exit Notice, or if Insight becomes obligated to effect an Alternative
Structure under this Article 9 pursuant to Section 9.3(c)(1) or Section 9.5(a),
and such Partner defaults in its obligation to purchase the selling Partner's
Partnership Interest and LLC Interest on the date specified in Section 9.9(a)
for the closing of the purchase and sale of the selling Partner's Partnership
Interest and LLC Interest or Insight defaults in its obligation to effect an
Alternative Structure, then the non-defaulting Partner may elect either:
(1) to purchase the Partnership Interest and LLC Interest of the
defaulting Partner for a cash price equal to 95% of the Equity Value of such
Partnership Interest and LLC Interest and otherwise on the terms and subject to
the conditions set forth in this Article 9; or
(2) to cause the Partnership to be liquidated and dissolved in
accordance with Article 11; or
(3) to terminate the buy/sell process commenced by the Initiating
Partner's Exit Notice and continue the Partnership.
(b) The three options that may be elected by the non-defaulting
Partner pursuant to Section 9.7(a) are exclusive of each other and are exclusive
of all other rights and remedies that may otherwise have been available to the
non-defaulting Partner at law or equity as a result of the defaulting Partner's
default.
(c) The non-defaulting Partner may make an election pursuant to
Section 9.7(a) by giving written notice of its election to the defaulting
Partner at any time within thirty days after the date specified in Section
9.9(a) for the closing of the purchase and sale of the non-defaulting Partner's
Partnership Interest and LLC Interest or the date scheduled for closing of an
Alternative Structure and prior to such time, if any, as the defaulting Partner
stands ready, willing, and able to
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purchase the non-defaulting Partner's Partnership Interest and LLC Interest in
accordance with this Article 9 or to consummate the Alternative Structure. If
the non-defaulting Partner makes a timely election pursuant to Section
9.7(a)(1), the defaulting Partner shall be obligated to sell and the
non-defaulting Partner shall be obligated to purchase, in accordance with this
Article 9, all of the defaulting Partner's Partnership Interest and LLC
Interest.
9.8 Removal of Insight as Partner.
-----------------------------
(a) The provisions of this Section 9.8 shall apply if:
(1) a court of competent jurisdiction finds that Insight has engaged
in conduct while acting as General Partner that constitutes either fraud against
the Partnership or TCI or a felony involving moral turpitude and that such
conduct has resulted in material harm to the Partnership or TCI, and
(2) the finding described in Section 9.8(a)(1) has not been
reversed, stayed, enjoined, set aside, annulled, or suspended, and is not the
subject of any pending request for judicial review, reconsideration, appeal, or
stay, and
(3) the time for filing any further request for judicial review,
reconsideration, appeal, or stay of the finding described in Section 9.8(a)(1)
has expired.
(b) If each of the conditions specified in Section 9.8(a) is
satisfied, then (1) TCI may elect to convert its Partnership Interest to that of
a General Partner, provided, that such change in the identity of the General
Partner shall be subject to and conditioned upon receipt of all necessary
governmental approvals and other material third party consents, and provided
further that if TCI exercises such right, Insight will cease to be the General
Partner but shall be a Limited Partner; and (2) TCI shall have the option to
purchase all of Insight's Partnership Interest and LLC Interest in accordance
with the process described in this Section 9.8(b) and Section 9.8(c). TCI may
elect to commence such process by giving written notice of its election to
Insight within ten Business Days after the condition specified in Section
9.8(a)(3) is satisfied. Upon Insight's receipt of TCI's notice pursuant to the
preceding sentence, Insight and TCI shall, within thirty Business Days of such
receipt, negotiate in good faith to determine the fair market value of all of
the assets of the Partnership and Insight Kentucky Capital as of the date TCI
delivers notice to Insight pursuant to the first sentence of this Section 9.8(b)
(it being understood and agreed that to the extent the Partnership has any
Subsidiaries, in making the determination of the value of the Partnership, the
Subsidiaries shall be taken into account) (the "Fair Market Value of the
Partnership and Insight Kentucky Capital").
(1) If Insight and TCI fail to agree upon the Fair Market Value of the
Partnership and Insight Kentucky Capital within such period, then each of
Insight and TCI will select a nationally recognized investment banking firm or
nationally recognized qualified appraisal firm who will determine the Fair
Market Value of the Partnership and Insight Kentucky Capital within sixty days
of engagement. If the average of the two appraisals is within 1.5% of the lower
of the appraisals, then the Fair Market Value of the Partnership and Insight
Kentucky Capital will
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be the average of the two appraisals. If such average is not within 1.5% of the
lower of the two appraisals, the two appraisers selected by Insight and TCI will
select a third nationally recognized investment banking firm or a nationally
recognized qualified appraisal firm who will conduct a third appraisal, and the
Fair Market Value of the Partnership and Insight Kentucky Capital will be equal
to the average of the two appraisals that are closest to one another, provided
that if the highest and lowest appraisals are equidistant from the middle
appraisal, then the Fair Market Value of the Partnership and Insight Kentucky
Capital will be equal to the middle appraisal. Each of Insight and TCI shall
have the right to submit to all appraisers a position paper with respect to
valuation. Each of Insight and TCI will bear the expenses of the investment
banking firm or appraisal firm that they select, and if a third investment
banking firm or appraisal firm is used, Insight and TCI will share equally the
expenses of the third firm. In conducting the appraisals, the appraisers shall
assume that the value of any business is the price at which the assets of such
business as a going concern would change hands between a willing buyer and a
willing seller, on terms and subject to conditions and costs applicable in the
cable television industry (and, if and to the extent applicable, any other
industry in which the Partnership or any of its Subsidiaries is engaged) and
otherwise use valuation techniques then prevailing in the cable television
industry or such other industry.
(c) TCI may elect to purchase all of Insight's Partnership Interest
and LLC Interest and, upon the consummation of such purchase, to remove Insight
as a Partner, by giving written notice of its election to Insight within ten
Business Days after the final determination of the Fair Market Value of the
Partnership and Insight Kentucky Capital. Upon the timely delivery by TCI of
notice pursuant to the preceding sentence specifying its election to purchase
Insight's Partnership Interest and LLC Interest, Insight shall be obligated to
sell and TCI shall be obligated to purchase, in accordance with this Article 9,
all of Insight's Partnership Interest and LLC Interest for a cash price equal to
the Equity Value of Insight's Partnership Interest and LLC Interest. If TCI
fails to give a timely notice to Insight pursuant to the first sentence of this
Section 9.8(c) specifying its election to purchase Insight's Partnership
Interest and LLC Interest, TCI shall be deemed to have made an election not to
purchase Insight's Partnership Interest and LLC Interest pursuant to this
Section 9.8, in which event, subject to Sections 9.8(b) and (d), Insight shall
continue as the General Partner.
(d) The rights of TCI under this Section 9.8 are in addition to any
other rights and remedies available to TCI at law or equity as a result of any
conduct by Insight described in Section 9.8(a).
9.9 General Terms Applicable to Purchase and Sale of Partnership Interests
----------------------------------------------------------------------
and LLC Interests
- -----------------
(a) The closing of the purchase and sale of a Partner's Partnership
Interest and LLC Interest or of an Alternative Structure in accordance with this
Article 9 shall occur not later than twenty Business Days after the receipt of
all material governmental consents and approvals required in connection with the
sale of the selling Partner's Partnership Interest and LLC Interest in
connection with such Alternative Structure.
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<PAGE>
(b) The closing of the purchase and sale of the selling Partner's
Partnership Interest and LLC Interest or of the Alternative Structure in
accordance with this Article 9 shall take place at the principal office of the
Partnership or at any other location agreed to by Insight and TCI.
(c) At the closing of any purchase and sale of the selling Partner's
Partnership Interest and LLC Interest or of any Alternative Structure pursuant
to this Article 9, the purchasing Partner or the Partnership or other buyer in
an Alternative Structure shall pay or cause to be paid to the selling Partner,
by cash or other immediately available funds or any other form of consideration
mutually agreed to by the selling Partner and the purchasing Partner or the
consideration agreed to as part of the Alternative Structure, the purchase price
for the Partnership Interest and LLC Interest being purchased and the selling
Partner shall deliver to the purchasing Partner (or its permitted assignee or
the Partnership or other buyer in an Alternative Structure) good title, free and
clear of any liens (other than those created by this Agreement and those
securing financing obtained by the Partnership or any Subsidiary), to the
Partnership Interest and LLC Interest being sold.
(d) With respect to the current assets and liabilities of the
Partnership, the transaction costs and the reserves to be determined as part of
the Equity Value of the Partnership Interest and LLC Interest to be sold at the
closing pursuant to this Article 9, such current assets and liabilities, costs
and reserves shall be determined by mutual agreement of Insight and TCI at least
five days in advance of the date scheduled for said closing, but to the extent
that as of such date there is a good faith disagreement between the parties as
to any portion of such current assets, liabilities, costs or reserves the
parties shall proceed to closing of such purchase and sale, with closing based
on matters not in dispute. Thereafter, all matters in dispute shall be
immediately referred to an independent public accountant mutually acceptable to
Insight and TCI who shall make such determination as promptly as practicable and
whose determination shall be final and binding upon the parties. If the
accountant determines that either party is entitled to payment from the other
party, the party which owes such payment shall make it to the entitled party in
cash (or in the same form of consideration as is being paid in such transaction
if the parties have agreed to an Alternative Structure) in accordance with the
accountant's determination.
(e) The Partners will cooperate in good faith and use their respective
commercially reasonable efforts to obtain as quickly as practicable all
governmental consents and approvals required in connection with the purchase and
sale of a Partner's Partnership Interest and LLC Interest or an Alternative
Structure pursuant to this Article 9.
(f) From and after the closing, the purchasing Partner will be
entitled to indemnification from the selling Partner (or another creditworthy
entity reasonably acceptable to the purchasing Partner) against any liabilities
of the selling Partner as a Partner or as a member in Insight Kentucky Capital
(including without limitation, tax liabilities of the selling Partner for
periods prior to the closing) for periods prior to closing not taken into
account in determining the Equity Value of the Partnership Interest and LLC
Interest purchased by the purchasing Partner. The other indemnification
obligations of the selling Partner to the purchasing Partner shall be
substantially equivalent to its indemnification obligations to the Partnership
pursuant to the Indiana Contribution Agreement. On the date that is one year
after the closing under this Article 9, the selling Partner shall be entitled to
its distributable share of any reserves set up pursuant to Section
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11.2(d)(2) that had not yet been used to pay any obligation or liability that
relates to the period prior to the date of closing pursuant to this Article 9
and that would not be required to be maintained in accordance with generally
accepted accounting principles with respect to the period prior to the date of
closing pursuant to this Article 9.
(g) Each Partner agrees that, from and after the date on which the
respective obligations of the Partners to purchase and sell the selling
Partner's Partnership Interest and LLC Interest or to effect an Alternative
Structure become effective in accordance with this Article 9, it will negotiate
in good faith and use commercially reasonable efforts to enter into an
appropriate purchase agreement or other agreements on reasonable terms and
conditions that are consistent with the other provisions of this Article 9 and
that are otherwise standard and customary at the time for similar transactions.
The Partners recognize that the sixty-day period specified in Sections 9.3(c)
and 9.5 to agree on an Alternative Structure relates to agreement on the form
and material terms of the structure and a timetable for entering into the
purchase agreement or other agreements necessary to effect the Alternative
Structure, but that additional time may be required to negotiate and enter into
such agreements.
(h) Each Partner hereby agrees that the other Partner shall be
entitled to an injunction or injunctions to prevent breaches by such Partner of
its obligations under this Article 9 and to enforce specifically the terms and
provisions of this Article 9 in any court of the United States or any state
having jurisdiction, in addition to any other remedy to which it is entitled at
law or in equity. If an action is brought by either Partner pursuant to this
Section 9.9(h), the other Partner shall waive the defense that there is an
adequate remedy at law.
ARTICLE 10
OTHER BUSINESSES AND INVESTMENT OPPORTUNITIES
---------------------------------------------
10.1 Prohibited Cross-Interests.
--------------------------
(a) Each Partner agrees that, during the term of this Agreement,
neither such Partner nor any Affiliate of such Partner shall, directly or
indirectly, acquire any interest in any business or in any Person if the
acquisition of such interest would cause the Partnership or any Subsidiary to be
in violation of any Ownership Restriction.
(b) If, during the term of this Agreement, there is a Formal
Determination that either Partner's holding of a Partnership Interest causes the
Partnership or any Subsidiary to be in violation of any Ownership Restriction,
then the following provisions of this Section 10.1(b) shall apply. For purposes
of this Section 10.1(b), a "Formal Determination" means (i) an agreement between
Insight and TCI, (ii) a written determination by the FCC (including a
determination by staff employees of the FCC acting under delegated authority),
regardless of whether such determination is subject to administrative or
judicial review, reconsideration, or appeal (except to the extent that, so long
as a stay of any enforcement action by the FCC against the Partnership or any
Subsidiary as a result of any such violation of an Ownership Restriction is
effective, the Partner that caused the violation specifies that any such
determination will not constitute a Formal Determination during
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<PAGE>
the pendency of any review, reconsideration, or appeal), or (iii) a decision of
any court of competent jurisdiction, regardless of whether such decision is
subject to administrative or judicial review, reconsideration, or appeal (except
to the extent that, so long as a stay of any enforcement action by the FCC
against the Partnership or any Subsidiary as a result of any such violation of
an Ownership Restriction is effective, the Partner that caused the violation
specifies that any such decision will not constitute a Formal Determination
during the pendency of any review, reconsideration, or appeal). Insight and TCI
will use their respective good faith efforts, after consultation with legal
counsel, to reach an agreement as to whether either Partner's holding of a
Partnership Interest causes the Partnership or any Subsidiary to be in violation
of any Ownership Restriction.
(1) The Partnership will use reasonable efforts to obtain a stay of
any enforcement action by the FCC against the Partnership or any Subsidiary as a
result of any such violation of an Ownership Restriction (and the agreement of
both Partners shall be required for the Partnership to act otherwise), and the
Partners will cooperate reasonably with the Partnership in such efforts, to the
extent necessary to prevent such violation from having a material adverse effect
on the Partnership and the Subsidiaries before it is cured. For purposes of
this Section 10.1(b), a material adverse effect on the Partnership and the
Subsidiaries includes the loss of any license or licenses issued by the FCC
that, in the aggregate, are material to the conduct of the business of the
Partnership and the Subsidiaries, the imposition of any fines or forfeitures
that, in the aggregate, are material in amount, and limitations on the ability
of the Partnership or any Subsidiary to conduct its business in the ordinary
course consistent with its past practices.
(2) The Partnership and the Partners will cooperate reasonably with
each other and negotiate in good faith with the FCC to obtain a determination by
the FCC (including a determination by staff employees of the FCC acting under
delegated authority) that certain actions proposed to be taken by a Partner or
its Affiliates would cure any such violation of an Ownership Restriction. The
actions proposed to be taken by a Partner or its Affiliates to cure such
violation may be those that, in such Partner's judgment, are least detrimental
to such Partner and its Affiliates, and may include the divestiture of any asset
or the restructuring of any investment.
(3) If there is a Formal Determination that a Partner's holding of a
Partnership Interest causes the Partnership or any Subsidiary to be in violation
of any Ownership Restriction, such Partner (the "Curing Partner") agrees to take
all actions reasonably necessary to cure any such violation of an Ownership
Restriction; provided, however, that:
(A) if the Partnership and the Partners receive a determination by
the FCC (including a determination by staff employees of the FCC acting under
delegated authority) that certain actions proposed to be taken by the Curing
Partner or its Affiliates would cure such violation, then, if the Curing Partner
and its Affiliates take such actions, the Curing Partner shall not be required
to take any other action under this Section 10.1(b) to cure such violation until
such time, if any, that there is a subsequent Formal Determination that such
actions did not cure such violation;
(B) The Curing Partner shall not be required to take any action to
cure such violation prior to the time that such violation would have a material
adverse effect on the Partnership and the Subsidiaries; and
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<PAGE>
(C) The Curing Partner shall not be required to take any action to
cure any violation that arose from any acquisition made by the Partnership or
any Subsidiary in violation of Section 10.1(c).
(4) The actions that the Curing Partner may be required to take
pursuant to Section 10.1(b)(3), subject to the limitations therein, shall
include, to the extent necessary to cure such violation, executing amendments to
this Agreement to eliminate any right of the Curing Partner under this Agreement
(other than its right to allocations of income, its right to distributions, its
rights under Section 6.5 in the case of TCI as the Curing Partner, its rights
under Section 6.6, and its right to approve any other action by the Partnership
and the Subsidiaries if such action (A) in the case of an action that does not
uniquely affect either Partner, such as an acquisition or disposition of assets
or a financing, would have a material adverse economic effect on the Curing
Partner or (B) in the case of an action that uniquely affects either Partner,
such as a transaction between the Partnership and a Partner or an Affiliate of a
Partner, would have an adverse economic effect on the Curing Partner).
(c) Neither Partner will approve the acquisition, directly or
indirectly, by the Partnership or any Subsidiary of any interest in any business
or in any Person if such Partner has actual knowledge that consummating such
acquisition would cause either Partner or any Affiliate of either Partner to be
in violation of any Ownership Restriction; provided that if the General Partner
desires to cause the Partnership or a Subsidiary to acquire assets or an
interest in a business or any Person, and the General Partner does not have
actual knowledge that such acquisition would cause the Partnership or a
Subsidiary, either Partner or any Affiliate of either Partner to be in violation
of any Ownership Restriction, then the General Partner shall provide prior
written notice to TCI of such proposed acquisition at least thirty days prior to
entering into a binding agreement to effect such acquisition and if TCI notifies
the General Partner within fifteen days of receiving such notice that such
acquisition would cause the Partnership or a Subsidiary or TCI to be in
violation of any Ownership Restriction, the General Partner shall not proceed
with such acquisition without first complying with this Section 10.1(c) again,
it being understood that if TCI does not so notify the General Partner within
such fifteen-day period then the General Partner shall be presumed not to have
knowledge that such acquisition would cause the Partnership or a Subsidiary,
either Partner or any Affiliate of either Partner to be in violation of any
Ownership Restriction.
10.2 No Other Restrictions.
---------------------
Except as specifically provided above in this Article 10, nothing in this
Agreement shall limit the ability of either Partner, or any partner, member,
Affiliate, Controlled Affiliate, agent, or representative of either Partner, to
engage in or possess an interest in other business ventures of any nature or
description, independently or with others, whether currently existing or
hereafter created and whether or not competitive with or advanced by the
business of the Partnership. Neither the Partnership nor the other Partner
shall have any rights in or to the income or profits derived therefrom, nor
shall either Partner have any obligation to the other Partner with respect to
any such enterprise or related transaction.
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ARTICLE 11
DISSOLUTION AND LIQUIDATION OF PARTNERSHIP
------------------------------------------
11.1 Events of Dissolution.
---------------------
The Partnership shall be dissolved upon the happening of any of the
following events:
(a) the failure of the Limited Partner to continue the Partnership in
accordance with the provisions of Section 5.3(a) after the withdrawal of the
General Partner;
(b) the expiration of the term of the Partnership as set forth in
Section 2.4;
(c) an election to liquidate and dissolve the Partnership made by a
non-defaulting Partner pursuant to Section 9.7(a)(2);
(d) the sale, exchange, involuntary conversion, or other disposition
or transfer of all or substantially all of the assets of the Partnership;
(e) upon mutual agreement of the Partners; or
(f) subject to any provision of this Agreement that limits or prevents
dissolution, the happening of any event that, under applicable law, causes the
dissolution of a limited partnership.
11.2 Liquidation.
-----------
(a) Upon dissolution of the Partnership for any reason, the
Partnership shall immediately commence to wind up its affairs. A reasonable
period of time shall be allowed for the orderly termination of the Partnership
business, discharge of its liabilities, and distribution or liquidation of the
remaining assets so as to enable the Partnership to minimize the normal losses
attendant to the liquidation process.
(b) Liquidation of the assets of the Partnership shall be managed on
behalf of the Partnership by the "Liquidator," which shall be (1) if the
Partnership is being liquidated pursuant to Section 11.1(c), the non-defaulting
Partner, (2) if the Partnership is being liquidated following a withdrawal by
the General Partner, the Limited Partner, and (3) in all other events, the
General Partner or a liquidating trustee selected by the General Partner. The
Liquidator shall be responsible for soliciting offers to purchase the entirety
of the Partnership's assets (including equity interests in other Persons) or
portions or clusters of assets of the Partnership. The Liquidator shall afford
each Partner an opportunity to offer to purchase any assets of the Partnership
that are offered for sale in connection with the liquidation of the Partnership
to the extent doing so would be consistent with the orderly liquidation of the
Partnership.
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(c) The Liquidator shall cause a full accounting of the assets and
liabilities of the Partnership to be taken and a statement thereof to be
furnished to each Partner within thirty days after the distribution of all of
the assets of the Partnership.
(d) The property and assets of the Partnership and the proceeds from
the liquidation thereof shall be applied in the following order of priority:
(1) first, to payment of the debts and liabilities of the
Partnership, in the order of priority provided by law (including any loans by
either Partner to the Partnership) and payment of the expenses of liquidation;
(2) second, to setting up of such reserves as the Liquidator may
deem reasonably necessary for any contingent or unforeseen liabilities or
obligations of the Partnership or any obligation or liability not then due and
payable; provided, however, that any such reserve shall be paid over by the
Liquidator into a Partnership account or a liquidating trust account established
for such purpose, to be held in such account for the purpose of disbursing such
reserves in payment of such liabilities, and, at the expiration of such holdback
period as the Liquidator shall deem advisable, to distribute the balance
thereafter remaining in the manner hereinafter provided; and
(3) finally, to payment to the Partners, in accordance with Section
4.1(b). The distributions pursuant to this Section 11.2(d)(3) shall, to the
extent possible, be made prior to the later of the end of the Fiscal Year in
which the dissolution occurs or the ninetieth day after the date of dissolution,
or such other time period which may be permitted under Treasury Regulations
Section 1.704-1(b)(2)(ii)(b).
(e) If in the course of the liquidation and dissolution of the
Partnership pursuant to this Article 11, the Liquidator determines that a sale
by all the Partners to any Person of their Partnership Interests, instead of a
sale by the Partnership and the Subsidiaries of their respective assets, would
more efficiently effect the liquidation of the Partners' economic interests in
the Partnership or would reduce negative tax consequences to the Partners and
the Partnership, but would not adversely affect the rights and obligations of
either Partner (including the tax consequences to either Partner), then each
Partner agrees to sell its Partnership Interest to such Person, and the
Liquidator shall have the authority, pursuant to the power of attorney granted
in Section 16.6(b), to execute, acknowledge, deliver, swear to, file, and record
all agreements, instruments, and other documents that may be necessary or
appropriate to effect the sale of such Partner's Partnership Interest.
(f) Following the dissolution of the Partnership pursuant to Section
11.1, the Partners will use commercially reasonable efforts to structure the
liquidation of the Partnership in a manner that minimizes negative tax
consequences to the Partners and the Partnership to the extent doing so would
not materially adversely affect either Partner (except to the extent such
Partner is adequately compensated by the other Partner for such adverse effect).
Any structure agreed to by the Partners pursuant to this Section 11.2(f) shall
supersede the other provisions of this Article 11 to the extent it is
inconsistent with such other provisions, but nothing in this Section 11.2(f)
shall
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modify or otherwise affect the other provisions of this Article 11 if the
Partners are unable to agree on such a structure.
11.3 Distribution in Kind.
--------------------
The Partnership shall not distribute any non-cash asset to either Partner
without the consent of each Partner. Any asset distributed in kind to one or
more Partners shall first be valued at its fair market value to determine the
gain or loss used in determining Net Profit or Net Loss that would have resulted
if such asset were sold for such value, such gain or loss shall then be
allocated pursuant to Article 4, and the Partners' Capital Accounts shall be
adjusted to reflect such gain or loss. The amount distributed and charged to
the Capital Account of each Partner receiving an interest in such distributed
asset shall be the fair market value of such interest (net of any liability
secured by such asset that such Partner assumes or takes subject to). The fair
market value of any asset distributed in kind in connection with the liquidation
of the Partnership shall be determined by an independent appraiser (any such
appraiser must be nationally recognized as an expert in valuing the type of
asset involved) selected by the Liquidator.
11.4 No Action for Dissolution.
-------------------------
The Partners acknowledge that irreparable damage would be done to the
goodwill and reputation of the Partnership if either Partner should bring an
action in court to dissolve the Partnership under circumstances where
dissolution is not required by Section 11.1. This Agreement has been drawn
carefully to provide fair treatment of all parties and equitable payment in
liquidation of the Partnership Interests of both Partners. Accordingly, except
where liquidation and dissolution are required by Section 11.1, each Partner
hereby waives and renounces its right to initiate legal action to seek
dissolution or to seek the appointment of a receiver or trustee to liquidate the
Partnership.
11.5 No Further Claim.
----------------
Upon dissolution, each Partner shall look solely to the assets of the
Partnership for the return of its investment, and if the property of the
Partnership remaining after payment or discharge of the debts and liabilities of
the Partnership, including debts and liabilities owed to one or more of the
Partners, is insufficient to return the aggregate capital contributions of a
Partner, no Partner shall have any recourse against any other Partner.
ARTICLE 12
INDEMNIFICATION
---------------
12.1 General.
-------
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The Partnership shall indemnify, defend, and hold harmless each Partner and
their respective members, partners, officers, directors, shareholders,
employees, and agents, the employees, officers, and agents of the Partnership,
and the members of the Advisory Committee (all indemnified persons being
referred to as "Indemnified Persons" for purposes of this Article 12), from any
liability, loss, or damage incurred by the Indemnified Person by reason of any
act performed or omitted to be performed by the Indemnified Person in connection
with the business of the Partnership and its Subsidiaries, including costs and
attorneys' fees (which attorneys' fees may be paid as incurred) and any amounts
expended in the settlement of any claims of liability, loss, or damage;
provided, however, that, if the liability, loss, damage, or claim arises out of
any action or inaction of an Indemnified Person, indemnification under this
Section 12.1 shall not be available if the action or inaction is finally
adjudicated to have constituted fraud, gross negligence, breach of fiduciary
duty (which shall not be construed to encompass mistakes in judgment or any
breach of any Indemnified Person's duty of care that did not constitute gross
negligence), or willful misconduct by the Indemnified Person; and provided,
further, however, that indemnification under this Section 12.1 shall be
recoverable only from the assets of the Partnership and not from any assets of
the Partners. The Partnership may pay for insurance covering liability of the
Indemnified Persons for negligence in operation of the Partnership's affairs.
12.2 Exculpation.
-----------
No Indemnified Person shall be liable, in damages or otherwise, to the
Partnership or its Subsidiaries or to either Partner for any loss that arises
out of any act performed or omitted to be performed by it or him pursuant to the
authority granted by this Agreement unless the conduct of the Indemnified Person
is finally adjudicated to have constituted fraud, gross negligence, breach of
fiduciary duty (which shall not be construed to encompass mistakes in judgment
or any breach of any Indemnified Person's duty of care that did not constitute
gross negligence), or willful misconduct by such Indemnified Person.
12.3 Persons Entitled to Indemnity.
-----------------------------
Any Person who is within the definition of "Indemnified Person" at the time
of any action or inaction in connection with the business of the Partnership
shall be entitled to the benefits of this Article 12 as an "Indemnified Person"
with respect thereto, regardless of whether such Person continues to be within
the definition of "Indemnified Person" at the time of his or its claim for
indemnification or exculpation hereunder.
12.4 Procedure Agreements.
--------------------
The Partnership may enter into agreements with any of its Partners,
employees, officers, and agents, any of the officers, directors, shareholders,
employees, and agents of the General Partner, and any member of the Advisory
Committee or other Indemnified Person, setting forth procedures for implementing
the indemnities provided in this Article 12.
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ARTICLE 13
BOOKS, RECORDS, ACCOUNTING, AND REPORTS
---------------------------------------
13.1 Books and Records.
-----------------
The Partnership shall maintain at its principal office all of the
following:
(a) A current list of the full name and last known business or
residence address of each Partner together with the Capital Contributions and
Partnership Interest of each Partner;
(b) A copy of the Certificate, this Agreement, and any and all
amendments to either thereof, together with executed copies of any powers of
attorney pursuant to which any certificate or amendment has been executed;
(c) Copies of the Partnership's federal, state, and local income tax
or information returns and reports, if any, for the six most recent taxable
years;
(d) The audited financial statements of the Partnership for the six
most recent Fiscal Years; and
(e) The Partnership's books and records for at least the current and
past three Fiscal Years.
13.2 Delivery to Partner and Inspection.
----------------------------------
(a) Upon the request of a Partner, the Partnership shall promptly
deliver to the requesting Partner, at the expense of the Partnership, a copy of
the information required to be maintained by Section 13.1 except for Section
13.1(e).
(b) Each Partner, or its duly authorized representative, has the
right, upon reasonable request, to inspect and copy during normal business hours
any of the Partnership records.
13.3 Annual Statements.
-----------------
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(a) The Partnership shall cause to be prepared for each Partner at
least annually, at Partnership expense, audited financial statements of Insight
Kentucky Capital, the Partnership and a consolidated audited financial statement
for the Partnership and the Subsidiaries (other than any Subsidiary the
financial statements of which cannot, under generally accepted accounting
principles, be consolidated with the financial statements of the Partnership),
along with supplemental information for Insight Kentucky Capital, the
Partnership and each Subsidiary included in the consolidated financial
statements, all prepared in accordance with generally accepted accounting
principles and accompanied by a report thereon containing the opinion of Ernst &
Young LLP or other nationally recognized accounting firm chosen in accordance
with this Agreement. The financial statements will include a balance sheet,
statement of income or loss, statement of cash flows, and statement of Partners'
equity. The supplemental information will consist of a consolidating balance
sheet and a consolidating statement of operations and Partners' equity for the
preceding Fiscal Year. The Partnership shall distribute the financial
statements or portions thereof to each Partner as follows:
(1) the Partnership shall distribute to each Partner a statement
setting forth the net income or loss of Insight Kentucky Capital and the
Partnership for each Fiscal Year within forty-five days after the close of such
Fiscal Year;
(2) the Partnership shall distribute to each Partner the balance
sheet, statement of income or loss, statement of cash flows, and statement of
Partners' equity to be included in the financial statements for each Fiscal Year
within forty-five days after the close of such Fiscal Year;
(3) the Partnership shall distribute to each Partner the complete
audited financial statements for each Fiscal Year as soon as practicable after
the close of such Fiscal Year and, in any event, by March 15 of the year
following the close of such Fiscal Year.
(b) The Partnership shall have prepared at least annually, at
Partnership expense, Partnership and Insight Kentucky Capital information
necessary for the preparation of each Partner's federal and state income tax
returns. The Partnership shall send the information described in this paragraph
to each Partner within ninety days after the end of each Fiscal Year and shall
use commercially reasonable efforts to send such information to each Partner
within seventy-five days after the end of each Fiscal Year.
(c) The Partnership shall also cause to be distributed to each
Partner, within ten days after delivery to the Partnership, any audited
financial statements that are prepared with respect to any Subsidiary the
financial statements of which are not consolidated with the financial statements
of the Partnership.
(d) The Partnership, shall distribute to each Partner, promptly after
they become available, copies of Insight Kentucky Capital's and the
Partnership's federal, state, and local income tax or information returns for
each taxable year.
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13.4 Quarterly Financial Statements.
------------------------------
At the close of each of the first three quarters of any Fiscal Year, the
Partnership shall cause to be distributed to each Partner a quarterly report
covering each calendar quarter of the operations of Insight Kentucky Capital,
the Partnership and each Subsidiary, consisting of unaudited financial
statements (comprising a balance sheet, a statement of income or loss, and a
statement of cash flows), and a statement of other pertinent information
regarding Insight Kentucky Capital, the Partnership and each such Subsidiary and
their activities. The Partnership shall cause copies of the statements and
other pertinent information (including a summarized statement of operations data
of the Partnership and its Subsidiaries that complies with the requirements of
APB Opinion No. 18 and Rule 4-08(g) of Regulation S-X under the Securities Act)
to be distributed to each Partner within thirty days after the close of the
calendar quarter to which the statements relate. The Partnership shall
distribute to each Partner (a) a preliminary draft of a statement setting forth
the net income or loss of Insight Kentucky Capital and the Partnership for each
calendar quarter within twenty-one days after the close of such calendar
quarter, and (b) a final statement setting forth the net income or loss of
Insight Kentucky Capital and the Partnership for each calendar quarter within
thirty days after the close of such calendar quarter. The Partnership shall
also cause to be distributed to each Partner, within ten days after delivery to
the Partnership, any quarterly report that is prepared with respect to any
Subsidiary the operating results of which are not included in the quarterly
report of the Partnership.
13.5 Monthly Statements.
------------------
The Partnership shall cause to be distributed to each Partner a monthly
report covering each calendar month of the operations of Insight Kentucky
Capital, the Partnership and each Subsidiary, consisting of unaudited statements
of income and loss for Insight Kentucky Capital, the Partnership and each
Subsidiary. The Partnership shall cause copies of the statements to be
distributed to each Partner within thirty days after the close of the calendar
month covered by such report. The Partnership shall also cause to be
distributed to each Partner, within ten days after delivery to the Partnership,
any monthly report that is prepared with respect to any Subsidiary the operating
results of which are not included in the monthly report of the Partnership. In
addition, the Partnership shall deliver to each Partner within fifteen calendar
days after each month end, a report detailing the number of homes passed by each
cable television system owned by the Partnership and its Subsidiaries, the
number of equivalent basic subscribers served by each such system and the number
of premium subscribers served by each such system (on a premium service-by-
service basis), together with such other operating statistics as may be
reasonably requested by a Partner in reasonable advance.
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13.6 Other Information.
-----------------
The Partnership shall provide to each Partner any other information and
reports relating to any cable television systems or other businesses owned by,
and the financial condition of, Insight Kentucky Capital, the Partnership, each
Subsidiary, and any other Person in which the Partnership owns, directly or
indirectly, an equity interest, the Partner may reasonably request. The
Partnership shall distribute to each Partner, promptly after the receipt thereof
by the Partnership, any financial or other information with respect to any
Person in which the Partnership owns, directly or indirectly, an equity
interest, but which is not a Subsidiary.
13.7 Tax Matters.
-----------
The Partnership shall be treated as a partnership for federal and state
income tax and franchise tax purposes. The Partnership, at Partnership expense,
shall prepare and timely file with the appropriate authorities all income tax
returns for the Partnership required to be filed by the Partnership.
13.8 Other Filings.
-------------
The Partnership, at Partnership expense, shall also prepare and timely
file, with appropriate federal and state regulatory and administrative bodies,
all reports required to be filed by the Partnership with those entities under
then current applicable laws, rules, and regulations. The reports shall be
prepared on the accounting or reporting basis required by the regulatory bodies.
Upon written request, each Partner shall be provided with a copy of any of the
reports without expense to the requesting Partner.
13.9 Non-Disclosure.
--------------
Each Partner agrees that, except as otherwise consented to by the other
Partner, all non-public information furnished to it or to which it has access
pursuant to this Agreement will be kept confidential and will not be disclosed
by such Partner (it being agreed that the standard each Partner shall adhere to
is to use the same degree of care it would use for its own confidential
information), or by any of its agents, representatives, or employees, in any
manner whatsoever, in whole or in part, except that:
(a) each Partner shall be permitted to disclose such information to
those of its agents, representatives, and employees who need to be familiar with
such information in connection with such Partner's investment in the
Partnership,
(b) each Partner shall be permitted to disclose such information to
its Affiliates,
(c) each Partner shall be permitted to disclose information to the
extent required by law, including federal or state securities laws or
regulations, or by the rules and regulations of any stock exchange or
association on which securities of such Partner or any of its Affiliates are
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traded, so long as such Partner shall have first afforded the Partnership with a
reasonable opportunity to contest the necessity of disclosing such information,
(d) each Partner shall be permitted to disclose information to the
extent necessary for the enforcement of any right of such Partner arising under
this Agreement,
(e) each Partner shall be permitted to disclose information to a
permitted Transferee or Successor, so long as (1) such Partner shall first have
provided to the other Partner written notice thereof and of the identity of the
Person to whom the disclosure is to be made and (2) such Person agrees (in a
writing which provides the Partnership with an independent right of enforcement)
to be bound by the provisions of this Section 13.9,
(f) each Partner shall be permitted to disclose information that is or
becomes generally available to the public other than as a result of a disclosure
by such Partner, its agents, representatives, or employees, and
(g) each Partner shall be permitted to disclose information that
becomes available to such Partner on a nonconfidential basis from a source
(other than the Partnership, any other Partner, or their respective agents,
representatives, and employees) that, to the best of such Partner's knowledge,
is not prohibited from disclosing such information to such Partner by a legal,
contractual, or fiduciary obligation to the Partnership or any other Partner.
ARTICLE 14
REPRESENTATIONS BY THE PARTNERS
-------------------------------
Each Partner represents and warrants to, and agrees with, the other Partner
and the Partnership as follows:
14.1 Investment Intent.
-----------------
It is acquiring its Partnership Interest with the intent of holding the
same for investment for its own account and without the intent or a view to
participating directly or indirectly in, or for resale in connection with, any
distribution of such Partnership Interest within the meaning of the Securities
Act or any applicable state securities laws, and it does not intend to divide
its participation with others, nor to resell, assign, or otherwise dispose of
all or any part of its Partnership Interest. In making such representation,
each Partner acknowledges that a purchase now with an intent to resell by reason
of any foreseeable specific contingency, some predetermined event, or an
anticipated change in market value or in the condition of the Partnership would
represent a purchase with an intent inconsistent with the foregoing
representation.
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14.2 Securities Regulation.
---------------------
(a) It acknowledges and agrees that the Partnership Interest is being
issued and sold in reliance on the exemption from registration contained in
Section 4(2) of the Securities Act and exemptions contained in applicable state
securities laws, and that it cannot and will not be sold or transferred except
in a transaction that is exempt under the Securities Act and those state acts or
pursuant to an effective registration statement under those acts or in a
transaction that is otherwise in compliance with the Securities Act and those
state acts.
(b) It understands that it has no contract right for the registration
under the Securities Act of the Partnership Interest for public sale and that,
unless such Partnership Interest is registered or an exemption from registration
is available, such Partnership Interest may be required to be held indefinitely.
14.3 Knowledge and Experience.
------------------------
It has such knowledge and experience in financial, tax, and business
matters as to enable it to evaluate the merits and risks of its investment in
the Partnership and to make an informed investment decision with respect
thereto.
14.4 Economic Risk.
-------------
It is able to bear the economic risk of an investment in its Partnership
Interest.
14.5 Binding Agreement.
-----------------
This Agreement is and will remain its valid and binding agreement,
enforceable in accordance with its terms (subject, as to the enforcement of
remedies, to any applicable bankruptcy, insolvency, or other laws affecting the
enforcement of creditor's rights).
14.6 Tax Position.
------------
Unless it provides prior written notice to the Partnership, it will not
take a position on its federal income tax return, on any claim for refund, or in
any administrative or legal proceedings that is inconsistent with any
information return filed by the Partnership or with the provisions of this
Agreement.
14.7 Information.
-----------
It has received all documents, books, and records pertaining to an
investment in the Partnership requested by it. It has had a reasonable
opportunity to ask questions of and receive answers concerning the Partnership,
and all such questions have been answered to its satisfaction.
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ARTICLE 15
AMENDMENTS AND WAIVERS
----------------------
15.1 Amendments to Operating Agreement.
---------------------------------
(a) This Agreement may only be modified or amended with the consent of
all Partners.
(b) The Partnership shall prepare and file any amendment to the
Certificate that may be required to be filed under the Act as a consequence of
any amendment to this Agreement.
15.2 Waivers.
-------
The observance or performance of any term or provision of this Agreement
may be waived (either generally or in a particular instance, and either
retroactively or prospectively) by the party entitled to the benefits of such
term or provision.
ARTICLE 16
MISCELLANEOUS
-------------
16.1 Programming and Discounts.
-------------------------
(a) General. Subject to Section 16.1(b) and any other particular
-------
arrangements the Partners may agree to with respect to the following, each
Partner will use commercially reasonable efforts to make all of the services,
programming and equipment discounts available to such Partner available to the
Partnership.
(b) @Home.
-----
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(1) The Partners and the Partnership agree that, subject to the other
provisions of this Section 16.1(b) and only so long as controlled affiliates
(as used in this Section 16.1, "controlled affiliate" has the meaning given to
such term in the @Home Distribution Agreement) of a TCI Cable Parent continue to
be bound by a similar requirement, @Home will be the exclusive provider of
Exclusive Internet Services over the cable plant and equipment of the TCI
Systems and that the TCI Systems will continue to be bound by the @Home
Distribution Agreement as if such TCI Systems were "controlled affiliates" of a
TCI Cable Parent with respect to the distribution and delivery of Exclusive
Internet Services in accordance with the @Home Distribution Agreement. In
furtherance of the foregoing, subject to the other provisions of this Section
16.1(b) and only so long as controlled affiliates of a TCI Cable Parent continue
to be bound by a similar requirement, the Partnership and the General Partner
each agree that it and the Subsidiaries will not provide or distribute, and will
not permit any Person other than @Home and its controlled affiliates to provide
or distribute, Exclusive Internet Services using the cable plant and equipment
of the TCI Systems, in each case without the prior written consent of TCI. The
Partners and the Partnership acknowledge and agree that the foregoing
limitations will not be applicable to the Partnership's and the Subsidiaries'
provision over their cable television systems other Internet Services which do
not constitute Exclusive Internet Services (including all Internet Services
which are listed as exceptions to the definition of the term "Restricted
Business" in the @Home Distribution Agreement), and with respect to those
Internet Services which do not constitute Exclusive Internet Services, the
General Partner shall be entitled to make all determinations in respect of the
provision of such Internet Services, subject to the provisions of this
Agreement. The Partners and the Partnership also acknowledge and agree that the
foregoing limitations are also not applicable to the Partnership's and the
Subsidiaries' provision over their cable television systems other than the TCI
Systems (such other systems, the "Non-TCI Systems") of any Internet Services,
whether or not they would constitute Exclusive Internet Services with respect to
the TCI Systems in accordance with the @Home Distribution Agreement, and do not
limit the right of the Partnership, its Subsidiaries and the General Partner to
manage and operate the Non-TCI Systems as the Partnership, its Subsidiaries and
the General Partner determine (but subject to the terms of this Agreement and
the Management Agreements). Without limiting the preceding sentence, subject
to the other provisions of this Section 16.1(b), the parties agree as follows:
(A) the Partnership and the General Partner agree that they and the Subsidiaries
will: (1) manage and operate (and cause the manager under the Management
Agreements to manage and operate) the TCI Systems in accordance with the terms
and conditions set forth in the @Home Distribution Agreement and in such a
manner that the activities and businesses engaged in by the TCI Systems will not
violate or be in contravention of the Cable Parent Exclusivity Provisions, or
cause any TCI Cable Parent or any of its controlled affiliates to be in
violation of such Cable Parent Exclusivity Provisions, (2) provide to @Home and
its representatives such access to the cable plant and equipment of the TCI
Systems as is required in order to satisfy the TCI Cable Parents' obligations
under the @Home Distribution Agreement in respect of such TCI Systems and as is
reasonably necessary in order to distribute the @Home Service over the cable
plant and equipment of such TCI Systems, (3) cooperate with @Home, TCI Cable
Parent and their respective controlled affiliates in order to schedule and
coordinate @Home's roll-out of the @Home Service to the TCI Systems with the
upgrade of the physical cable plant and equipment of such TCI Systems,
including, without limitation, (x) providing the TCI Cable Parent and @Home with
information and periodic updates as to upgrade schedules, and (y) entering into
LCO Agreements (as defined in the @Home Distribution Agreement) in respect of
each TCI System
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upon the commencement of the offering of the @Home Service in such TCI System,
and (4) cooperate with the TCI Cable Parent and @Home with respect to the
operational matters relating to the distribution of the @Home Service,
including, without limitation, pricing, the programming of the Local Area (as
defined in the @Home Distribution Agreement), billing, customer service and
service offerings; and (B) (1) with respect to the timing and implementation of
Exclusive Internet Services over the TCI Systems, the General Partner shall
consult and cooperate with the TCI Cable Parent in order to coordinate the
launch of the @Home Service over the TCI Systems as efficiently and
expeditiously as practical and (2) the TCI Cable Parent may disclose to @Home
information relating to the upgrade plans for the TCI Systems for the purpose of
coordinating the @Home build-out and the launch of the @Home Service in such
systems. Subject to the Partnership's, the Subsidiaries' and the General
Partner's compliance with the foregoing, the TCI Cable Parent agrees that it
will use its commercially reasonable efforts to obtain for the benefit of the
TCI Systems the economic and other benefits available to a controlled affiliate
of a TCI Cable Parent under the @Home Distribution Agreement, on the same basis
as, and for so long as, such benefits are available to other controlled
affiliates of the TCI Cable Parent, including, but not limited to, the benefits
available under the MFN Provision (as defined in the @Home Distribution
Agreement) and the ability to purchase Ancillary Services (as defined in the
@Home Distribution Agreement) from @Home for the TCI Systems to the extent
provided in the @Home Distribution Agreement and as are reasonably necessary to
the distribution of the Exclusive Internet Services on the TCI Systems. TCI's
obligations under the foregoing sentence will terminate if the Partnership
exercises its option set forth below to terminate its obligation to manage the
TCI Systems in accordance with the terms of the @Home Distribution Agreement or
if the Partnership or any Subsidiary enters into a separate distribution
agreement with @Home that covers the TCI Systems. In the event the @Home
Distribution Agreement is amended or modified in such a way as would reasonably
be expected to cause the terms and conditions of the Partnership's or the
Subsidiaries' distribution of the @Home Service over the TCI Systems to be
materially more onerous to the Partnership or its Subsidiaries than as provided
in the @Home Distribution Agreement as in effect on the date hereof, the TCI
Cable Parent shall promptly notify the Partnership and the Partnership shall
then have the option to terminate its obligation to manage the TCI Systems in
accordance with the terms of the @Home Distribution Agreement; provided that the
Partnership's agreement not to provide or distribute, or permit any Person to
provide or distribute, any Exclusive Internet Services using the cable plant and
equipment of the TCI Systems, other than the @Home Service, shall survive such
termination. No amendment to the @Home Distribution Agreement shall be deemed to
cause the terms and conditions of the Partnership's distribution of the @Home
Service over the TCI Systems to be materially more onerous to the Partnership
(x) to the extent that such amendment or modification does not result in such
distribution being more onerous than that provided under any separate agreement
between the Partnership or any Subsidiary and @Home relating to the distribution
of the @Home Service to the Non-TCI Systems or (y) if the Partnership or any
Subsidiary consents to an amendment or modification of any separate agreement
between the Partnership and @Home in respect of the distribution of the @Home
Service to the Non-TCI Systems, which amendment or modification has
substantially the same effects as the proposed amendment or modification of the
@Home Distribution Agreement. For so long as the TCI Systems are included under
the @Home Distribution Agreement, to the extent the @Home Distribution Agreement
is modified in any respect (or any other event occurs) that would increase the
benefits available to (or reduces the obligations of) a controlled affiliate of
a TCI Cable Parent, the TCI Cable Parent will use its
-62-
<PAGE>
commercially reasonable efforts to obtain for the benefit of the TCI Systems
such increased benefits, and to the extent the obligations are reduced, the TCI
Cable Parent will use its commercially reasonable efforts to cause such reduced
obligations to be applicable to the TCI Systems, in each case on the same basis
as is applicable to controlled affiliates of the TCI Cable Parent other than the
TCI Systems. For purposes of this Section 16.1(b), the TCI Systems shall,
notwithstanding ownership by the Partnership or a Subsidiary, continue to be
deemed to be controlled affiliates of a TCI Cable Parent for purposes of
determining the Partnership's satisfaction of its obligations to operate and
manage the TCI Systems in accordance with the @Home Distribution Agreement.
(2) In addition, the Partnership and the General Partner agree to use
their commercially reasonable efforts to keep in effect a distribution agreement
for the @Home Service for the cable television systems contributed to Insight
Indiana by Insight Communications and for all other cable televisions owned by
the Partnership and its Subsidiaries. To the extent that TCI is not able to
include the TCI Systems under the @Home Distribution Agreement following the
closing under the Indiana Contribution Argument, the Partnership or its
Subsidiaries may enter into a distribution agreement with @Home that covers the
TCI Systems and terminate its obligation to manage the TCI Systems in accordance
with the @Home Distribution Agreement; provided, that such agreement shall be
approved by TCI as it relates to the TCI Systems and provided further that the
Partnership's obligations under this Section 16.1(b) to (i) have @Home be the
exclusive provider of Exclusive Internet Services over the cable plant and
equipment of the TCI Systems, (ii) not provide or distribute or permit any other
Person to provide or distribute Exclusive Internet Services using the cable
plant and equipment of the TCI Systems and (iii) manage the TCI Systems in such
a manner that the activities and business engaged in by them will not violate or
be in contravention of the Cable Parent Exclusivity Provisions will not cause
any TCI Cable Parent or its controlled affiliates to be in violation of such
provisions will continue notwithstanding such separate agreement being entered
into.
16.2 Additional Documents.
--------------------
At any time and from time to time after the date of this Agreement, upon
the request of the Partnership or the other Partner, each Partner shall do and
perform, or cause to be done and performed, all such additional acts and deeds,
and shall execute, acknowledge, and deliver, or cause to be executed,
acknowledged, and delivered, all such additional instruments and documents, as
may be required to best effectuate the purposes and intent of this Agreement.
16.3 Inspection.
----------
Each Partner shall have the right at reasonable times to inspect the books
and records of the Partnership.
-63-
<PAGE>
16.4 General.
-------
This Agreement: (a) shall be binding on the executors, administrators,
estates, heirs, and legal successors of the Partners; (b) be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to conflicts of law principles thereunder; (c) may be executed in more than one
counterpart as of the day and year first above written; and (d) except for the
Contribution Agreement and the other agreements expressly referred to herein to
which the Partners or their Affiliates are parties, contains the entire
agreement between the Partners as to the subject matter of this Agreement. The
waiver of any of the provisions, terms, or conditions contained in this
Agreement shall not be considered as a waiver of any of the other provisions,
terms, or conditions of this Agreement.
16.5 Notices, Etc.
------------
All notices and other communications required or permitted hereunder shall
be in writing and shall be deemed effectively given or delivered upon personal
delivery, confirmation of telex or telecopy, or receipt (which may be evidenced
by a return receipt if sent by registered mail), addressed (a) if to either
Partner, at the address of such Partner set forth on Schedule I or at such other
address as such Partner shall have furnished to the Partnership in writing, (b)
if to the Partnership, at 126 E. 56th Street, New York, New York 10022.
16.6 Execution of Papers.
-------------------
(a) The Partners agree to execute such instruments, documents, and
papers as the General Partner deems necessary or appropriate to carry out the
intent of this Agreement.
(b) Each Partner, including each additional and substituted Partner,
by the execution of this Agreement, irrevocably constitutes and appoints the
Liquidator its true and lawful attorney-in-fact with full power and authority in
its name, place, and stead to execute, acknowledge, deliver, swear to, file, and
record all agreements, instruments, and other documents that may be necessary or
appropriate to effect the sale of such Partner's Partnership Interest pursuant
to Section 11.2(e).
(c) The power of attorney granted pursuant to Section 16.6(b) shall
be deemed to be a power coupled with an interest, in recognition of the fact
that each of the Partners under this Agreement will be relying upon the power of
the Liquidator to act as contemplated by this Agreement in any filing and other
action by it on behalf of the Partnership, and shall survive the bankruptcy,
death, adjudication of incompetence or insanity, or dissolution of any Person
hereby giving such powers and the transfer or assignment of all or any part of
such Person's Partnership Interest; provided, however, that in the event of a
Transfer by a Partner, the powers of attorney given by the transferor shall
survive such Transfer only until such time as the Transferee or Successor shall
have been admitted to the Partnership as a substituted Partner and all required
documents and instruments shall have been duly executed, filed, and recorded to
effect such substitution.
-64-
<PAGE>
(d) Each Partner agrees to be bound by any actions taken by the
Liquidator acting in good faith pursuant to the power of attorney granted
pursuant to Section 16.6(b) that are consistent with and subject to the
provisions of this Agreement and hereby waives any and all defenses that may be
available to contest, negate, or disaffirm any action of the Liquidator taken in
good faith under the power of attorney granted pursuant to Section 16.6(b) that
are consistent with and subject to the provisions of this Agreement.
16.7 Attorneys' Fees.
---------------
In the event of commencement of suit or other action by either party to
enforce the provisions of this Agreement, the prevailing party shall be entitled
to receive such attorneys' fees and costs as the court or other forum in which
such suit or action is adjudicated may determine reasonable in addition to all
other relief granted.
16.8 No Third-Party Beneficiaries.
----------------------------
This Agreement is not intended to, and shall not be construed to, create
any right enforceable by any Person not a party hereto, including any partner or
Partner of either Partner or any creditor of the Partnership or of either of the
Partners.
16.9 Headings.
--------
The headings herein are included for ease of reference only and shall not
control or affect the meaning or construction of the provisions of this
Agreement.
-65-
<PAGE>
IN WITNESS WHEREOF, the Partners have hereunto set their hands as of the
day first heretofore mentioned.
INSIGHT COMMUNICATIONS COMPANY, L.P.
By: Insight Communications Company, Inc., its
general partner
By:___________________________________________
Name:
Title:
TCI OF INDIANA HOLDINGS, LLC
By: TCI of Indiana Insgt Holdings, LLC, its
managing member
By: TCI of Indiana, Inc., its managing member
By:___________________________________________
Name:
Title:
FOR PURPOSES OF SECTION 8.3 AND SECTION 16.1(b)
ONLY:
Tele-Communications, Inc.
By:___________________________________________
Name:
Title:
-66-
<PAGE>
SCHEDULE I
TO
LIMITED PARTNERSHIP AGREEMENT
ADDRESSES OF THE PARTNERS
Insight Communications Company, L.P.
126 E. 56th Street
New York, New York 10022
Attention: Sidney R. Knafel
Facsimile: (212) 371-1549
TCI of Indiana Holdings, LLC
AT&T Broadband & Internet Services
9197 South Peoria Street
Englewood, Colorado 80112
Attention: Derek Chang
Facsimile: (720) 875-5396
<PAGE>
SCHEDULE II
TO
LIMITED PARTNERSHIP AGREEMENT
PERCENTAGE INTERESTS
Percentage Interests of Partners:
- --------------------------------
The Percentage Interests of the Partners as of the date of this Agreement are:
Insight Communications 50%
TCI Indiana 50%
<PAGE>
SCHEDULE III
TO
LIMITED PARTNERSHIP AGREEMENT
INITIAL MEMBERS OF THE ADVISORY COMMITTEE
1. Members designated by Insight pursuant to Section 7.1(a):
Sidney Knafel (same address as Insight)
Telephone No. (212) 371-2266
Michael Willner (same address as Insight)
Telephone No. (212) 371-2266
Kim Kelly (same address as Insight)
Telephone No. (212) 371-2266
2. Members designated by TCI pursuant to Section 7.1(a)
William Fitzgerald (same address as TCI)
Telephone No. (720) 875-4720
Derek Chang (same address as TCI)
Telephone No. (720) 875-5241
<PAGE>
SCHEDULE IV
TO
LIMITED PARTNERSHIP AGREEMENT
INDIANA SYSTEMS
See Attached Map.
<PAGE>
Exhibit 3.3
CERTIFICATE OF INCORPORATION
OF
INSIGHT CAPITAL, INC.
The undersigned, acting as the incorporator of the corporation hereby
being formed under the General Corporation Law of the State of Delaware,
certifies that:
FIRST. The name of the corporation is Insight Capital, Inc.
SECOND. The address, including the street, number, city and county,
of the registered office of the corporation in the State of Delaware is 30 Old
Rudnick Lane, Suite 100, Dover, Delaware 19901, County of Kent; and the name of
the registered agent of the corporation in the State of Delaware at such address
is LEXIS Document Services Inc.
THIRD. The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware, and to have and exercise all the
powers conferred by the laws of the State of Delaware upon corporations formed
under the General Corporation Law of the State of Delaware.
FOURTH. The number of shares which the corporation shall have
authority to issue is 1,000, all of which are of a par value of $0.01 each. All
such shares are of one class and are shares of Common Stock.
FIFTH. The name and mailing address of the incorporator are as
follows:
Stephen W. Semian
Cooperman Levitt Winikoff Lester & Newman, P.C.
800 Third Avenue
New York, New York 10022
SIXTH. The personal liability of the directors of the corporation is
hereby eliminated to the fullest extent permitted by the provisions of paragraph
(7) of subsection (b) of Section 102 of the General Corporation Law of the State
of Delaware, as the same may be amended and supplemented.
<PAGE>
SEVENTH. The corporation shall, to the fullest extent permitted by
the provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities, or other matters referred to
in or covered by said section, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Signed on September 23, 1999
_____________________________
Stephen W. Semian, Incorporator
<PAGE>
Exhibit 3.4
BY-LAWS
OF
INSIGHT CAPITAL, INC.
ARTICLE I
Stockholders
------------
Section 1. Annual Meeting. A meeting of stockholders of the Corporation
--------------
shall be held annually at such place within or without the State of Delaware, at
such time and on such date as may from time to time be fixed by the Board of
Directors, for the election of directors and for the transaction of such other
business as may come before the meeting.
Section 2. Special Meetings. Special meetings of stockholders of the
----------------
Corporation may be called by the Board of Directors or the President, and shall
be called by the Secretary upon the written request of stockholders of record
holding at least a majority in number of the issued and outstanding shares of
the Corporation entitled to vote at such meeting. Special meetings shall be
held at such places within or without the State of Delaware, at such time and on
such date as shall be specified in the call thereof. At any special meeting,
only such business may be transacted which is related to the purpose or purposes
set forth in the notice of such special meeting.
Section 3. Notice of Meetings. Written notice of each meeting of
------------------
stockholders stating the place, date and hour thereof and, unless it is an
annual meeting, the purpose or purposes for which the meeting is called and that
it is being issued by or at the direction of the person or persons calling the
meeting, shall be given personally or by mail, not less than ten nor more than
fifty days before the date of such meeting, to each stockholder entitled to vote
at such meeting. If mailed, such notice is given when deposited in the United
States mail, with postage thereon prepaid, directed to the
<PAGE>
stockholder at his or her address as it appears on the record of stockholders
or, if he or she shall have filed with the Secretary a written request that
notices to him or her be mailed to some other address, then directed to him or
her at such other address.
Section 4. Waiver of Notice. Notice of any meeting of stockholders need
----------------
not be given to any stockholder who submits a signed waiver of notice, in person
or by proxy, whether before or after the meeting. The attendance of any
stockholder at a meeting in person or by proxy, without protesting prior to the
conclusion of the meeting the lack of notice of such meeting, shall constitute a
waiver of notice by him or her.
Section 5. Adjournment. When any meeting of stockholders is adjourned to
-----------
another time or place, it shall not be necessary to give any notice of the
adjourned meeting if the time and place to which the meeting is adjourned are
announced at the meeting at which the adjournment is taken, and at the adjourned
meeting any business may be transacted that might have been transacted on the
original date of the meeting. However, if after such adjournment the Board of
Directors fixes a new record date for the adjourned meeting, a notice of the
adjourned meeting shall be given to each stockholder of record on the new record
date entitled to vote at such meeting.
Section 6. Quorum. Except as otherwise provided by law, the holders of a
------
majority of the shares entitled to vote at any meeting of stockholders, shall
constitute a quorum thereat for the transaction of any business. When a quorum
is once present to organize a meeting, it is not broken by the subsequent
withdrawal of any stockholders. The stockholders present may adjourn a meeting
despite the absence of a quorum.
Section 7. Proxies. Every stockholder entitled to vote at a meeting of
-------
stockholders or to express consent or dissent without a meeting may authorize
another person or persons to act for him or her by proxy. Every proxy must be
signed by the stockholder or his or her attorney-in-fact. No
2
<PAGE>
proxy shall be valid after the expiration of eleven months from the date thereof
unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the stockholder executing it, except as otherwise provided by law.
Section 8. Voting. Every stockholder of record shall be entitled at every
------
meeting of stockholders to one vote for every share standing in his or her name
on the record of stockholders. Directors shall, except as otherwise required by
law, be elected by a plurality of the votes cast at a meeting of stockholders by
the holders of shares entitled to vote in such election. Whenever any corporate
action, other than the election of directors, is to be taken by vote of the
stockholders, it shall, except as otherwise required by law, be authorized by a
majority of the votes cast at a meeting of stockholders by the holders of shares
entitled to vote thereon.
Section 9. Action Without a Meeting. Any action required or permitted to
------------------------
be taken by stockholders by vote may be taken without a meeting on written
consent, setting forth the action so taken, signed by the holders of all
outstanding shares entitled to vote thereon.
Section 10. Record Date. The Board of Directors may fix, in advance, a
-----------
date, which date shall not be more than fifty nor less than ten days before the
date of any meeting of stockholders nor more than fifty days prior to any other
action, as the record date for the purpose of determining the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining stockholders entitled to
receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action. When a determination of stockholders of record
entitled to notice of or to vote at any meeting of stockholders has been made as
provided herein, such determination shall apply to any adjournment thereof,
unless the Board of Directors fixes a new record date for the adjourned meeting.
3
<PAGE>
ARTICLE II
Directors
---------
Section 1. Number and Qualifications. The Board of Directors shall consist
-------------------------
of one or more members. The number of directors shall be fixed by the Board of
Directors. Directors need not be stockholders of the Corporation. Each of the
directors shall be at least eighteen years of age.
Section 2. Election and Term of Office. At each annual meeting of
---------------------------
stockholders, directors shall be elected to hold office until the next annual
meeting of stockholders. Each director shall hold office until the expiration
of such term, and until his or her successor has been elected and qualified,
unless he or she shall sooner die, resign or be removed.
Section 3. Meetings. A meeting of the Board of Directors shall be held for
--------
the election of officers and for the transaction of such other business as may
properly come before such meeting as soon as practicable after the annual
meeting of stockholders. Other regular meetings of the Board of Directors may
be held at such times as the Board of Directors may from time to time determine.
Special meetings of the Board of Directors may be called at any time by the
President or by a majority of the directors then in office. Meetings of the
Board of Directors shall be held at the principal office of the Corporation in
the State of Delaware or at such other place within or without the State of
Delaware as may from time to time be fixed by the Board of Directors.
Section 4. Notice of Meetings; Adjournment. No notice need be given of the
-------------------------------
first meeting of the Board of Directors after the annual meeting of stockholders
or of any other regular meeting of the Board of Directors, provided the time and
place of such meetings are fixed by the Board of Directors. Notice of each
special meeting of the Board of Directors and of each regular meeting the time
and place of which has not been fixed by the Board of Directors, specifying the
place, date and time thereof, shall be given personally, by mail or telegraphed
to each director at his or her address
4
<PAGE>
as such address appears upon the books of the Corporation at least two business
days (Saturdays, Sundays and legal holidays not being considered business days
for the purpose of these By-Laws) before the date of such meeting. Notice of any
meeting need not be given to any director who submits a signed waiver of notice,
whether before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to him or
her. Notice of any directors' meeting or any waiver thereof need not state the
purpose of the meeting. A majority of the directors present, whether or not a
quorum is present, may adjourn any meeting to another time and place. Notice of
any adjournment of a meeting of the Board of Directors to another time or place
shall be given to the directors who were not present at the time of the
adjournment and, unless such time and place are announced at the meeting, to the
other directors.
Section 5. Quorum; Voting. At any meeting of the Board of Directors, a
--------------
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business or of any specified item of business. Except as
otherwise required by law, the vote of a majority of the directors present at
the time of the vote, if a quorum is present at such time, shall be the act of
the Board of Directors.
Section 6. Participation by Telephone. Any one or more members of the
--------------------------
Board of Directors or any committee thereof may participate in a meeting of the
Board of Directors or such committee by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such means shall
constitute presence in person at a meeting.
Section 7. Action Without a Meetings. Any action required or permitted to
-------------------------
be taken by the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board of Directors or such committee consent in
writing to the adoption of a resolution authorizing the action. The resolution
and the written consents thereto by the members of the Board of Directors
5
<PAGE>
or such committee shall be filed with the minutes of the proceedings of the
Board of Directors or such committee.
Section 8. Committees. The Board of Directors, by resolution adopted by a
----------
majority of the entire Board of Directors, may designate from among its members
an Executive Committee and other committees, each consisting of three or more
directors. Each such committee, to the extent provided in such resolution,
shall have all the authority of the Board of Directors, except that no such
committee shall have authority as to the following matters: (a) the submission
to stockholders of any action that needs stockholders' approval pursuant to law,
(b) the filling of vacancies in the Board of Directors or in any committee, (c)
the fixing of the compensation of the directors for serving on the Board of
Directors or on any committee, (d) the amendment or repeal of these By-Laws, or
the adoption of new By-Laws, or (e) the amendment or repeal of any resolution of
the Board of Directors which by its terms shall not be so amendable or
repealable. The Board of Directors may designate one or more directors as
alternate members of any such committee, who may replace any absent member or
members at any meeting of such committee. Each such committee shall serve at
the pleasure of the Board of Directors.
Section 9. Removal; Resignation. Any or all of the directors may be
--------------------
removed for cause by vote of the stockholders, and any of the directors may be
removed for cause by action of the Board of Directors. Any director may resign
at any time, such resignation to be made in writing and to take effect
immediately or on any future date stated in such writing, without acceptance by
the Corporation.
Section 10. Vacancies. Newly created directorships resulting from an
---------
increase in the number of directors and vacancies occurring in the Board of
Directors for any reason may be filled by vote the Board of Directors or by
vote of the stockholders. If any newly created directorship or
6
<PAGE>
vacancy is to be filled by vote of the Board of Directors and the number of
directors then in office is less than a quorum, such newly created directorship
or vacancy may be filled by vote of a majority of the directors then in office.
A director elected to fill a vacancy, unless elected by the stockholders, shall
hold office until the next meeting of stockholders at which the election of
directors is in the regular order of business, and until his or her successor
has been elected and qualified, and any director elected by the stockholders to
fill a vacancy shall hold office for the unexpired term of his or her
predecessor unless, in either case, he or she shall sooner die, resign or be
removed.
ARTICLE III
Officers
--------
Section 1. Election; Qualifications. At the first meeting of the Board of
------------------------
Directors and as soon as practicable after each annual meeting of stockholders,
the Board of Directors shall elect or appoint a President, one or more Vice-
Presidents, a Secretary and a Treasurer, and may elect or appoint at such time
and from time to time such other officers as it may determine. No officer need
be a director of the Corporation. Any two or more offices may be held by the
same person, except the offices of President and Secretary. When all of the
issued and outstanding stock of the Corporation is owned by one person, such
person may hold all or any combination of offices.
Section 2. Term of Office; Vacancies. All officers shall be elected or
-------------------------
appointed to hold office until the meeting of the Board of Directors following
the next annual meeting of stockholders. Each officer shall hold office for
such term and until his or her successor has been elected or appointed and
qualified unless he or she shall earlier resign, die, or be removed. Any
vacancy occurring in any office, whether because of death, resignation or
removal, with cause, or any other
7
<PAGE>
reason, shall be filled by the Board of Directors.
Section 3. Removal; Resignation. Any officer may be removed by the Board
--------------------
of Directors with cause. Any officer may resign his or her office at any time,
such resignation to be made in writing and to take effect immediately or on any
future date stated in such writing, without acceptance by the Corporation.
Section 4. Powers and Duties of the President. The President shall be the
----------------------------------
chief executive, operating and administrative officer of the Corporation and
shall have general charge and supervision of its business, affairs,
administration and operations. The President shall from time to time make such
reports concerning the Corporation as the Board of Directors may direct. The
President shall preside at all meetings of stockholders and the Board of
Directors. The President shall have such other powers and shall perform such
other duties as may from time to time be assigned to him or her by the Board of
Directors.
Section 5. Powers and Duties of the Vice-Presidents. Each of the Vice-
----------------------------------------
Presidents shall have such powers and shall perform such duties as may from time
to time be assigned to him or her by the Board of Directors.
Section 6. Powers and Duties of the Secretary. The Secretary shall record
----------------------------------
and keep the minutes of all meetings of stockholders and of the Board of
Directors. The Secretary shall attend to the giving and serving of all notices
by the Corporation. The Secretary shall be the custodian of, and shall make or
cause to be made the proper entries in, the minute book of the Corporation and
such books and records as the Board of Directors may direct. The Secretary
shall be the custodian of the seal of the Corporation and shall affix or cause
to be affixed such seal to such contracts, instruments and other documents as
the Board of Directors may direct. The Secretary shall have such other powers
and shall perform such other duties as may from time to time be assigned to him
8
<PAGE>
or her by the Board of Directors.
Section 7. Powers and Duties of the Treasurer. The Treasurer shall be the
----------------------------------
custodian of all funds and securities of the Corporation. Whenever required by
the Board of Directors, the Treasurer shall render a statement of the
Corporation's cash and other accounts, and shall cause to be entered regularly
in the proper books and records of the Corporation to be kept for such purpose
full and accurate accounts of the Corporation's receipts and disbursements. The
Treasurer shall at all reasonable times exhibit the Corporation's books and
accounts to any director of the Corporation upon application at the principal
office of the corporation during business hours. The Treasurer shall have such
other powers and shall perform such other duties as may from time to time be
assigned to him or her by the Board of Directors.
Section 8. Delegation. In the event of the absence of any officer of the
----------
Corporation or for any other reason that the Board of Directors may deem
sufficient, the Board of Directors may at any time and from time to time
delegate all or any part of the powers or duties of any officer to any other
officer or officers or to any director or directors.
ARTICLE IV
Shares
------
The shares of the Corporation shall be represented by certificates signed
by the President or any Vice-President and by the Secretary, an Assistant
Secretary, the Treasurer or an Assistant Treasurer, and may be sealed with the
seal of the Corporation or a facsimile thereof. Each certificate representing
shares shall state upon the face thereof (a) that the Corporation is formed
under the laws of the State of Delaware, (b) the name of the person or persons
to whom it is issued, (c) the number and class of shares which such certificate
represents and (d) the designation of the series, if any,
9
<PAGE>
which such certificate represents.
ARTICLE V
Execution of Documents
----------------------
All contracts, instruments, agreements, bills payable, notes, checks,
drafts, warrants or other obligations of the Corporation shall be made in the
name of the Corporation and shall be signed by such officer or officers as the
Board of Directors may from time to time designate.
ARTICLE VI
Seal
----
The seal of the Corporation shall contain the name of the Corporation, the
words "Corporate Seal", the year of its organization and the word "Delaware".
ARTICLE VII
Indemnification
---------------
The Corporation shall indemnify any person to the full extent permitted,
and in the manner provided, by the General Corporation Law of the State of
Delaware, as the same now exists or may hereafter be amended.
ARTICLE VIII
Fiscal Year
-----------
The fiscal year of the Corporation shall end on December 31 of each year or
on such other date as shall be determined by the Board of Directors.
10
<PAGE>
ARTICLE IX
Amendment of By-Laws
--------------------
Except as otherwise provided by law, these By-Laws may be amended or
repealed, and any new By-Law may be adopted, by vote of the holders of the
shares at the time entitled to vote in the election of any directors or by a
majority of the entire Board of Directors, but any by-law adopted by the Board
of Directors may be amended or repealed by the stockholders entitled to vote
thereon as herein provided.
11
<PAGE>
Exhibit 4.2
REGISTRATION RIGHTS AGREEMENT
Dated as of October 1, 1999
by and among
Insight Midwest, L.P.
Insight Capital, Inc.
and
Donaldson, Lufkin & Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated
BNY Capital Markets, Inc.
Wasserstein Perella Securities, Inc.
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and entered
into as of October 1, 1999 by and among Insight Midwest, L.P., a Delaware
limited partnership (the "Company"), Insight Capital, Inc., a Delaware
corporation (together with the Company, the "Issuers"), and Donaldson, Lufkin &
Jenrette Securities Corporation, Morgan Stanley & Co. Incorporated, BNY Capital
Markets, Inc. and Wasserstein Perella Securities, Inc. (each an "Initial
Purchaser" and, collectively, the "Initial Purchasers"), each of whom has agreed
to purchase the Issuers' 9 3/4 % Series A Senior Notes due 2009 (the "Series A
Notes") pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated September
28, 1999 (the "Purchase Agreement"), by and among the Issuers and the Initial
Purchasers. In order to induce the Initial Purchasers to purchase the Series A
Notes, the Issuers have agreed to provide the registration rights set forth in
this Agreement. The execution and delivery of this Agreement is a condition to
the obligations of the Initial Purchasers set forth in Section 3 of the Purchase
Agreement. Capitalized terms used herein and not otherwise defined shall have
the meaning assigned to them the Indenture, dated October 1, 1999, between the
Issuers and Harris Trust Company of New York, as Trustee, relating to the Series
A Notes and the Series B Notes (the "Indenture").
The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have the
following meanings:
Act: The Securities Act of 1933, as amended.
---
Affiliate: As defined in Rule 144 of the Act.
---------
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
-------------
Certificated Securities: Definitive Notes, as defined in the Indenture.
-----------------------
Closing Date: The date hereof.
------------
Commission: The Securities and Exchange Commission.
----------
Consummate: An Exchange Offer shall be deemed "Consummated" for purposes
----------
of this Agreement upon the occurrence of (a) the filing and effectiveness under
the Act of the Exchange Offer Registration Statement relating to the Series B
Notes to be issued in the Exchange Offer, (b) the maintenance of such Exchange
Offer Registration Statement continuously effective and the keeping of the
Exchange Offer open for a period not less than the period required pursuant to
Section 3(b) hereof and (c) the delivery by the Issuers to the Registrar under
the Indenture of Series B Notes in the same aggregate principal amount as the
aggregate principal amount of Series A Notes tendered by Holders thereof
pursuant to the Exchange Offer.
Consummation Deadline: As defined in Section 3(b) hereof.
---------------------
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Effectiveness Deadline: As defined in Section 3(a) and 4(a) hereof.
----------------------
Exchange Act: The Securities Exchange Act of 1934, as amended.
------------
Exchange Offer: The exchange and issuance by the Issuers of a principal
--------------
amount of Series B Notes (which shall be registered pursuant to the Exchange
Offer Registration Statement) equal to the outstanding principal amount of
Series A Notes that are tendered by such Holders in connection with such
exchange and issuance.
Exchange Offer Registration Statement: The Registration Statement relating
-------------------------------------
to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers propose
--------------
to sell the Series A Notes to certain "qualified institutional buyers," as such
term is defined in Rule 144A under the Act and pursuant to Regulation S under
the Act.
Filing Deadline: As defined in Sections 3(a) and 4(a) hereof.
---------------
Holders: As defined in Section 2 hereof.
-------
Prospectus: The prospectus included in a Registration Statement at the
----------
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Recommencement Date: As defined in Section 6(d) hereof.
-------------------
Registration Default: As defined in Section 5 hereof.
--------------------
Registration Statement: Any registration statement of the Issuers relating
----------------------
to (a) an offering of Series B Notes pursuant to an Exchange Offer or (b) the
registration for resale of Transfer Restricted Securities pursuant to the Shelf
Registration Statement, in each case, (i) that is filed pursuant to the
provisions of this Agreement and (ii) including the Prospectus included therein,
all amendments and supplements thereto (including post-effective amendments) and
all exhibits and material incorporated by reference therein.
Regulation S: Regulation S promulgated under the Act.
------------
Rule 144: Rule 144 promulgated under the Act.
--------
Series B Notes: The Issuers' 9 3/4% Series B Senior Notes due 2009 to be
--------------
issued pursuant to the Indenture (i) in the Exchange Offer or (ii) as
contemplated by Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
----------------------------
Suspension Notice: As defined in Section 6(d) hereof.
-----------------
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as
---
in effect on the date of the Indenture.
2
<PAGE>
Transfer Restricted Securities: Each (A) Series A Note, until the earliest
to occur of (i) the date on which such Series A Note is exchanged in the
Exchange Offer for a Series B Note which is entitled to be resold to the public
by the Holder thereof without complying with the prospectus delivery
requirements of the Act, (ii) the date on which such Series A Note has been
disposed of in accordance with a Shelf Registration Statement (and the
purchasers thereof have been issued Series B Notes), or (iii) the date on which
such Series A Note is distributed to the public pursuant to Rule 144 under the
Act and each (B) Series B Note held by a Broker-Dealer until the date on which
such Series B Note is disposed of by a Broker-Dealer pursuant to the "Plan of
Distribution" contemplated by the Exchange Offer Registration Statement
(including the delivery of the Prospectus contained therein).
2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities (each,
a "Holder") whenever such Person owns Transfer Restricted Securities.
3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable federal
law (after the procedures set forth in Section 6(a)(i) below have been complied
with), the Issuers shall (i) cause the Exchange Offer Registration Statement to
be filed with the Commission as soon as practicable after the Closing Date, but
in no event later than 180 days after the Closing Date (such 180th day being the
"Filing Deadline"), (ii) use their reasonable best efforts to cause such
Exchange Offer Registration Statement to become effective at the earliest
possible time, but in no event later than 365 days after the Closing Date (such
365th day being the "Effectiveness Deadline"), (iii) in connection with the
foregoing, (A) file all pre- effective amendments to such Exchange Offer
Registration Statement as may be necessary in order to cause it to become
effective, (B) file, if applicable, a post-effective amendment to such Exchange
Offer Registration Statement pursuant to Rule 430A under the Act and (C) cause
all necessary filings, if any, in connection with the registration and
qualification of the Series B Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer, and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting (i) registration of the Series B Notes to be offered
in exchange for the Series A Notes that are Transfer Restricted Securities and
(ii) resales of Series B Notes by Broker-Dealers that tendered into the Exchange
Offer Series A Notes that such Broker-Dealer acquired for its own account as a
result of market making activities or other trading activities (other than
Series A Notes acquired directly from the Issuers or any their Affiliates) as
contemplated by Section 3(c) below.
(b) The Issuers shall use their reasonable best efforts to cause the
Exchange Offer Registration Statement to be effective continuously, and shall
keep the Exchange Offer open for a period of not less than the minimum period
required under applicable federal and state securities laws to Consummate the
Exchange Offer; provided, however, that in no event shall such period be less
than 20 Business Days. The Issuers shall cause the Exchange Offer to comply with
all applicable federal and state securities laws. No securities other than the
Series B Notes shall be included in the Exchange Offer Registration Statement.
The Issuers shall use their reasonable best efforts to cause the Exchange Offer
to be Consummated on the earliest practicable date after the Exchange Offer
Registration Statement has become effective, but in no event later than 30
business
3
<PAGE>
days thereafter or such later date that may be required by federal securities
laws (such 30th or later day being the "Consummation Deadline").
(c) The Issuers shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Securities that
were acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Series A Notes acquired
directly from the Issuers or any Affiliate of the Issuers), may exchange such
Transfer Restricted Securities pursuant to the Exchange Offer. Such "Plan of
Distribution" section shall also contain all other information with respect to
such sales by such Broker-Dealers that the Commission may require in order to
permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Transfer Restricted
Securities held by any such Broker-Dealer, except to the extent required by the
Commission as a result of a change in policy, rules or regulations after the
date of this Agreement. See the Shearman & Sterling no-action letter (available
July 2, 1993).
Because such Broker-Dealer may be deemed to be an "underwriter" within the
meaning of the Act and must, therefore, deliver a prospectus meeting the
requirements of the Act in connection with its initial sale of any Series B
Notes received by such Broker-Dealer in the Exchange Offer, the Issuers shall
permit the use of the Prospectus contained in the Exchange Offer Registration
Statement by such Broker-Dealer to satisfy such prospectus delivery requirement.
To the extent necessary to ensure that the prospectus contained in the Exchange
Offer Registration Statement is available for sales of Series B Notes by Broker-
Dealers, the Issuers agree to use their reasonable best efforts to keep the
Exchange Offer Registration Statement continuously effective, supplemented,
amended and current as required by and subject to the provisions of Section 6(a)
and (c) hereof and in conformity with the requirements of this Agreement, the
Act and the policies, rules and regulations of the Commission as announced from
time to time, for a period of 180 days from the Consummation Deadline or such
shorter period as will terminate when all Transfer Restricted Securities covered
by such Registration Statement have been sold pursuant thereto. The Issuers
shall provide sufficient copies of the latest version of such Prospectus to such
Broker-Dealers, promptly upon request, and in no event later than one day after
such request, at any time during such period.
4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not permitted by
applicable law (after the Issuers have complied with the procedures set forth in
Section 6(a)(i) below) or (ii) if any Holder of Transfer Restricted Securities
shall notify the Issuers within 20 Business Days following the Consummation
Deadline that (A) such Holder was prohibited by law or Commission policy from
participating in the Exchange Offer or (B) such Holder may not resell the Series
B Notes acquired by it in the Exchange Offer to the public without delivering a
prospectus and the Prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such Holder or (C)
such Holder is a Broker-Dealer and holds Series A Notes acquired directly from
the Issuers or any of their Affiliates, then the Issuers shall:
(x) use their reasonable best efforts to cause to be filed, on or prior to 30
days after the earlier of (i) the date on which the Issuers determine that the
Exchange Offer Registration Statement cannot be filed as a result of clause
(a)(i) above and (ii) the date on which the Issuers receive the
4
<PAGE>
notice specified in clause (a)(ii) above, (such earlier date, the "Filing
Deadline"), a shelf registration statement pursuant to Rule 415 under the Act
(which may be an amendment to the Exchange Offer Registration Statement (the
"Shelf Registration Statement")), relating to all Transfer Restricted
Securities, and
(y) use their reasonable best efforts to cause such Shelf Registration
Statement to become effective on or prior to 90 days after the Filing Deadline
for the Shelf Registration Statement (such 90th day the "Effectiveness
Deadline");
provided that in no event shall the Filing Deadline and Effectiveness
Deadline under Section 4(a) be earlier than the Filing Deadline and
Effectiveness Deadline under Section 3(a).
If, after the Issuers have filed an Exchange Offer Registration Statement
that satisfies the requirements of Section 3(a) above, the Issuers are required
to file and make effective a Shelf Registration Statement solely because the
Exchange Offer is not permitted under applicable federal law (i.e., clause
(a)(i) above), then the filing of the Exchange Offer Registration Statement
shall be deemed to satisfy the requirements of clause (x) above; provided that,
in such event, the Issuers shall remain obligated to meet the Effectiveness
Deadline set forth in clause (y).
To the extent necessary to ensure that the Shelf Registration Statement is
available for sales of Transfer Restricted Securities by the Holders thereof
entitled to the benefit of this Section 4(a) and the other securities required
to be registered therein pursuant to Section 6(b)(ii) hereof, the Issuers shall
use their reasonable best efforts to keep any Shelf Registration Statement
required by this Section 4(a) continuously effective, supplemented, amended and
current as required by and subject to the provisions of Sections 6(b) and (c)
hereof and in conformity with the requirements of this Agreement, the Act and
the policies, rules and regulations of the Commission as announced from time to
time, for a period of at least two years (as extended pursuant to Section
6(c)(i)) following the Closing Date, or such shorter period as will terminate
when all Transfer Restricted Securities covered by such Shelf Registration
Statement have been sold pursuant thereto.
(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Issuers in writing, within 20 days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, of
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to liquidated damages pursuant to
Section 5 hereof unless and until such Holder shall have provided all such
information. Each selling Holder agrees to promptly furnish additional
information required to be disclosed in order to make the information previously
furnished to the Issuers by such Holder not materially misleading.
5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not filed
with the Commission on or prior to the applicable Filing Deadline, (ii) any such
Registration Statement has not been declared effective by the Commission on or
prior to the applicable Effectiveness Deadline, (iii) the Exchange Offer has not
been Consummated on or prior to the Consummation Deadline or (iv) any
Registration Statement required by this Agreement is filed and declared
5
<PAGE>
effective but shall thereafter cease to be effective or fail to be usable for
its intended purpose without being succeeded immediately by a post-effective
amendment to such Registration Statement that cures such failure and that is
itself declared effective immediately (each such event referred to in clauses
(i) through (iv), a "Registration Default"), then the Issuers hereby jointly and
severally agree to pay to each Holder of Transfer Restricted Securities affected
thereby liquidated damages in an amount equal to $.05 per week per $1,000 in
principal amount of Transfer Restricted Securities held by such Holder for each
week or portion thereof that the Registration Default continues for the first
90-day period immediately following the occurrence of such Registration Default.
The amount of the liquidated damages shall increase by an additional $.05 per
week per $1,000 in principal amount of Transfer Restricted Securities with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of liquidated damages of $.50 per week per
$1,000 in principal amount of Transfer Restricted Securities; provided that the
Issuers shall in no event be required to pay liquidated damages for more than
one Registration Default at any given time. Notwithstanding anything to the
contrary set forth herein, (1) upon filing of the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement), in the case
of (i) above, (2) upon the effectiveness of the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement), in the case
of (ii) above, (3) upon Consummation of the Exchange Offer, in the case of (iii)
above, or (4) upon the filing of a post-effective amendment to the Registration
Statement or an additional Registration Statement that causes the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration Statement)
to again be declared effective or made usable in the case of (iv) above, the
liquidated damages payable with respect to the Transfer Restricted Securities as
a result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. Notwithstanding the fact that any securities for which liquidated
damages are due cease to be Transfer Restricted Securities, all obligations of
the Issuers to pay liquidated damages with respect to securities shall survive
until such time as such obligations with respect to such securities shall have
been satisfied in full.
6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the Exchange
Offer, the Issuers shall (x) comply with all applicable provisions of Section
6(c) below, (y) use their reasonable best efforts to effect such exchange and to
permit the resale of Series B Notes by Broker-Dealers that tendered in the
Exchange Offer Series A Notes that such Broker-Dealer acquired for its own
account as a result of its market making activities or other trading activities
(other than Series A Notes acquired directly from the Issuers or any of their
Affiliates) being sold in accordance with the intended method or methods of
distribution thereof, and (z) comply with all of the following provisions:
(i) If, following the date hereof there has been announced a change in
Commission policy with respect to exchange offers such as the Exchange
Offer, that in the reasonable opinion of counsel to the Issuers raises a
substantial question as to whether the Exchange Offer is permitted by
applicable federal law, the Issuers hereby agree to seek a no-action letter
or other favorable decision from the Commission allowing the Issuers to
Consummate an Exchange Offer for such
6
<PAGE>
Transfer Restricted Securities. The Issuers hereby agree to pursue the
issuance of such a decision to the Commission staff level. In connection
with the foregoing, the Issuers hereby agree to take all such other actions
as may be requested by the Commission or otherwise required in connection
with the issuance of such decision, including without limitation (A)
participating in telephonic conferences with the Commission, (B) delivering
to the Commission staff an analysis prepared by counsel to the Issuers
setting forth the legal bases, if any, upon which such counsel has
concluded that such an Exchange Offer should be permitted and (C)
diligently pursuing a resolution (which need not be favorable) by the
Commission staff.
(ii) As a condition to its participation in the Exchange Offer, each
Holder of Transfer Restricted Securities (including, without limitation,
any Holder who is a Broker-Dealer) shall furnish, upon the request of the
Issuers, prior to the Consummation of the Exchange Offer, a written
representation to the Issuers (which may be contained in the letter of
transmittal contemplated by the Exchange Offer Registration Statement) to
the effect that (A) it is not an Affiliate of the Issuers, (B) it is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the
Series B Notes to be issued in the Exchange Offer and (C) it is acquiring
the Series B Notes in its ordinary course of business. As a condition to
its participation in the Exchange Offer, each Holder using the Exchange
Offer to participate in a distribution of the Series B Notes shall
acknowledge and agree that, if the resales are of Series B Notes obtained
by such Holder in exchange for Series A Notes acquired directly from the
Issuers or an Affiliate thereof, it (1) could not, under Commission policy
as in effect on the date of this Agreement, rely on the position of the
Commission enunciated in Morgan Stanley and Co., Inc. (available June 5,
1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as
interpreted in the Commission's letter to Shearman & Sterling dated July 2,
1993, and similar no-action letters (including, if applicable, any
no-action letter obtained pursuant to clause (i) above), and (2) must
comply with the registration and prospectus delivery requirements of the
Act in connection with a secondary resale transaction and that such a
secondary resale transaction must be covered by an effective registration
statement containing the selling security holder information required by
Item 507 or 508, as applicable, of Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Issuers shall provide a supplemental letter to the
Commission (A) stating that the Issuers are registering the Exchange Offer
in reliance on the position of the Commission enunciated in Exxon Capital
Holdings Corporation (available May 13, 1988), Morgan Stanley and Co., Inc.
(available June 5, 1991) as interpreted in the Commission's letter to
Shearman & Sterling dated July 2, 1993, and, if applicable, any no-action
letter obtained pursuant to clause (i) above, (B) including a
representation that neither Issuer has entered into any arrangement or
understanding with any Person to distribute the Series B Notes to be
received in the Exchange Offer and that, to the best of the Issuers'
information and belief, each Holder participating in the Exchange Offer is
acquiring the Series B Notes in its ordinary course of business and has no
arrangement or understanding with any Person to participate in the
distribution of the Series B Notes received in the Exchange Offer
7
<PAGE>
and (C) any other undertaking or representation required by the Commission
as set forth in any no-action letter obtained pursuant to clause (i) above,
if applicable.
(b) Shelf Registration Statement. In connection with the Shelf Registration
Statement, the Issuers shall:
(i) comply with all the provisions of Section 6(c) below and use their
reasonable best efforts to effect such registration to permit the sale of
the Transfer Restricted Securities being sold in accordance with the
intended method or methods of distribution thereof (as indicated in the
information furnished to the Issuers pursuant to Section 4(b) hereof), and
pursuant thereto the Issuers will prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate form
under the Act, which form shall be available for the sale of the Transfer
Restricted Securities in accordance with the intended method or methods of
distribution thereof within the time periods and otherwise in accordance
with the provisions hereof, and
(ii) issue, upon the request of any Holder or purchaser of Series A
Notes covered by any Shelf Registration Statement contemplated by this
Agreement, Series B Notes having an aggregate principal amount equal to the
aggregate principal amount of Series A Notes sold pursuant to the Shelf
Registration Statement and surrendered to the Issuers for cancellation; the
Issuers shall register Series B Notes on the Shelf Registration Statement
for this purpose and issue the Series B Notes to the purchaser(s) of
securities subject to the Shelf Registration Statement in the names as such
purchaser(s) shall designate.
(c) General Provisions. In connection with any Registration Statement and
any related Prospectus required by this Agreement, the Issuers shall:
(i) use their reasonable best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 or 4 of this Agreement, as
applicable. Upon the occurrence of any event that would cause any such
Registration Statement or the Prospectus contained therein (A) to contain
an untrue statement of material fact or omit to state any material fact
necessary to make the statements therein not misleading or (B) not to be
effective and usable for resale of Transfer Restricted Securities during
the period required by this Agreement, the Issuers shall file promptly an
appropriate amendment to such Registration Statement curing such defect,
and, if Commission review is required, use their reasonable best efforts to
cause such amendment to be declared effective as soon as practicable;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement as may
be necessary to keep such Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, as the case may be;
cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under
the Act, and to comply fully with Rules 424, 430A and 462, as applicable,
under the Act in a timely manner; and comply with those provisions of the
Act that are applicable to the Issuers with respect to the disposition
8
<PAGE>
of all securities covered by such Registration Statement during the
applicable period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Registration
Statement or supplement to the Prospectus;
(iii) advise each Holder promptly and, if requested by such Holder,
confirm such advice in writing, (A) when the Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to
any applicable Registration Statement or any post-effective amendment
thereto, when the same has become effective, (B) of any request by the
Commission for amendments to the Registration Statement or supplements to
the Prospectus or for additional information relating thereto, (C) of the
issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement under the Act or of the suspension by any
state securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation of
any proceeding for any of the preceding purposes, and (D) of the existence
of any fact or the happening of any event that makes any statement of a
material fact made in the Registration Statement, the Prospectus, any
amendment or supplement thereto or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes
in the Registration Statement in order to make the statements therein not
misleading, or that requires the making of any additions to or changes in
the Prospectus in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If at any time
the Commission shall issue any stop order suspending the effectiveness of
the Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification or
exemption from qualification of the Transfer Restricted Securities under
state securities or Blue Sky laws, the Issuers shall use their reasonable
best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time;
(iv) subject to Section 6(c)(i), if any fact or event contemplated by
Section 6(c)(iii)(D) above shall exist or have occurred, prepare a
supplement or post-effective amendment to the Registration Statement or
related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(v) if requested by a Holder, furnish to such Holder in connection
with such exchange or sale, if any, before filing with the Commission,
copies of any Registration Statement or any Prospectus included therein or
any amendments or supplements to any such Registration Statement or
Prospectus (including all documents incorporated by reference after the
initial filing of such Registration Statement), which documents will be
subject to the review and comment of such Holder in connection with such
sale, if any, for a period of at least two Business Days, and the Issuers
will not file any such Registration Statement or Prospectus or any
amendment or supplement to any such Registration Statement or Prospectus
(including all such documents incorporated by reference) to which such
Holder
9
<PAGE>
shall reasonably object within two Business Days after the receipt thereof.
A Holder shall be deemed to have reasonably objected to such filing if such
Registration Statement, amendment, Prospectus or supplement, as applicable,
as proposed to be filed, contains an untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein
not misleading or fails to comply with the applicable requirements of the
Act;
(vi) if requested by a Holder, promptly prior to the filing of any
document that is to be incorporated by reference into a Registration
Statement or Prospectus, provide copies of such document to such Holder in
connection with such exchange or sale, if any, make the Issuers'
representatives available for discussion of such document and other
customary due diligence matters, and include such information in such
document prior to the filing thereof as such Holder may reasonably request;
(vii) make available, at reasonable times, for inspection by each
underwriter and any attorney or accountant retained by such underwriters,
all financial and other records, pertinent corporate documents of the
Issuers and cause the Issuers' officers, directors and employees to supply
all information reasonably requested by any such underwriters, attorney or
accountant in connection with such Registration Statement or any
post-effective amendment thereto subsequent to the filing thereof and prior
to its effectiveness;
(viii) if requested by any Holder in connection with such exchange or
sale, promptly include in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such Holders may reasonably request to have included
therein, including, without limitation, information relating to the "Plan
of Distribution" of the Transfer Restricted Securities; and make all
required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after the Issuers are notified of the matters to be
included in such Prospectus supplement or post-effective amendment;
(ix) furnish to each Holder in connection with such exchange or sale,
without charge, at least one copy of the Registration Statement, as first
filed with the Commission, and of each amendment thereto, including all
documents incorporated by reference therein and all exhibits (including
exhibits incorporated therein by reference);
(x) deliver to each Holder without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons reasonably may request; the Issuers
hereby consent to the use (in accordance with law) of the Prospectus and
any amendment or supplement thereto by each selling Holder in connection
with the offering and the sale of the Transfer Restricted Securities
covered by the Prospectus or any amendment or supplement thereto;
(xi) upon the request of any Holder, enter into such agreements
(including underwriting agreements) and make such representations and
warranties
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and take all such other actions in connection therewith in order to
expedite or facilitate the disposition of the Transfer Restricted
Securities pursuant to any applicable Registration Statement contemplated
by this Agreement as may be reasonably requested by any Holder in
connection with any sale or resale pursuant to any applicable Registration
Statement. In such connection the Issuers shall:
(A) upon request of any underwriter, furnish (or in the case of paragraphs
(2) and (3), use its reasonable best efforts to cause to be furnished) to such
underwriter, upon Consummation of the Exchange Offer or upon the effectiveness
of the Shelf Registration Statement, as the case may be:
(1) a certificate, dated such date, signed by the President and the
Chief Financial Officer of each of the Issuers, confirming, as of the date
thereof, the matters set forth in Sections 6(ff), 9(a) and 9(b) of the
Purchase Agreement and such other similar matters as such underwriter may
reasonably request;
(2) an opinion, dated the date of Consummation of the Exchange Offer
or the date of effectiveness of the Shelf Registration Statement, as the
case may be, of counsel for the Issuers covering matters similar to those
set forth in paragraph (e) of Section 9 of the Purchase Agreement and such
other matters as such underwriter may reasonably request, and in any event
including a statement to the effect that such counsel has participated in
conferences with officers and other representatives of each of the Issuers,
representatives of the independent public accountants for the Issuers and
has considered the matters required to be stated therein and the statements
contained therein, although such counsel has not independently verified the
accuracy, completeness or fairness of such statements; and that such
counsel advises that, on the basis of the foregoing, no facts came to such
counsel's attention that caused such counsel to believe that the applicable
Registration Statement, at the time such Registration Statement or any
post-effective amendment thereto became effective and, in the case of the
Exchange Offer Registration Statement, as of the date of Consummation of
the Exchange Offer, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, or that the Prospectus
contained in such Registration Statement as of its date and, in the case of
the opinion dated the date of Consummation of the Exchange Offer, as of the
date of Consummation, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Without limiting the foregoing, such counsel may state further
that such counsel assumes no responsibility for, and has not independently
verified, the accuracy, completeness or fairness of the financial
statements, schedules and other financial data included in any Registration
Statement contemplated by this Agreement or the related Prospectus; and
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(3) a customary comfort letter, dated the date of Consummation of the
Exchange Offer, or as of the date of effectiveness of the Shelf
Registration Statement, as the case may be, from the Issuers' independent
accountants, in the customary form and covering matters of the type
customarily covered in comfort letters to underwriters in connection with
underwritten offerings, and affirming the matters set forth in the comfort
letters delivered pursuant to Section 9(h) of the Purchase Agreement; and
(B) deliver such other documents and certificates as may be reasonably
requested by the underwriter to evidence compliance with the matters covered in
clause (A) above and with any customary conditions contained in any agreement
entered into by the Issuers pursuant to this clause (xi);
(xii) prior to any public offering of Transfer Restricted Securities,
cooperate with the selling Holders and their counsel in connection with the
registration and qualification of the Transfer Restricted Securities under
the securities or Blue Sky laws of such jurisdictions as the selling
Holders may reasonably request and do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of
the Transfer Restricted Securities covered by the applicable Registration
Statement; provided, however, that neither Issuer shall be required to
register or qualify as a foreign corporation, or limited partnership, as
the case may be, where it is not now so qualified or to take any action
that would subject it to the service of process in suits or to taxation,
other than as to matters and transactions relating to the Registration
Statement, in any jurisdiction where it is not now so subject;
(xiii) in connection with any sale of Transfer Restricted Securities
that will result in such securities no longer being Transfer Restricted
Securities, cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Transfer Restricted Securities to
be sold and not bearing any restrictive legends; and to register such
Transfer Restricted Securities in such denominations and such names as the
selling Holders may request at least two Business Days prior to such sale
of Transfer Restricted Securities;
(xiv) use their reasonable best efforts to cause the disposition of
the Transfer Restricted Securities covered by the Registration Statement to
be registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof to
consummate the disposition of such Transfer Restricted Securities, subject
to the proviso contained in clause (xii) above; (xv) provide a CUSIP number
for all Transfer Restricted Securities not later than the effective date of
a Registration Statement covering such Transfer Restricted Securities and
provide the Trustee under the Indenture with printed certificates for the
Transfer Restricted Securities which are in a form eligible for deposit
with the Depository Trust Company;
(xv) provide a CUSIP number for all Transfer Restricted Securities not
later than the effective date of a Registration Statement covering such
Transfer Restricted Securities and provide the Trustee under the Indenture
with printed certificates for the Transfer Restricted Securities which are
in a form eligible for deposit with the Depository Trust Company;
(xvi) otherwise use their respective reasonable best efforts to comply
with all applicable rules and regulations of the Commission, and make
generally
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available to their security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
covering a twelve-month period beginning after the effective date of the
Registration Statement (as such term is defined in paragraph (c) of Rule
158 under the Act);
(xvii) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement and, in connection therewith, cooperate with the Trustee and
the Holders to effect such changes to the Indenture as may be required for
such Indenture to be so qualified in accordance with the terms of the TIA;
and execute and use their best efforts to cause the Trustee to execute, all
documents that may be required to effect such changes and all other forms
and documents required to be filed with the Commission to enable such
Indenture to be so qualified in a timely manner; and
(xviii) provide promptly to each Holder, upon request, each document
filed with the Commission pursuant to the requirements of Section 13 or
Section 15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(iii)(C) or any notice from the Issuers of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof (in each case, a
"Suspension Notice"), such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration Statement
until (i) such Holder has received copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is
advised in writing by the Issuers that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus (in each case, the "Recommencement
Date"). Each Holder receiving a Suspension Notice hereby agrees that it will
either (i) destroy any Prospectuses, other than permanent file copies, then in
such Holder's possession which have been replaced by the Issuers with more
recently dated Prospectuses or (ii) deliver to the Issuers (at the Issuers'
expense) all copies, other than permanent file copies, then in such Holder's
possession of the Prospectus covering such Transfer Restricted Securities that
was current at the time of receipt of the Suspension Notice. The time period
regarding the effectiveness of such Registration Statement set forth in Section
3 or 4 hereof, as applicable, shall be extended by a number of days equal to the
number of days in the period from and including the date of delivery of the
Suspension Notice to the date of delivery of the Recommencement Date.
7. REGISTRATION EXPENSES
(a) All expenses incident to the Issuers' performance of or compliance with
this Agreement will be borne by the Issuers, regardless of whether a
Registration Statement becomes effective, including without limitation: (i) all
registration and filing fees and expenses; (ii) all fees and expenses of
compliance with federal securities and state Blue Sky or securities laws; (iii)
all expenses of printing (including printing certificates for the Series B Notes
to be issued in the Exchange Offer and printing of Prospectuses), messenger and
delivery services and telephone; (iv) all fees and disbursements of counsel for
the Issuers; (v) all application and filing fees in connection with listing the
Series B Notes on a national securities exchange or automated quotation
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system; and (vi) all fees and disbursements of independent certified public
accountants of the Issuers (including the expenses of any special audit and
comfort letters required by or incident to such performance).
The Issuers will, in any event, bear their internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Issuers.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Issuers will reimburse the
Initial Purchasers and the Holders of Transfer Restricted Securities who are
tendering Series A Notes into in the Exchange Offer and/or selling or reselling
Series A Notes or Series B Notes pursuant to the "Plan of Distribution"
contained in the Exchange Offer Registration Statement or the Shelf Registration
Statement, as applicable, for the reasonable fees and disbursements of not more
than one counsel, who shall be Latham & Watkins, unless another firm shall be
chosen by the Holders of a majority in principal amount of the Transfer
Restricted Securities for whose benefit such Registration Statement is being
prepared.
8. INDEMNIFICATION
(a) Each of the Issuers agrees, jointly and severally, to indemnify and
hold harmless each Holder, its directors, officers and each Person, if any, who
controls such Holder (within the meaning of Section 15 of the Act or Section 20
of the Exchange Act), from and against any and all losses, claims, damages,
liabilities and judgments (including, without limitation, any legal or other
expenses incurred in connection with investigating or defending any matter,
including any action, that could give rise to any such losses, claims, damages,
liabilities or judgments) caused by any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement,
preliminary prospectus or Prospectus (or any amendment or supplement thereto)
provided by the Issuers to any Holder or any prospective purchaser of Series B
Notes or registered Series A Notes, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or judgments are caused by an untrue
statement or omission or alleged untrue statement or omission that is based upon
information relating to any of the Holders furnished in writing to the Issuers
by any of the Holders; provided that the indemnity provided for in this
paragraph shall not apply to any Holder who failed to deliver a Prospectus to
any prospective purchaser of Series B Notes or registered Series A Notes.
(b) Each Holder of Transfer Restricted Securities agrees, severally and not
jointly, to indemnify and hold harmless the Issuers, and their respective
directors and officers, and each person, if any, who controls (within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Issuers
to the same extent as the foregoing indemnity from the Issuers set forth in
paragraph (a) above, but only with reference to information relating to such
Holder furnished in writing to the Issuers by such Holder expressly for use in
any Registration Statement. In no event shall any Holder, its directors,
officers or any Person who controls such Holder be liable or responsible for any
amount in excess of the amount by which the total amount received by such Holder
with respect to its sale of Transfer Restricted Securities pursuant to a
Registration
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Statement exceeds (i) the amount paid by such Holder for such Transfer
Restricted Securities and (ii) the amount of any damages that such Holder, its
directors, officers or any Person who controls such Holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission.
(c) In case any action shall be commenced involving any person in respect
of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying person") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b) above, a Holder shall not be required to assume
the defense of such action pursuant to this Section 8(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
the Holder). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all indemnified parties and all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be designated
in writing by a majority of the Holders, in the case of the parties indemnified
pursuant to Section 8(a) above, and by the Company, in the case of parties
indemnified pursuant to Section 8(b) above. The indemnifying party shall
indemnify and hold harmless the indemnified party from and against any and all
losses, claims, damages, liabilities and judgments by reason of any settlement
of any action (i) effected with its written consent or (ii) effected without its
written consent if the settlement is entered into more than twenty business days
after the indemnifying party shall have received a request from the indemnified
party for reimbursement for the fees and expenses of counsel (in any case where
such fees and expenses are at the expense of the indemnifying party) and, prior
to the date of such settlement, the indemnifying party shall have failed to
comply with such reimbursement request. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement or
compromise of, or consent to the entry of judgment with respect to, any pending
or threatened action in respect of which the indemnified party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.
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(d) To the extent that the indemnification provided for in this Section 8
is unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or judgments referred to herein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Issuers, on the one
hand, and the Holders, on the other hand, from their sale of Transfer Restricted
Securities or (ii) if the allocation provided by clause 8(d)(i) is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 8(d)(i) above but also the relative
fault of the Issuers, on the one hand, and of the Holders, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative fault of the Issuers, on the one hand,
and of the Holders, on the other hand, shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Issuers, on the one hand, or by the Holders, on the
other hand, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and judgments referred to above shall be deemed to include, subject
to the limitations set forth in Section 8(a) above, any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim.
The Issuers and each Holder agree that it would not be just and equitable
if contribution pursuant to this Section 8(d) were determined by pro rata
allocation (even if the Holders were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities or judgments referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any matter, including any action
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 8, no Holder, its
directors, its officers or any Person, if any, who controls such Holder shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the total received by such Holder with respect to the sale of Transfer
Restricted Securities pursuant to a Registration Statement exceeds (i) the
amount paid by such Holder for such Transfer Restricted Securities and (ii) the
amount of any damages which such Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Holders'
obligations to contribute pursuant to this Section 8(c) are several in
proportion to the respective principal amount of Transfer Restricted Securities
held by each Holder hereunder and not joint.
9. RULE 144A and RULE 144
The Issuers agree with each Holder, for so long as any Transfer Restricted
Securities remain outstanding and during any period in which the Issuers (i) are
not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon
request of any Holder, to such Holder or
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beneficial owner of Transfer Restricted Securities in connection with any sale
thereof and any prospective purchaser of such Transfer Restricted Securities
designated by such Holder or beneficial owner, the information required by Rule
144A(d)(4) under the Act in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144A, and (ii) are subject to Section 13 or 15(d) of
the Exchange Act, to make all filings required thereby in a timely manner in
order to permit resales of such Transfer Restricted Securities pursuant to Rule
144.
10. MISCELLANEOUS
(a) Remedies. The Issuers acknowledge and agree that any failure by the
Issuers to comply with their obligations under Sections 3 and 4 hereof may
result in material irreparable injury to the Initial Purchasers or the Holders
for which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, the Initial Purchasers or any Holder may obtain such relief as may be
required to specifically enforce the Issuers' obligations under Sections 3 and 4
hereof. The Issuers further agree to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither Issuer will, on or after the date
of this Agreement, enter into any agreement with respect to its securities that
is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. Neither Issuer has previously
entered into any agreement granting any registration rights with respect to its
securities to any Person. The rights granted to the Holders hereunder do not in
any way conflict with and are not inconsistent with the rights granted to the
holders of either Issuer's securities under any agreement in effect on the date
hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(c)(i), the Issuers have obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Issuers have obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Issuers or their Affiliates). Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof that relates exclusively to the rights
of Holders whose Transfer Restricted Securities are being tendered pursuant to
the Exchange Offer, and that does not affect directly or indirectly the rights
of other Holders whose Transfer Restricted Securities are not being tendered
pursuant to such Exchange Offer, may be given by the Holders of a majority of
the outstanding principal amount of Transfer Restricted Securities subject to
such Exchange Offer.
(d) Third Party Beneficiary. The Holders shall be third party beneficiaries
to the agreements made hereunder between the Issuers, on the one hand, and the
Initial Purchasers, on the other hand, and shall have the right to enforce such
agreements directly to the extent they may deem such enforcement necessary or
advisable to protect their rights or the rights of Holders hereunder.
(e) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
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(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the Indenture;
and
(ii) if to the Issuers:
Insight Midwest, L.P.
Insight Capital, Inc.
126 East 56th Street
New York, NY 10022
Telecopier No.: (212) 371-1549
Attention: Ms. Kim Kelly
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With a copy to:
Cooperman Levitt Winikoff Lester & Newman, P.C.
800 Third Avenue
30th Floor
New York, NY 10022
Telecopier No.: (212) 755-2839
Attention: Robert Winikoff, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders; provided, that nothing herein shall be deemed to permit any assignment,
transfer or other disposition of Transfer Restricted Securities in violation of
the terms hereof or of the Purchase Agreement or the Indenture. If any
transferee of any Holder shall acquire Transfer Restricted Securities in any
manner, whether by operation of law or otherwise, such Transfer Restricted
Securities shall be held subject to all of the terms of this Agreement, and by
taking and holding such Transfer Restricted Securities such Person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement, including the restrictions on resale set
forth in this Agreement and, if applicable, the Purchase Agreement, and such
Person shall be entitled to receive the benefits hereof.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and
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intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein with respect to the registration
rights granted with respect to the Transfer Restricted Securities. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter.
[signature page follows]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
INSIGHT MIDWEST, L.P.
By its General Partner:
INSIGHT COMMUNICATIONS COMPANY, L.P.
By its General Partner:
INSIGHT COMMUNICATIONS COMPANY, INC.
By:
---------------------------------
Name:
Title:
INSIGHT CAPITAL, INC.
By:
---------------------------------
Name:
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY & CO. INCORPORATED
BNY CAPITAL MARKETS, INC.
WASSERSTEIN PERELLA SECURITIES, INC.
By: Donaldson, Lufkin & Jenrette Securities Corporation
By:
---------------------------------
Name:
Title:
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Exhibit 10.2
AMENDMENT NO. 1
---------------
AMENDMENT NO. 1, dated as of September 24, 1999 (this "Amendment"), to the
Credit Agreement, dated as of October 30, 1998, by and among Insight
Communications of Indiana, LLC, the Lenders party thereto, Canadian Imperial
Bank of Commerce, as Syndication Agent and as Co-Lead Arranger, Fleet Bank,
N.A., as Documentation Agent, Bank of Montreal, The Bank of Nova Scotia, The
Bank of Tokyo-Mitsubishi Trust Company, Dresdner Bank AG, New York and Grand
Cayman Branches, NationsBank, N.A., PNC Bank, National Association, and
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New
York Branch, as Co-Agents and The Bank of New York, as Issuing Bank, as
Administrative Agent and as Co-Lead Arranger (as the same may be amended,
supplemented or otherwise modified from time to time, the "Credit Agreement").
RECITALS
--------
I. Capitalized terms used herein and not defined herein shall have the
meanings assigned to such terms in the Credit Agreement.
II. It has been proposed that Insight would engage in a series of
transactions as follows:
A. Insight has agreed to acquire 50.0% of the partnership interests
in InterMedia Capital Partners VI, L.P.
B. Insight and TCI of Indiana Holdings, LLC ("TCI Indiana") will form
a limited partnership and a limited liability company, each to be 50.0%
owned by each of them.
C. Each of Insight and TCI Indiana will cause all of the equity
interests in each of the Borrower and InterMedia Capital Partners VI, L.P.
to be contributed (the "Contribution") to such newly formed limited
partnership (the "New Parent").
III. In connection with the foregoing, the Borrower has requested that the
Administrative Agent and Required Lenders agree to amend the Credit Agreement
upon the terms and conditions contained herein, and the Administrative Agent and
Required Lenders are willing so to agree.
Accordingly, in consideration of the Recitals and the terms and conditions
hereinafter set forth, and for other good and valuable consideration, the
receipt and adequacy of which are acknowledged, the parties hereto agree as
follows:
1. The term "Fixed Charges" contained in Section 1.1 of the Credit
Agreement is amended by replacing the reference "Section 8.6(b)" contained
therein with "paragraphs (b) and (c) of Section 8.6".
2. The term "Operating Cash Flow" contained in Section 1.1 of the Credit
<PAGE>
Agreement is amended by (i) inserting the word "and" immediately prior to clause
2(b) contained therein, and (ii) deleting the phrase ", and (c) all Restricted
Payments made by the Borrower in cash under Section 8.6(b)" appearing therein.
3. Section 1.1 of the Credit Agreement is amended by adding the following
new defined term therein in its applicable alphabetical order:
"Parent Debt": Indebtedness pursuant to the public notes to be issued
by (i) a limited partnership to be formed by Insight and TCI of Indiana
Holdings, LLC, such limited partnership to hold all of the membership
interests in the Borrower and (ii) a corporation wholly owned by such
limited partnership, together with any Indebtedness incurred by such
limited partnership and such corporation to refinance the Indebtedness
under such public notes ("refinancing indebtedness"), provided that (a) the
aggregate Indebtedness in respect of such public notes shall not exceed
$200,000,000, and (b) the aggregate amount of refinancing indebtedness
shall not exceed an amount equal to the original principal amount of the
Indebtedness under such public notes less the amount of all repayments,
prepayments, sinking fund payments and other similar payments made in
respect of the Indebtedness under such public notes, provided further that
any Indebtedness (or any portion thereof) that matures earlier than June
30, 2007 shall not constitute Parent Debt.
4. The term "TCI" contained in Section 1.1 of the Credit Agreement is
amended and restated in its entirety as follows:
"TCI": (a) AT&T Broadband & Internet Services, or any successor to
substantially all of the cable television properties and cable television
interests of AT&T Broadband & Internet Services and its Subsidiaries,
and/or (b) for purposes of paragraphs (g) and (h) of Section 9.1 only, any
holder of a membership interest in the Borrower.
5. Section 8.6(c) of the Credit Agreement is amended and restated in its
entirety as follows:
(c)(1) the Borrower may make Restricted Payments at any time and from
time to time, provided that (i) immediately before and after giving effect
thereto, no Default shall or would exist, and (ii) the amount of each such
Restricted Payment shall not exceed the amount of cash interest then due
and owing under the Parent Debt, and (2) the Borrower may make other
Restricted Payments at any time and from time to time provided that the
amount of each such Restricted Payment pursuant to this clause (2) shall
not exceed the amount of all franchise fees then due and payable by the
Borrower's immediate parent company in its state of formation in order to
maintain its good standing therein.
-2-
<PAGE>
Insight Communications of Indiana, LLC - Amendment No. 1
6. Paragraphs 1 through 5 hereof shall not be effective until such time as
each of the following shall have occurred:
(a) the Administrative Agent shall have received counterparts of this
Amendment duly executed by the Borrower, the New Parent, the Administrative
Agent and the Required Lenders;
(b) the Borrower shall have paid to the Administrative Agent all fees
and other similar amounts then due and payable in connection with this
Amendment; and
(c) the Administrative Agent shall have received all such documents
(including, without limitation, an assumption agreement), certificates
(including, without limitation, a Perfection Certificate), UCC statements
and opinions as the Administrative Agent shall reasonably request, each in
form and substance reasonably acceptable to the Administrative Agent, in
connection with the Contribution and the assumption by the New Parent of
all of the obligations and liabilities of Insight and TCI Indiana under the
Security Agreement and, upon receipt of all of the foregoing, the
Administrative Agent shall, at the sole cost and expense of Insight and TCI
Indiana, execute and deliver appropriate releases in favor of Insight and
TCI Indiana relating to the Contribution and such assumption.
7. The Borrower (a) reaffirms and admits the validity and enforceability of
each Loan Document and all of its obligations thereunder, (b) agrees and admits
that it has no defense to or offset against any such obligation, and (c)
represents and warrants that, as of the date of the execution and delivery
hereof by the Borrower and assuming the effectiveness of all of the provisions
of this Amendment, no Default has occurred and is continuing, and that each of
the representations and warranties made by it in any Loan Document is true and
correct with the same effect as though such representation and warranty had been
made on such date, except to the extent such representations and warranties
specifically relate to an earlier date, in which case such representations and
warranties shall have been true and correct on and as of such earlier date.
8. In all other respects, the Loan Documents shall remain in full force and
effect, and no amendment in respect of any term or condition of any Loan
Document shall be deemed to be an amendment in respect of any other term or
condition contained in any Loan Document.
9. This Amendment may be executed in any number of counterparts all of
which, when taken together, shall constitute one agreement. In making proof of
this Amendment, it shall only be necessary to produce the counterpart executed
and delivered by the party to be charged.
10. THIS AMENDMENT IS BEING EXECUTED AND DELIVERED IN, AND IS INTENDED TO
BE PERFORMED IN, THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND ENFORCEABLE IN
ACCORDANCE WITH, AND BE GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
-3-
<PAGE>
Insight Communications of Indiana, LLC - Amendment No. 1
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
INSIGHT COMMUNICATIONS OF INDIANA, LLC
By:__________________________
Name:________________________
Title:_______________________
<PAGE>
Insight Communications of Indiana, LLC - Amendment No. 1
THE BANK OF NEW YORK, as Issuing Bank and as
Administrative Agent
By:__________________________
Name:________________________
Title:_______________________
<PAGE>
Insight Communications of Indiana, LLC - Amendment No. 1
THE BANK OF NEW YORK COMPANY, INC.
By:__________________________
Name:________________________
Title:_______________________
<PAGE>
Insight Communications of Indiana, LLC - Amendment No. 1
[OTHER LENDERS]
By:__________________________
Name:________________________
Title:_______________________
<PAGE>
Exhibit 10.4
AMENDED AND RESTATED
OPERATING AGREEMENT OF
INSIGHT COMMUNICATIONS OF INDIANA, LLC
DATED AS OF
OCTOBER 1, 1999
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 DEFINITIONS........................................... 1
1.1 Terms Defined in this Section......................... 1
1.2 Terms Defined Elsewhere in this Agreement............. 2
1.3 Terms Generally....................................... 3
ARTICLE 2 FORMATION AND PURPOSE................................. 3
2.1 Formation............................................. 3
2.2 Name 3
2.3 Principal and Registered Office....................... 4
2.4 Term 4
2.5 Purposes of Company................................... 4
2.6 Certificate........................................... 5
2.7 Address of the Member................................. 6
2.8 Foreign Qualification................................. 6
ARTICLE 3 COMPANY CAPITAL....................................... 6
3.1 Contributions......................................... 6
3.2 Return of Contributions............................... 6
ARTICLE 4 DISTRIBUTIONS; ALLOCATIONS OF PROFIT AND LOSS......... 6
4.1 Distributions of Cash................................. 6
4.2 Allocations of Net Profit and Net Loss................ 7
ARTICLE 5 AUTHORITY OF THE MEMBER;OTHER MATTERS AFFECTING MEMBER 7
5.1 Authority of Member................................... 7
5.2 Limited Liability..................................... 7
5.3 Return of Distributions of Capital.................... 7
ARTICLE 6 TRANSFER OF MEMBERSHIP INTERESTS...................... 7
6.1 Transferees........................................... 7
6.2 Other Consents and Requirements....................... 8
6.3 Assignment Not In Compliance.......................... 8
ARTICLE 7 DISSOLUTION AND LIQUIDATION OF COMPANY................ 9
7.1 Events of Dissolution................................. 9
7.2 Liquidation........................................... 9
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE 8 INDEMNIFICATION........................ 10
8.1 General................................ 10
8.2 Exculpation............................ 10
8.3 Persons Entitled to Indemnity.......... 10
8.4 Procedure Agreements................... 11
ARTICLE 9 BOOKS, RECORDS, ACCOUNTING, AND REPORTS 11
9.1 Books and Records...................... 11
9.2 Other Filings.......................... 11
ARTICLE 10 AMENDMENTS AND WAIVERS................. 12
10.1 Amendments to Operating Agreement...... 12
10.2 Waivers................................ 12
ARTICLE 11 MISCELLANEOUS.......................... 12
11.1 General................................ 12
11.2 Notices, Etc........................... 12
11.3 No Third-Party Beneficiaries........... 12
11.4 Headings............................... 13
</TABLE>
-ii-
<PAGE>
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
INSIGHT COMMUNICATIONS OF INDIANA, LLC
THIS AMENDED AND RESTATED OPERATING AGREEMENT OF INSIGHT COMMUNICATIONS OF
INDIANA, LLC is made and entered into as of October 1, 1999, by and between
INSIGHT COMMUNICATIONS OF INDIANA, LLC, a Delaware limited liability company,
and INSIGHT MIDWEST, L.P., a Delaware limited partnership, its sole member.
RECITALS
--------
A. Pursuant to the Contribution and Formation Agreement between Insight
Communications Company, L.P. ("Insight") and TCI of Indiana Holdings, LLC
("TCI") dated as of April 18, 1999 (the "Contribution Agreement"), Insight and
TCI contributed to Member all of their membership interests in the Company, with
the result that Insight Midwest is now the sole member of the Company.
B. Concurrently with the closing under the Contribution Agreement, the
parties hereto desire to amend and restate the Operating Agreement of the
Company dated as of May 14, 1998 in its entirety as set forth herein.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Terms Defined in this Section.
-----------------------------
For purposes of this Agreement, the following terms shall have the
following meanings (all terms used in this Agreement that are not defined in
this Section 1.1 shall have the meanings set forth elsewhere in this Agreement
as indicated in Section 1.2, except as otherwise provided in this Agreement):
"Act" means the Delaware Limited Liability Company Act.
"Agreement" means this Agreement, as it may be amended from time to time.
"Business Day" means any day (other than a day that is a Saturday or
Sunday) on which banks are permitted to be open for business in the State of New
York.
-1-
<PAGE>
"Certificate" means the certificate of formation filed with respect to the
Company pursuant to the Act.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any subsequent federal law of similar import, and, to the extent
applicable, the Treasury Regulations.
"Company" means the limited liability company known as Insight
Communications of Indiana, LLC that was formed by TCI and Insight pursuant to an
Operating Agreement dated as of May 14, 1998 and is continued under this
Agreement.
"Fiscal Year" means the fiscal year of the Company, which shall be the
calendar year.
"Insight Midwest" means Insight Midwest, L.P., a Delaware limited
partnership.
"Insight Midwest Partnership Agreement" means the Limited Partnership
Agreement of Insight Midwest dated as of October 1, 1999.
"Member" means Insight Midwest in its capacity as the Member of the Company
or any other Person that succeeds to its Membership Interest and is admitted as
a Member in accordance with the provisions of this Agreement, and any additional
Person that is admitted as a Member in accordance with the provisions of this
Agreement.
"Membership Interest" means the entire ownership interest of the Member in
the Company at any particular time, including all of its rights and obligations
hereunder and under the Act.
"Person" means an individual, partnership, joint venture, association,
corporation, trust, estate, limited liability company, limited liability
partnership, or any other legal entity.
"Subsidiary" means, at any time, any Person that is controlled by the
Company at such time.
"Transferee" means any Person that acquires a Membership Interest from a
Member in accordance with the provisions of this Agreement.
1.2 Terms Defined Elsewhere in this Agreement.
-----------------------------------------
For purposes of this Agreement, the following terms have the meanings set
forth in the sections indicated:
Term Section
- ---- -------
Contribution Agreement Recital A
Indemnified Persons Section 8.1
Transfer Section 6.1(a)
-2-
<PAGE>
1.3 Terms Generally.
---------------
The definitions in Section 1.1 and elsewhere in this Agreement shall apply
equally to both the singular and plural forms of the terms defined. Whenever
the context requires, any pronoun includes the corresponding masculine,
feminine, and neuter forms. The words "include," "includes," and "including"
are not limiting. Any reference in this Agreement to a "day" or number of
"days" (without the explicit qualification of "Business") shall be interpreted
as a reference to a calendar day or number of calendar days. If any action or
notice is to be taken or given on or by a particular calendar day, and such
calendar day is not a Business Day, then such action or notice shall be deferred
until, or may be taken or given on, the next Business Day.
ARTICLE 2
FORMATION AND PURPOSE
---------------------
2.1 Formation.
---------
The Company has been formed as a limited liability company pursuant to the
Act. The rights and liabilities of the Member shall be determined pursuant to
the Act and this Agreement. To the extent that the rights or obligations of the
Member are different by reason of any provision of this Agreement than they
would be in the absence of such provision, this Agreement shall, to the extent
permitted by the Act, control.
2.2 Name.
----
(a) The name of the Company is Insight Communications of Indiana, LLC.
Except as provided in Section 2.2(b), the business of the Company may be
conducted under that name or, upon compliance with applicable laws, any other
name that the Member deems appropriate or advisable. The Company shall file any
assumed name certificates and similar filings, and any amendments thereto, that
the Member considers appropriate or advisable. Such names and any trade or
service names, marks, emblems or logos used by the Company shall be exclusive
property of the Company and no Person shall have any right to use, and the
Member agrees not to use, any of said names, marks, emblems or logos other than
on behalf of the Company (other than any of the foregoing that incorporates the
name "Insight" or any variant thereof, which shall remain the exclusive property
of Insight Communications Company, L.P. and its affiliates and may be used by
Insight Communications Company, L.P. and its affiliates without limitation).
(b) The Company shall not conduct business under the name "Tele-
Communications, Inc.," "TCI," or any variation thereof without the approval of
TCI. The parties agree that "Communications" is not a variation of "Tele-
Communications, Inc." for purposes of this Section 2.2(b).
-3-
<PAGE>
2.3 Principal and Registered Office.
-------------------------------
The office required to be maintained by the Company in the State of
Delaware pursuant to Section 18-104 of the Act shall initially be located at
1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The resident
agent of the Company pursuant to Section 18-104 of the Act shall initially be
The Corporation Trust Company. The Company may, upon compliance with the
applicable provisions of the Act, change its principal office or resident agent
from time to time in the discretion of the Member. The principal office of the
Company shall be located at 126 E. 56th Street, New York, New York 10022, or at
such other place as the Member shall from time to time designate. The Company
may conduct business at such additional places as the Member shall deem
advisable.
2.4 Term.
----
The term of the Company commenced when the Certificate was filed with the
Secretary of State of Delaware, and shall continue until October 1, 2011, unless
sooner terminated as provided in this Agreement.
2.5 Purposes of Company.
-------------------
The purposes of the Company are:
(a) to engage in the business, directly or indirectly through
interests in one or more Subsidiaries, of acquiring, developing, owning,
operating, managing, and selling cable television systems in the State of
Indiana and in the Commonwealth of Kentucky;
(b) to acquire, develop, own, operate, manage, and sell additional
cable television systems in the State of Indiana and the Commonwealth of
Kentucky and such other States as the Member may determine;
(c) to acquire, develop, own, operate, manage, and sell, or invest in,
businesses related to and ancillary to the ownership and operation of the cable
television systems referred to above (including, but not limited to, high speed
data service, Internet access, telephony services and other telephony-related
investments or businesses, and video wireless services and wireless
communications services and other wireless-related investments or businesses but
not including multipoint distribution systems ("MDS"), multichannel multipoint
distribution systems ("MMDS"), direct-to-home satellite systems ("DTH") or
Internet Backbone Services (as defined in the Insight Midwest Partnership
Agreement), it being agreed that the use of IP technology to provide telephone,
fax, video, video conferencing, telecommuting, virtual private networks,
security and energy management services to subscribers of the Partnership's
cable television systems does not constitute engaging in an Internet Backbone
Service and, subject to Section 16.1(b) of the Insight Midwest Partnership
Agreement, is within the purposes of the Company;
-4-
<PAGE>
(d) to conduct other businesses as determined by the Member;
(e) in connection with the businesses described in Section 2.5(a)-(d),
to possess, transfer, mortgage, pledge, or otherwise deal in, and to exercise
all rights, powers, privileges, and other incidents of ownership or possession
with respect to securities or other assets held or owned by the Company, and to
hold securities or assets in the name of a nominee or nominees;
(f) in connection with the businesses described in Section 2.5(a)-(d),
to borrow or raise money, and from time to time to issue, accept, endorse, and
execute promissory notes, loan agreements, options, stock purchase agreements,
contracts, documents, checks, drafts, bills of exchange, warrants, bonds,
debentures, and other negotiable or non-negotiable instruments and evidences of
indebtedness, and to secure the payment of any thereof and of the interest
thereon by mortgage upon or pledge, conveyance, or assignment in trust of, the
whole or any part of the property of the Company whether at the time owned or
thereafter acquired and to guarantee the obligations of others and to sell,
pledge, or otherwise dispose of such bonds or other obligations of the Company
for its purposes;
(g) in connection with the businesses described in Section 2.5(a)-(d),
to guarantee the obligations of others in connection with the purchase or
acquisition by the Company of securities or assets;
(h) to maintain an office or offices in such place or places as the
Member shall determine and in connection therewith to rent or acquire office
space, engage personnel, and do such other acts and things as may be necessary
or advisable in connection with the maintenance of such office, and on behalf of
and in the name of the Company to pay and incur reasonable expenses and
obligations for legal, accounting, investment advisory, consultative and
custodial services, and other reasonable expenses including taxes, travel,
insurance, rent, supplies, interest, salaries and wages of employees, and all
other reasonable costs and expenses incident to the operation of the Company;
(i) to form and own one or more corporations, trusts, partnerships or
other entities (but no entity so formed or owned, while it is a Subsidiary, may
do what the Company is prohibited by this Agreement from doing); and
(j) to own, lease, or otherwise acquire any and all assets and
services related to the foregoing purposes and to engage in such other
activities related either directly or indirectly to the foregoing purposes as
may be necessary, advisable, or appropriate, in the opinion of the Member, for
the promotion or conduct of the business of the Company.
-5-
<PAGE>
2.6 Certificate.
-----------
The Member shall cause any amendment to the Certificate required under the
Act to be filed or recorded with the Secretary of State of Delaware and in any
other public office where filing or recording is required or is deemed by the
Member to be advisable.
2.7 Address of the Member.
---------------------
The address of the Member is 126 E. 56th Street, New York, New York 10022,
Attention: Sidney R. Knafel, Facsimile: (212) 371-1549.
2.8 Foreign Qualification.
---------------------
The Member shall take all necessary actions to cause the Company to be
authorized to conduct business legally in all appropriate jurisdictions,
including registration or qualification of the Company as a foreign limited
liability company in those jurisdictions that provide for registration or
qualification and the filing of a certificate of limited liability company in
the appropriate public offices of those jurisdictions that do not provide for
registration or qualification.
ARTICLE 3
COMPANY CAPITAL
---------------
3.1 Contributions.
-------------
The Member may make capital contributions to the Company as it deems
appropriate.
3.2 Return of Contributions.
-----------------------
The Member shall not have the right to demand a return of all or any part
of its Capital Contribution during the term of the Company, and any return of
the Capital Contribution of the Member shall be made solely from the assets of
the Company and only in accordance with the terms of this Agreement. No
interest shall be paid to the Member with respect to its Capital Contribution to
the Company.
-6-
<PAGE>
ARTICLE 4
DISTRIBUTIONS; ALLOCATIONS OF PROFIT AND LOSS
---------------------------------------------
4.1 Distributions of Cash.
---------------------
Distributions shall be made to the Member at the times and in the aggregate
amounts determined by the Member. Notwithstanding any other provision of this
Agreement to the contrary, no distribution shall be made that would render the
Company insolvent or which is prohibited by the Act.
4.2 Allocations of Net Profit and Net Loss.
--------------------------------------
Net profit and net loss for each Fiscal Year (or portion thereof) shall be
allocated to the Member.
ARTICLE 5
AUTHORITY OF THE MEMBER;
------------------------
OTHER MATTERS AFFECTING MEMBER
------------------------------
5.1 Authority of Member.
-------------------
The business of the Company shall be managed by the Member pursuant to the
provisions of this Agreement. The Member shall have exclusive authority and
full discretion with respect to the management of the business of the Company
and the Subsidiaries. Notwithstanding the foregoing, Insight Midwest shall not
take any action with respect to the Company or Insight Midwest's Membership
Interest that requires the consent of the limited partner of Insight Midwest
pursuant to the Insight Midwest Partnership Agreement without first obtaining
such consent, including any Transfer of its Membership Interest.
5.2 Limited Liability.
-----------------
The Member shall not be bound by or personally liable for the expenses,
liabilities, or obligations of the Company. In no event shall the Member be
required to make up a deficiency in its Capital Account upon the dissolution and
termination of the Company.
-7-
<PAGE>
5.3 Return of Distributions of Capital.
----------------------------------
The Member may, under certain circumstances, be required by law to return
to the Company, for the benefit of the Company's creditors, amounts previously
distributed. The Member shall be obligated by this Agreement to pay those
distributions to or for the account of the Company or any creditor of the
Company. Any payment returned to the Company by the Member or made directly by
the Member to a creditor of the Company shall be deemed a Capital Contribution
by the Member.
ARTICLE 6
TRANSFER OF MEMBERSHIP INTERESTS
--------------------------------
6.1 Transferees.
-----------
(a) No sale, assignment, transfer or other disposition (any or all of
the foregoing, a "Transfer") of a Membership Interest will be effective nor will
any purported Transferee become a Member or otherwise be entitled to any of
attributes of ownership of the Company purportedly Transferred unless such
Transfer is made in accordance with the provisions of this Article 7 and the
transferor and Transferee have complied with the following conditions:
(1) the transferor has executed and delivered to the Company a copy
of the assignment of the Membership Interest to Transferee in form and substance
satisfactory to the Company;
(2) the Transferee becomes a party to this Agreement, assumes all of
the obligations hereunder of its transferor and agrees to be bound by the terms
and conditions hereof in the same manner as the transferor.
(b) Upon compliance with Section 7.1(a), any Transferee shall be
substituted as a Member for, and shall enjoy the same rights and be subject to
the same obligations as, its predecessor as a Member hereunder.
(c) If there is a permitted Transfer of a Membership Interest under
this Agreement:
(1) A Transferee's percentage interest in the Company shall equal
the percentage interest transferred to it by the transferring Member; and
(2) A Transferee's Capital Account shall initially be equal to the
Capital Account balance transferred to it by the transferring Member.
-8-
<PAGE>
6.2 Other Consents and Requirements.
-------------------------------
Any Transfer must be in compliance with all requirements imposed by any
state securities administrator having jurisdiction over the Transfer and the
United States Securities and Exchange Commission.
6.3 Assignment Not In Compliance.
----------------------------
Any Transfer in contravention of any of the provisions of this Article 7
(whether voluntarily, involuntarily or by operation of law) shall be void and of
no effect, and shall neither bind nor be recognized by the Company.
ARTICLE 7
DISSOLUTION AND LIQUIDATION OF COMPANY
--------------------------------------
7.1 Events of Dissolution.
---------------------
The Company shall be dissolved upon the happening of any of the following
events:
(a) the expiration of the term of the Company as set forth in Section
2.4;
(b) the sale, exchange, involuntary conversion, or other disposition
or transfer of all or substantially all of the assets of the Company;
(c) upon determination by the Member; or
(d) subject to any provision of this Agreement that limits or prevents
dissolution, the happening of any event that, under applicable law, causes the
dissolution of a limited liability company.
7.2 Liquidation.
-----------
(a) Upon dissolution of the Company for any reason, the Company shall
immediately commence to wind up its affairs. A reasonable period of time shall
be allowed for the orderly termination of the Company business, discharge of its
liabilities, and distribution or liquidation of the remaining assets so as to
enable the Company to minimize the normal losses attendant to the liquidation
process.
(b) Liquidation of the assets of the Company shall be managed on
behalf of the Company by the Member.
-9-
<PAGE>
(c) The property and assets of the Company and the proceeds from the
liquidation thereof shall be applied in the following order of priority:
(1) first, to payment of the debts and liabilities of the Company,
in the order of priority provided by law (including any loans by the Member to
the Company) and payment of the expenses of liquidation;
(2) second, to setting up of such reserves as the Member may deem
reasonably necessary for any contingent or unforeseen liabilities or obligations
of the Company or any obligation or liability not then due and payable;
provided, however, that any such reserve shall be paid over by the Member into a
Company account or a liquidating trust account established for such purpose, to
be held in such account for the purpose of disbursing such reserves in payment
of such liabilities, and, at the expiration of such holdback period as the
Member shall deem advisable, to distribute the balance thereafter remaining in
the manner hereinafter provided; and
(3) finally, to payment to the Member. The distributions pursuant to
this Section 8.2(d)(3) shall, to the extent possible, be made prior to the later
of the end of the Fiscal Year in which the dissolution occurs or the ninetieth
day after the date of dissolution, or such other time period which may be
permitted under Treasury Regulations Section 1.704-1(b)(2)(ii)(b).
ARTICLE 8
INDEMNIFICATION
---------------
8.1 General.
-------
The Company shall indemnify, defend, and hold harmless the Member and its
respective members, partners, officers, directors, shareholders, employees, and
agents, the employees, officers, and agents of the Company (all indemnified
persons being referred to as "Indemnified Persons" for purposes of this Article
9), from any liability, loss, or damage incurred by the Indemnified Person by
reason of any act performed or omitted to be performed by the Indemnified Person
in connection with the business of the Company, including costs and attorneys'
fees (which attorneys' fees may be paid as incurred) and any amounts expended in
the settlement of any claims of liability, loss, or damage; provided, however,
that, if the liability, loss, damage, or claim arises out of any action or
inaction of an Indemnified Person, indemnification under this Section 9.1 shall
not be available if the action or inaction is finally adjudicated to have
constituted fraud, gross negligence, breach of fiduciary duty (which shall not
be construed to encompass mistakes in judgment or any breach of any Indemnified
Person's duty of care that did not constitute gross negligence), or willful
misconduct by the Indemnified Person. The Company may pay for insurance
covering liability of the Indemnified Persons for negligence in operation of the
Company's affairs.
-10-
<PAGE>
8.2 Exculpation.
-----------
No Indemnified Person shall be liable, in damages or otherwise, to the
Company or the Member for any loss that arises out of any act performed or
omitted to be performed by it or him pursuant to the authority granted by this
Agreement unless the conduct of the Indemnified Person is finally adjudicated to
have constituted fraud, gross negligence, breach of fiduciary duty (which shall
not be construed to encompass mistakes in judgment or any breach of any
Indemnified Person's duty of care that did not constitute gross negligence), or
willful misconduct by such Indemnified Person.
8.3 Persons Entitled to Indemnity.
-----------------------------
Any Person who is within the definition of "Indemnified Person" at the time
of any action or inaction in connection with the business of the Company shall
be entitled to the benefits of this Article 9 as an "Indemnified Person" with
respect thereto, regardless of whether such Person continues to be within the
definition of "Indemnified Person" at the time of his or its claim for
indemnification or exculpation hereunder.
8.4 Procedure Agreements.
--------------------
The Company may enter into agreements with the Member and any of the
employees, officers, and agents, any of the officers, directors, shareholders,
employees, and agents of the Members, and any Indemnified Person, setting forth
procedures for implementing the indemnities provided in this Article 9.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING, AND REPORTS
---------------------------------------
9.1 Books and Records.
-----------------
The Company shall maintain at its principal office all of the following:
(a) A current list of the full name and last known business or
residence address of the Member together with the Capital Contributions and
Membership Interest of the Member;
(b) A copy of the Certificate, this Agreement, and any and all
amendments to either thereof, together with executed copies of any powers of
attorney pursuant to which any certificate or amendment has been executed;
(c) The audited financial statements of the Company for the six most
recent Fiscal Years; and
-11-
<PAGE>
(d) The Company's books and records for at least the current and past
three Fiscal Years.
9.2 Other Filings.
-------------
The Company, at Company expense, shall also prepare and timely file, with
appropriate federal and state regulatory and administrative bodies, all reports
required to be filed by the Company with those entities under then current
applicable laws, rules, and regulations. The reports shall be prepared on the
accounting or reporting basis required by the regulatory bodies.
ARTICLE 10
AMENDMENTS AND WAIVERS
----------------------
10.1 Amendments to Operating Agreement.
---------------------------------
(a) This Agreement may be modified or amended with the consent of the
Member.
(b) The Company shall prepare and file any amendment to the
Certificate that may be required to be filed under the Act as a consequence of
any amendment to this Agreement.
10.2 Waivers.
-------
The observance or performance of any term or provision of this Agreement
may be waived (either generally or in a particular instance, and either
retroactively or prospectively) by the party entitled to the benefits of such
term or provision.
ARTICLE 11
MISCELLANEOUS
-------------
11.1 General.
-------
This Agreement: (a) shall be binding on the executors, administrators,
estates, heirs, and legal successors of the Member; (b) be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to conflicts of law principles thereunder; (c) may be executed in more than one
counterpart as of the day and year first above written; and (d) contains the
entire agreement between the parties as to the subject matter of this Agreement.
The waiver of any of the provisions, terms, or conditions contained in this
Agreement shall not be considered as a waiver of any of the other provisions,
terms, or conditions of this Agreement.
-12-
<PAGE>
11.2 Notices, Etc.
------------
All notices and other communications required or permitted hereunder shall
be in writing and shall be deemed effectively given or delivered upon personal
delivery, confirmation of telex or telecopy, or receipt (which may be evidenced
by a return receipt if sent by registered mail), addressed if to the Member or
the Company at 126 E. 56th Street, New York, New York 10022.
11.3 No Third-Party Beneficiaries.
----------------------------
This Agreement is not intended to, and shall not be construed to, create
any right enforceable by any Person not a party hereto, including any partner or
member of the Member or any creditor of the Company or the Member.
11.4 Headings.
--------
The headings herein are included for ease of reference only and shall not
control or affect the meaning or construction of the provisions of this
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands as of the day
first heretofore mentioned.
INSIGHT MIDWEST, L.P.
By: Insight Communications Company, L.P., its
general partner
By: Insight Communications Company, Inc., its
general partner
By:________________________________________
Name:
Title:
INSIGHT COMMUNICATIONS OF INDIANA, LLC
By: Insight Midwest, L.P., its sole member
By: Insight Communications Company, L.P., its
general partner
By: Insight Communications Company, Inc., its
general partner
By:_________________________________________
Name:
Title:
<PAGE>
Exhibit 10.5
AMENDED AND RESTATED MANAGEMENT AGREEMENT
THIS AMENDED AND RESTATED MANAGEMENT AGREEMENT is made and entered into on
the 1st day of October, 1999, by and between Insight Communications of Indiana,
LLC, a Delaware limited liability company (the "Company") and Insight
Communications Company, L.P., a Delaware limited partnership ("Insight" and,
together with any permitted assigns hereunder, the "Manager").
RECITALS
--------
A. Pursuant to an Operating Agreement, dated as of May 14, 1998 (as the
same may be amended or modified from time to time, the "Operating Agreement"),
the Company was formed to own and operate certain cable television systems and
certain other assets, as more fully described in the Operating Agreement. The
business and operations of the Company, as the same may be conducted from and
after the date hereof, are hereinafter referred to as the "Business."
B. On October 30, 1998, the Company entered into a Management Agreement
with Manager providing for the management of the Business on the terms and
conditions as set forth therein.
C. On April 18, 1999 the Company and Manager entered into a Contribution
and Formation Agreement, and, as a result of the consummation of the
transactions contemplated in the Contribution and Formation Agreement, Company
and Manager desire to amend and restate the Management Agreement in its entirety
as set forth herein.
D. The Company is a subsidiary of Insight Midwest, L.P., a Delaware
limited partnership ("Insight Midwest"), and reference is hereby made to that
certain Limited Partnership Agreement, dated as of October 1, 1999, of Insight
Midwest (as the same may be amended from time to time, the "Midwest Partnership
Agreement").
AGREEMENTS
----------
In consideration of the covenants and agreements contained herein, the
Company and Manager agree as follows:
<PAGE>
SECTION 1 DEFINITIONS. Except as otherwise defined herein, the following
-----------
terms shall have the following meanings when used in this Agreement:
Affiliate. With respect to either the Company or Manager, any other Person
that directly or indirectly through one or more intermediaries controls or is
controlled by or under direct or indirect common control with such party.
Applicable Law. Any statute, ordinance, law, rule or regulation of any
Governmental Authority, or any order, decree, injunction, writ, judgment or
award of any court, arbitrator or other Governmental Authority, applicable to
the Company or the Business.
Authorizations. Any governmental or non-governmental license, permit,
franchise or other authorization, and applications therefor, which are necessary
to conduct the Business.
GAAP. Generally accepted accounting principles as in effect from time to
time.
Governmental Authority. Any governmental authority or regulatory body, or
any department, agency, division, bureau or other legal body thereof having
jurisdiction over the Company, the Business, or general jurisdiction over all
Persons.
Person. Any individual, corporation, partnership, firm, limited liability
company, joint venture, association, trust, joint stock company, unincorporated
organization or other entity, or a government or any agency or political
subdivision thereof.
Capitalized terms not otherwise defined herein shall have the meanings
given such terms in the Midwest Partnership Agreement.
SECTION 2 APPOINTMENT. On the terms and conditions hereinafter provided,
-----------
the Company hereby ratifies its appointment of Manager, and Manager hereby
ratifies its acceptance of such appointment, as manager for all of the
operations and conduct of the Business for the period commencing on October 30,
1998 and expiring as provided in Section 5 of this Agreement.
SECTION 3. MANAGEMENT AUTHORITY; MANAGEMENT SERVICES.
-----------------------------------------
3.1 Authority and Services To Be Performed By Manager. (a)(i) Subject to
-------------------------------------------------
the limitations set forth in Section 3.1(b) below, Manager shall have full and
exclusive authority to do all such acts and things as may be incidental to, or
necessary, proper or advisable in the furtherance of, the management of the day-
to-day operations and conduct of the Business. Subject to the terms and
conditions of this Agreement, Manager shall provide the Company with such
services as may, from time to time, be appropriate or reasonably required for
the proper and
<PAGE>
efficient operation and conduct of the Business in accordance with sound
business principles and practices customary in the cable television industry
(collectively, the "Management Services"). The Management Services shall be
provided both at such times as Manager may reasonably deem appropriate and at
such times as the Company may reasonably request.
(ii) Without limiting the generality of the preceding paragraph, the
Management Services shall include the following, but subject to any applicable
limitations set forth in this Agreement:
(1) (A) Evaluation of new equipment, materials and techniques and
making recommendations in accordance with its evaluations, (B) establishment of
general technical standards and procedures and directing their implementation,
and (C) establishment of programs for preventive maintenance and monitoring
their effectiveness;
(2) Supervision of all construction and development arising out of or
related to the operation of the Business, including, without limitation, the
selection and appointment of all subcontractors, equipment suppliers and
vendors;
(3) Supervision of the purchasing of property, real, personal or
mixed, and all materials and supplies, if any, necessary to complete any
construction and development arising out of or related to the Business;
(4) Sale, lease, trade, exchange or other disposition of the Company's
assets in the ordinary course of business and the negotiation of, and entrance
into, in the name of and on behalf of the Company, of all agreements relating to
any of the foregoing;
(5) Negotiation of, and entrance into, in the name of and on behalf of
the Company, of all, contracts, leases, deeds, releases, assignments and any
other agreements on behalf of the Company for the purchase, lease, license or
use of such properties and rights as may be necessary or reasonably desirable in
connection with the Business;
(6) Formulation and supervision of all advertising, marketing and
sales programs and engagement and appointment on behalf of the Company of
advertising, marketing and public relations agencies and consultants for such
purposes;
(7) Subject to the provisions of all Authorizations, Applicable Law
and applicable agreements to which the Company is a party, the selection and
pricing of all services to be provided to the customers of the cable television
systems included in the Business;
(8) Supervision of performance of all aspects of the daily operation
and maintenance of the Business, instruction and supervision of all personnel
necessary to conduct
-3-
<PAGE>
daily operations of the Business and the setting of salaries and wages for such
personnel (with all such employees to be paid by the Company);
(9) Entrance into, in the name of and on behalf of the Company, of any
agreements arising out of or related to the Business, including, without
limitation, cable television franchises or collective bargaining agreements with
employees of the Company;
(10) Supervision of the maintenance of all accounting, bookkeeping,
billing, collections and other financial systems and records relating to the
Business;
(11) Engagement of, on behalf of the Company, attorneys, accountants,
engineers, consultants and other qualified professionals;
(12) Preparation and filing, or causing to be prepared and filed, all
necessary applications, filings, reports, statements and other documents as are
required in connection with the Business with Governmental Authorities
(including any income tax filings);
(13) Purchase of such policies of insurance (including Manager's
blanket coverage) as Manager may from time to time consider necessary and
appropriate in accordance with normal industry practice, with such policy naming
both the Company and Manager (and any other Member of the Company) as insured
thereunder as their interests may appear;
(14) Representation of the Company before all Governmental Authorities
with respect to any matter necessary or desirable to the management of the
Business; and
(15) Taking of any other action in connection with the construction,
development, operation and maintenance of the Business in the ordinary course of
business which is commercially reasonable, appropriate and necessary.
(b) Notwithstanding the foregoing in Section 3.1(a), the Manager
acknowledges that the Manager shall be subject to all express limitations of the
Midwest Partnership Agreement requiring approvals of the Partners of Insight
Midwest prior to taking of certain actions by the Company and shall otherwise be
subject to the terms of the Midwest Partnership Agreement, including Section
16.1 thereof.
3.2 Standard of Care. Manager will use reasonable commercial efforts in
----------------
managing the Business; provided, however, that notwithstanding anything
contained herein or Applicable Law to the contrary, neither Manager (nor any of
its direct or indirect partners, shareholders, members, officers, directors,
Affiliates, employees or agents) shall have any liability, express or implied,
for any action taken or omitted to be taken by Manager or for any failure or
delay in performing or exercising any obligation, duty, right, power or
authority possessed by Manager under this Agreement, or any other document
related hereto except for actual losses, if any,
-4-
<PAGE>
suffered by the Company that are proximately caused either by Manager's gross
negligence, willful misconduct or willful breach of this Agreement.
3.3 Compliance with Authorizations. Notwithstanding anything in this
------------------------------
Agreement to the contrary, the Company shall continue to be the franchisee,
licensee and permittee, as applicable, of all Authorizations of any nature
whatsoever issued by any Governmental Authority in connection with the operation
of the Business and shall retain ultimate control over the Business. The
Company shall also retain ultimate responsibility for compliance with all
Applicable Law and the terms of any applicable Authorizations.
3.4 Payment of Expenses. The Company shall be responsible for the payment
-------------------
of all costs, expenses and liabilities of any nature whatsoever in connection
with the construction, development, operation, maintenance, repair and ownership
of the Business and the Company shall be the responsible party under all
agreements entered into on behalf of the Company by Manager pursuant hereto.
3.5 Inspection of Records. Originals or copies of all books and records
---------------------
related to this Management Agreement shall be maintained at the principal office
of Manager and shall be open to the inspection and examination of the Company
and Insight Midwest's Partners during normal business hours upon reasonable
notice.
SECTION 4 COMPENSATION AND EXPENSES.
-------------------------
4.1 Management Fee. As compensation to Manager for the performance of its
--------------
services hereunder, the Company shall pay to Manager a management fee
("Management Fee") for each twelve month period during the term of this
Agreement, commencing on the date hereof, equal to three percent (3%) of the
total Gross Operating Revenues of the Company for that year.
4.2 Gross Operating Revenues. The term "Gross Operating Revenues" means
------------------------
all revenues arising out of or in connection with the operation of the Business,
but exclusive of all proceeds from the sale of assets or from other
extraordinary or non-recurring items and exclusive of all interest, dividends,
royalties, and other similar types of investment income that do not arise from
the operation of the Business in the ordinary course.
4.3 Quarterly Statement. Within 30 days after the end of each fiscal
-------------------
quarter, the Manager shall submit to the Company a quarterly and a cumulative
year-to-date Gross Operating Revenues statement indicating the quarterly
Management Fee payable and the cumulative year-to-date Management Fee payable to
Manager together with appropriate supporting documentation. Each quarterly
Management Fee payable hereunder shall be adjusted to reflect any cumulative
year-to-date adjustments in Gross Operating Revenues. The Management Fee
-5-
<PAGE>
shall be payable each quarter within 10 days after the Management Fee statement
for such quarter has been received by the Company.
4.4 Annual Statement. Within 90 days after the end of each fiscal year,
----------------
the Company shall cause its independent public accountants to determine the
Gross Operating Revenues of the Company for that year and the amount of the
Management Fee payable to Manager for that year and deliver a copy to Manager.
Manager shall have the right to consult with the accountants regarding the
determination of Gross Operating Revenues prior to the final determination of
Gross Operating Revenues by the accountants. The accountants' determination
shall be final and binding on the Company and Manager.
4.5 Expense Reimbursement. The Management Fee described above shall be
---------------------
exclusive of reimbursement by the Company to Manager for all direct, out-of-
pocket expenditures incurred by or on behalf of Manager relating to its
obligations under this Agreement as provided for herein, including without
limitation, reimbursement for travel expenses. Manager shall be entitled to
reimbursement by the Company for services that would ordinarily be direct
expenditures of the Company. Manager shall act in good faith and in a reasonable
manner in making determinations of reimbursement. It is understood and agreed
that the intent of the expense reimbursement provisions contained in this
Section 4.5 is to reimburse Manager only for expenses incurred that are directly
related to the operation of the Business and not to reimburse Manager for any
corporate overhead (including bonuses and health, welfare, retirement and other
benefits and overhead expenses of its corporate office management, development,
internal accounting and finance management personnel), which shall be paid out
of the Management Fee. Payment of expense reimbursement shall be made monthly
by the Company to Manager within five days after receipt by the Company of a
statement (the "Monthly Expense Statement") of Manager's estimated reimbursable
expenses for the preceding month. The Monthly Expense Statement shall include
an adjustment to reflect the amount by which actual reimbursable expenses
incurred during the month immediately preceding the month of payment exceeded,
or were exceeded by, Manager's estimated reimbursable expenses with respect to
such month.
4.6 Subordination. Manager acknowledges and agrees that notwithstanding
-------------
anything else contained herein, payment of the Management Fee may be limited by
the provisions of loan agreements of the Company and that the Management Fee
shall be paid if and only to the extent that such payment will not create a
default under such loan agreements. To the extent that all or any portion of
the Management Fee may not be paid because of the terms of the loan agreements,
any portion of the Management Fee that is deferred shall be paid as soon as the
same may be paid without violating the provisions of the loan agreements.
Payments of any outstanding Management Fees (whether or not deferred) shall be
paid prior to payment of any members distributions or similar payments to the
members of the Company.
-6-
<PAGE>
SECTION 5 DEFAULT AND TERMINATION.
-----------------------
5.1 A default by Manager or the Company shall occur under this Agreement
if Manager or the Company shall willfully breach in any material respect any
material covenant of this Agreement to be kept and performed by it.
5.2 Subject to Section 5.3 hereof, this Agreement shall be terminated
automatically upon the termination of the Company and may be terminated as
follows:
(a) by either the Company or Manager on written notice to the other
party in the event of any default (as defined in Section 5.1 hereof) by the
other party, as provided in Section 5.1, which is not cured within 90 days after
written notice thereof is received by the defaulting party (or if not curable
within that time period, within a reasonable time thereafter);
(b) by either the Company or Manager on written notice to the other
party upon a sale or other disposition of all or substantially all of the assets
of the Company.
(c) Upon the resignation or removal of Insight as General Partner of
Insight Midwest pursuant to and in accordance with the terms of the Midwest
Partnership Agreement, other than in connection with a transfer by Insight of
its Partnership Interest in Insight Midwest to an Affiliate of Insight that is
permitted under the terms of the Midwest Partnership Agreement.
5.3 In the event of termination of this Agreement pursuant to the terms
hereof, Manager shall be entitled to receive promptly following termination, and
in any event within 30 days thereafter, the amount of any accrued but unpaid
Management Fees and any expense reimbursements.
SECTION 6 INDEMNIFICATION.
---------------
6.1 Indemnification by the Company. The Company will indemnify and hold
------------------------------
harmless Manager, its Affiliates, and all direct and indirect officers,
directors, employees, stockholders, partners, members and agents of Manager and
its Affiliates (individually, a "Manager Indemnitee") from and against any and
all claims, demands, costs, damages, losses, liabilities, joint and several,
expenses of any nature (including reasonable attorneys', accountants' and
experts' fees and disbursements, all of which shall be paid by the Company as
incurred by the Manager Indemnitee(s)), judgments, fines, settlements and other
amounts (collectively, "Damages") arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative, or investigative
(collectively "Claims") in which a Manager Indemnitee may be involved or
threatened to be involved, as a party or otherwise, arising out of Manager's
performance of its obligations under this Agreement or arising out of, related
to or in connection with, the Business regardless of whether this Agreement
continues to be in effect or such
-7-
<PAGE>
Manager Indemnitee continues to be an Affiliate, or an officer, director,
employee, stockholder, partner or agent of Manager, at the time any such Claims
are made or Damages incurred, provided that in respect of any matter in which
indemnification is sought, to the extent applicable: (i) the Manager Indemnitee
acted in good faith and in a manner it reasonably believed to be in the best
interest of the Company and, with respect to any criminal proceeding, had no
reasonable cause to believe its conduct was unlawful, and (ii) the Manager
Indemnitee's conduct for which indemnification is sought did not constitute
gross negligence, willful misconduct or a willful breach of this Agreement. Any
indemnification hereunder will be satisfied solely out of the assets of the
Company.
6.2 Indemnification by Manager. Manager will indemnify and hold harmless
--------------------------
the Company, its Affiliates, and all officers, directors, employees,
stockholders, partners, members and agents of the Company and its Affiliates
(individually, a "Company Indemnitee") from and against all Damages arising from
any Claim in which a Company Indemnitee may be involved or threatened to be
involved, as a party or otherwise, arising out of Manager's gross negligence,
willful misconduct or willful breach of this Agreement.
6.3 Right to Indemnification Not Exclusive Remedy. The indemnification
---------------------------------------------
rights contained in this Section 6 will be cumulative of and in addition to any
and all other rights, remedies and recourse to which a Manager Indemnitee or a
Company Indemnitee, its heirs, successors, assigns and administrators are
entitled, whether pursuant to some other provision of this Agreement, at law or
in equity; provided, however, it is understood and agreed that notwithstanding
anything contained herein to the contrary, neither Manager (nor any of its
shareholders, officers, directors, employees or agents) shall have any liability
with respect to a breach of, or non-performance under this Agreement except as
expressly specified in this Agreement. The indemnification provided in this
Section 6 will inure to the benefit of the heirs, successors, assigns and
administrators of each Manager Indemnitee and Company Indemnitee.
6.4 Insurance. Manager may purchase, at the Company's expense, and
---------
maintain insurance on behalf of Manager and such other persons as Manager may
reasonably determine against any liability that may be asserted against it or
them in connection with the performance of Manager's obligations under this
Agreement; provided, however, that Manager will not purchase or maintain
insurance against liabilities of Manager or any other person arising out of acts
or omissions which were not made in good faith or which constituted gross
negligence, willful misconduct or a willful breach of this Agreement.
6.5 Interested Transactions. A Manager Indemnitee will not be denied
-----------------------
indemnification in whole or in part under this Section 6 solely because the
Manager Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by the terms
of this Agreement.
-8-
<PAGE>
SECTION 7 MISCELLANEOUS.
-------------
7.1 Relationship Among the Parties. Nothing herein contained shall be
------------------------------
deemed to make Manager a partner, co-venturer or other participant in the
business or operations of the Company or in any manner to render Manager liable
as a principal, surety, guarantor, agent or otherwise for any of the debts,
obligations or liabilities of the Company, whether incurred directly by the
Company or by Manager on behalf of the Company in accordance with this
Agreement.
7.2 Other Activities of Manager. Nothing in this Agreement shall limit or
---------------------------
restrict the right of Manager to engage in any other business or to devote its
time and attention to the management or other aspects of any other business or
to render services of any kind. The Company acknowledges that Manager and its
Affiliates own, manage or operate cable television systems throughout the United
States. Manager will devote such of its attention, time, efforts and resources
to the Business as shall be reasonably necessary for it to carry out its duties
hereunder.
7.3 Notices. All notices and other communications given or made pursuant
-------
to this Agreement shall be in writing and shall be deemed to have been duly
given or made as of the date delivered if delivered by hand, by telecopier
device (confirmed by hand delivery or overnight courier service) or by overnight
courier service to the parties at the following address (or at such other
address for a party as shall be specified by like notice):
if to the Company, to:
c/o Insight Communications Company, Inc.
126 E. 56th Street
New York, New York 10022
Attention: Mr. Michael Willner
Telecopier: (212) 371-1549
with a copy to:
Tele-Communications, Inc. (d/b/a/ AT&T Broadband and Internet
Services)
9197 Peoria Street
Englewood, Colorado 80111
Attention: Mr. Derek Chang
Telecopier: (720) 875-5396
-9-
<PAGE>
if to Manager, to:
c/o Insight Communications Company, Inc.
126 E. 56th Street
New York, New York 10022
Attention: Mr. Michael Willner
Telecopier: (212) 371-1549
7.4 Assignability; Benefit and Binding Effect. The Company agrees that
-----------------------------------------
Manager may assign this Agreement, without the consent of the Company, to any
Affiliate of Manager, or any successor to Manager by merger, consolidation or
otherwise. Except as set forth in the preceding sentence, neither party hereto
may assign this Agreement without the prior written consent of the other party.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
7.5 Governing Law. This Agreement shall be governed by the laws of the
-------------
State of Delaware as to all matters, including but not limited to matters of
validity, construction, effect, performance and remedies (without giving effect
to the principles of conflicts of law thereof).
7.6 Headings. The headings preceding the text of sections and
--------
subsections of this Agreement are included for ease of reference only and shall
not be deemed part of this Agreement.
7.7 Gender and Number. Words used herein, regardless of the gender and
-----------------
number specifically used, shall be deemed and construed to include any other
gender, masculine, feminine or neuter, and any other number, singular or plural,
as the context requires.
7.8 Entire Agreement. This Agreement represents the entire understanding
----------------
and agreement between the Company and Manager with respect to the specific
subject matter hereof. This Agreement supersedes all prior negotiations between
the parties and cannot be amended, supplemented or changed except by an
agreement in writing which makes specific reference to this Agreement or an
agreement delivered pursuant hereto, as the case may be, and which is signed by
the party against which enforcement of any such amendment, supplement or
modification is sought. Notwithstanding the foregoing, this Agreement shall not
impair or affect any of the rights and obligations of the parties under the
prior Management Agreement for the period April 30, 1998 through October 1,
1999.
7.9 Further Assurances. The parties shall take any actions and execute
------------------
any other documents that may be necessary or desirable to the implementation and
consummation of this Agreement or that may be reasonably requested by any other
party hereto. Each party will cooperate with the other party and provide any
assistance reasonably requested by the other party to effectuate the intent of
this Agreement.
-10-
<PAGE>
7.10 Severability. If any provision of this Agreement or the application
------------
thereof to any person or circumstance shall be held invalid or unenforceable to
any extent by any court of competent jurisdiction, the remainder of this
Agreement and the application of such provision to other persons or
circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
7.11 Counterparts. This Agreement may be signed in counterparts, each of
------------
which shall be deemed to be an original but which, when taken together, shall
constitute one and the same instrument.
[SIGNATURES NEXT PAGE]
-11-
<PAGE>
IN WITNESS WHEREOF, this Management Agreement has been executed by the
parties hereto as of the date first above written.
THE COMPANY:
INSIGHT COMMUNICATIONS OF INDIANA, LLC
By: Insight Midwest, L.P., Sole Member
By: Insight Communications Company, L.P.,
its General Partner
By: Insight Communications Company, Inc.,
its General Partner
By:____________________________________
Name: Kim D. Kelly
Title: Executive Vice President, Chief
Operating Officer and Chief Financial
Officer
MANAGER:
INSIGHT COMMUNICATIONS COMPANY, L.P.
By: Insight Communications Company, Inc.,
its General Partner
By:____________________________________
Name: Kim D. Kelly
Title: Executive Vice President, Chief
Operating Officer and Chief Financial
Officer
-12-
<PAGE>
Exhibit 10.6
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT OF
INSIGHT COMMUNICATIONS OF KENTUCKY, L.P.
DATED AS OF
OCTOBER 1, 1999
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE 1 DEFINITIONS............................................................... 2
1.1 Terms Defined in this Section............................................. 2
1.2 Terms Defined Elsewhere in this Agreement................................. 7
1.3 Terms Generally........................................................... 8
ARTICLE 2 FORMATION AND PURPOSE..................................................... 8
2.1 Formation................................................................. 8
2.2 Name 8
2.3 Principal and Registered Office........................................... 9
2.4 Term 9
2.5 Purposes of Partnership................................................... 9
2.6 Certificate............................................................... 11
2.7 Addresses of the Partners................................................. 11
2.8 Foreign Qualification..................................................... 11
2.9 Tax Classification........................................................ 11
ARTICLE 3 PARTNERSHIP CAPITAL....................................................... 12
3.1 Contributions............................................................. 12
3.2 Additional Capital Contributions.......................................... 12
3.3 Return of Contributions................................................... 12
ARTICLE 4 DISTRIBUTIONS; ALLOCATIONS OF PROFIT AND LOSS............................. 12
4.1 Distributions of Cash..................................................... 12
4.2 Allocations of Net Profit and Net Loss.................................... 14
4.3 Special Provisions Regarding Allocations of Profit and Loss............... 14
4.4 Tax Allocations: Code Section 704(c)...................................... 16
4.5 Allocation in Event of Transfer........................................... 17
4.6 Alternative Allocations................................................... 17
ARTICLE 5 AUTHORITY OF THE GENERAL PARTNER;OTHER MATTERS AFFECTING GENERAL PARTNER.. 17
5.1 Authority of General Partner.............................................. 17
5.2 No Personal Liability..................................................... 18
5.3 Withdrawal of General Partner............................................. 18
5.4 Tax Matters Partner....................................................... 18
ARTICLE 6 STATUS OF LIMITED PARTNER; OTHER LIMITATIONS ON PARTNERS.................. 21
6.1 No Management and Control................................................. 21
6.2 Limited Liability......................................................... 21
6.3 Return of Distributions of Capital........................................ 21
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
6.4 Specific Limitations...................................................... 21
ARTICLE 7 TRANSFER OF PARTNERSHIP INTERESTS......................................... 22
7.1 Transferees............................................................... 22
7.2 Other Consents and Requirements........................................... 23
7.3 Assignment Not In Compliance.............................................. 23
7.4 Division of Partnership Interests......................................... 23
7.5 Pledge of Partnership Interests........................................... 23
ARTICLE 8 DISSOLUTION AND LIQUIDATION OF PARTNERSHIP................................ 24
8.1 Events of Dissolution..................................................... 24
8.2 Liquidation............................................................... 24
8.3 Distribution in Kind...................................................... 26
8.4 No Action for Dissolution................................................. 26
8.5 No Further Claim.......................................................... 26
ARTICLE 9 INDEMNIFICATION........................................................... 26
9.1 General................................................................... 26
9.2 Exculpation............................................................... 27
9.3 Persons Entitled to Indemnity............................................. 27
9.4 Procedure Agreements...................................................... 27
ARTICLE 10 BOOKS, RECORDS, ACCOUNTING, AND REPORTS................................... 28
10.1 Books and Records......................................................... 28
10.2 Delivery to Partner and Inspection........................................ 28
10.3 Tax Matters............................................................... 28
10.4 Other Filings............................................................. 29
10.5 Non-Disclosure............................................................ 29
ARTICLE 11 REPRESENTATIONS BY THE PARTNERS........................................... 30
11.1 Binding Agreement......................................................... 30
11.2 Tax Position.............................................................. 30
ARTICLE 12 AMENDMENTS AND WAIVERS.................................................... 30
12.1 Amendments to Operating Agreement......................................... 30
12.2 Waivers................................................................... 30
ARTICLE 13 MISCELLANEOUS............................................................. 31
13.1 Additional Documents...................................................... 31
13.2 Inspection................................................................ 31
13.3 General................................................................... 31
13.4 Notices, Etc.............................................................. 31
13.5 Execution of Papers....................................................... 31
13.6 Attorneys' Fees........................................................... 32
13.7 No Third-Party Beneficiaries.............................................. 32
13.8 Headings.................................................................. 32
</TABLE>
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<PAGE>
SCHEDULES
Schedule I Addresses of the Partners
Schedule II Capital Accounts; Percentage Interest
-iii-
<PAGE>
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
INSIGHT COMMUNICATIONS OF KENTUCKY, L.P.
THIS AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF INSIGHT
COMMUNICATIONS OF KENTUCKY, L.P. (formerly known as InterMedia Partners Group
VI, L.P.) is made and entered into as of October 1, 1999, by and between INSIGHT
MIDWEST, L.P., a Delaware limited partnership (successor to InterMedia Capital
Partners VI, L.P.), as general partner, and INSIGHT KENTUCKY CAPITAL, LLC, a
Delaware limited liability company, as limited partner.
RECITALS
--------
A. Pursuant to the Contribution and Formation Agreement dated as of April
18, 1999 (the "Contribution Agreement"), by and between Insight Communications
Company L.P., a Delaware limited partnership ("Insight") and TCI of Indiana
Holdings, LLC, a Colorado limited liability company ("TCI"), each of TCI and
Insight contributed a 50% partnership interest in InterMedia Capital Partners
VI, L.P., a Delaware limited partnership ("ICP-VI") to Insight Midwest, L.P. As
a result of such contributions, ICP-VI was dissolved by virtue of Insight
Midwest, L.P.'s ownership of 100% of the partnership interests in ICP-VI.
B. Immediately prior to ICP-VI's dissolution, it was the sole general
partner of the Partnership, which was formerly known as InterMedia Partners
Group VI, L.P. Concurrently with the closing under the Contribution Agreement
and the resulting dissolution of ICP-VI, Insight Midwest, L.P. became the sole
general partner of the Partnership.
C. Pursuant to the Contribution Agreement, Insight and TCI formed Insight
Kentucky Capital, LLC (owned 50% by Insight and 50% by TCI), and Insight
assigned its right to purchase a .001% limited partnership interest in the
Partnership to Insight Kentucky Capital, LLC. Concurrently with the closing of
the Contribution Agreement and the resulting dissolution of ICP-VI, Insight
Kentucky Capital, LLC purchased such limited partnership interest, resulting in
Insight Kentucky Capital, LLC becoming the sole limited partner of the
Partnership.
D. Concurrently with the closing under the Contribution Agreement, the
parties hereto desire to amend and restate the Agreement of Limited Partnership
of the Partnership dated as of October 30, 1997 in its entirety as set forth
herein.
NOW, THEREFORE, the parties agree as follows:
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<PAGE>
ARTICLE 1
DEFINITIONS
-----------
1.1 Terms Defined in this Section.
-----------------------------
For purposes of this Agreement, the following terms shall have the
following meanings (all terms used in this Agreement that are not defined in
this Section 1.1 shall have the meanings set forth elsewhere in this Agreement
as indicated in Section 1.2, except as otherwise provided in this Agreement):
"Act" means the Delaware Revised Uniform Limited Partnership Act.
"Adjusted Capital Account Deficit" means with respect to either Partner,
the deficit balance, if any, in such Partner's Capital Account as of the end of
the relevant Fiscal Year, after:
(i) crediting to such Capital Account any amounts that such Partner is
obligated to restore to the Partnership pursuant to Treasury Regulations Section
1.704-1(b)(2)(ii)(c) or is deemed to be obligated to restore pursuant to the
penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-
2(i)(5); and
(ii) debiting from such Capital Account the items described in
Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5),
and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith.
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by, or under common control with such Person. For
purposes of this definition," the term "control" means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of Voting Stock or other
equity interests, by contract, or otherwise, and the terms "controlled by" and
"under common control with" have meanings corresponding to the meaning of
"control."
"Agreement" means this Agreement, as it may be amended from time to time.
"Business Day" means any day (other than a day that is a Saturday or
Sunday) on which banks are permitted to be open for business in the State of New
York.
"Capital Account" means a separate account to be maintained for each
Partner in accordance with the Code, which, subject to any contrary requirements
of the Code, shall equal such Partner's initial Capital Account balance as of
the date of this Agreement as provided in Section 3.1(a), increased by: (i)
the amount of money contributed by such Partner to the Partnership after the
date of this Agreement, if any; (ii) the fair market value without regard to
Code Section 7701(g) of
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<PAGE>
property, if any, contributed by such Partner to the Partnership after the date
of this Agreement (net of liabilities that are secured by such contributed
property or that the Partnership or any other Partner is considered to assume or
take subject to under Code Section 752); (iii) allocations to the Partner of Net
Profit and items of income and gain pursuant to Article 4 that are made after
the date of this Agreement; and (iv) other additions made in accordance with the
Code; and decreased by (i) the amount of cash distributed to such Partner by the
Partnership after the date of this Agreement; (ii) allocations to the Partner of
Net Loss and items of loss and deduction pursuant to Article 4 that are made
after the date of this Agreement; (iii) the fair market value without regard to
Code Section 7701(g) of property distributed to such Partner by the Partnership
after the date of this Agreement (net of liabilities that are secured by such
distributed property or that such Partner is considered to assume or take
subject to under Code Section 752); and (iv) other deductions made in accordance
with the Code. The foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to comply
with Treasury Regulations under Code Section 704(b) and, to the extent not
inconsistent with the provisions of this Agreement, shall be interpreted and
applied in a manner consistent with such Treasury Regulations.
"Capital Contributions" means, with respect to either Partner, the amount
of money and the net fair market value of property contributed by such Partner
to the Partnership pursuant to this Agreement.
"Certificate" means the certificate of limited partnership filed with
respect to the Partnership pursuant to the Act.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any subsequent federal law of similar import, and, to the extent
applicable, the Treasury Regulations.
"Depreciation" means, for each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset Value
of an asset differs from its adjusted basis for federal income tax purposes at
the beginning of such Fiscal Year, Depreciation shall be determined in the
manner described in Treasury Regulations Section 1.704-1(b)(2)(iv)(g)(3) or
Treasury Regulations Section 1.704-3(d)(2), as applicable.
"Fiscal Year" means the fiscal year of the Partnership, which shall be the
calendar year.
"General Partner" means Insight Midwest.
"Gross Asset Value" means with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(i) The Gross Asset Values of all assets of the Partnership shall be
adjusted to equal their respective gross fair market values, as determined by
the mutual agreement of the Partners, as of the following times: (A) the
acquisition of an additional interest in the Partnership by any new or existing
Partner in exchange for more than a de minimis Capital Contribution; (B) the
distribution by the Partnership to a Partner of more than a de minimis amount of
property of the
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<PAGE>
Partnership as consideration for an interest in the Partnership; and (C) the
liquidation of the Partnership within the meaning of Treasury Regulations
Section 1.704-1(b)(2)(ii)(g); provided, however, that the adjustments pursuant
to clauses (A) and (B) above shall be made only if the Partners determine by
mutual agreement that such adjustments are necessary or appropriate to reflect
the relative economic interests of the Partners in the Partnership;
(ii) The Gross Asset Value of any asset of the Partnership distributed
to either Partner shall be the gross fair market value of such asset on the date
of distribution; and
(iii) The Gross Asset Value of the assets of the Partnership shall be
increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and
Section 4.3(g); provided, however, that Gross Asset Value shall not be adjusted
pursuant to this paragraph (iv) to the extent that the Partners determine by
mutual agreement that an adjustment pursuant to paragraph (ii) of this
definition is necessary or appropriate in connection with a transaction that
would otherwise result in an adjustment pursuant to this paragraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to paragraph (i) or (iii) of this definition, the Gross Asset Value of
such asset shall thereafter be adjusted by the Depreciation taken into account
with respect to such asset for purposes of computing Net Profit and Net Loss.
"Insight Kentucky Capital" means Insight Kentucky Capital, LLC or any other
Person that succeeds to its Partnership Interest and is admitted as a Partner in
accordance with the provisions of this Agreement, provided that to the extent
Insight Kentucky Capital, LLC transfers less than all of its Partnership
Interest to any other Person(s) and such Person(s) is/are admitted as a Partner
in accordance with the provisions of this Agreement, "Insight Kentucky Capital"
shall refer to Insight Kentucky Capital, LLC and such other Person(s)
collectively.
"Insight Midwest" means Insight Midwest, L.P. or any other Person that
succeeds to its Partnership Interest and is admitted as a Partner in accordance
with the provisions of this Agreement, provided that to the extent Insight
Midwest, L.P. transfers less than all of its Partnership Interest to any other
Person(s) and such Person(s) is/are admitted as a Partner in accordance with the
provisions of this Agreement, "Insight Midwest" shall refer to Insight Midwest,
L.P. and such other Person(s) collectively.
"Insight Midwest Partnership Agreement" means the Limited Partnership
Agreement of Insight Midwest, L.P. dated as of October 1, 1999.
"Limited Partner" means Insight Kentucky Capital.
"Net Profit and Net Loss" means for each Fiscal Year or other period, an
amount equal to the Partnership's taxable income or loss for such Fiscal Year or
other period, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss, or deduction
-4-
<PAGE>
required to be stated separately pursuant to Code Section 703(a)(1) shall be
included in taxable income or loss), with the following adjustments:
(i) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Net Profit or Net Loss
shall be added to such taxable income or loss;
(ii) Code Section 705(a)(2)(B) expenditures of the Partnership that
are not otherwise taken into account in computing Net Profit or Net Loss shall
be subtracted from such taxable income or loss;
(iii) If the Gross Asset Value of any asset of the Partnership is
adjusted pursuant to paragraph (i) or (ii) of the definition of Gross Asset
Value, the amount of such adjustment shall be taken into account as gain or loss
from the disposition of such asset for purposes of computing Net Profit or Net
Loss;
(iv) Gain or loss resulting from any disposition of property of the
Partnership with respect to which gain or loss is recognized for federal income
tax purposes shall be computed by reference to the Gross Asset Value of the
property disposed of, notwithstanding that the adjusted tax basis of such
property differs from its Gross Asset Value;
(v) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such Fiscal Year or other period;
(vi) Notwithstanding anything to the contrary in the definition of the
terms "Net Profit" and "Net Loss," any items that are specially allocated
pursuant to Section 4.3 of this Agreement shall not be taken into account in
computing Net Profit or Net Loss; and
(vii) For purposes of this Agreement, any deduction for a loss on a
sale or exchange of property of the Partnership that is disallowed to the
Partnership under Code Section 267(a)(1) or Code Section 707(b) shall be treated
as a Code Section 705(a)(2)(B) expenditure.
"Nonrecourse Deductions" means losses, deductions, or Code Section
705(a)(2)(B) expenditures attributable to Nonrecourse Liabilities of the
Partnership. The amount of Nonrecourse Deductions shall be determined pursuant
to Treasury Regulations Section 1.704-2(c), which provides generally that the
amount of Nonrecourse Deductions for a Fiscal Year shall equal the net increase,
if any, in Partnership Minimum Gain during that Fiscal Year, reduced (but not
below zero) by the aggregate distributions made during that Fiscal Year of
proceeds of a Nonrecourse Liability that are allocable to an increase in
Partnership Minimum Gain.
"Nonrecourse Liability" has the meaning set forth in Treasury Regulations
Section 1.752-1(a)(2).
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<PAGE>
"Partner" means each of the signatories hereto in their respective
capacities as partners of the Partnership, and any additional Person that is
admitted as a partner in accordance with the provisions of this Agreement.
"Partner Nonrecourse Debt" has the meaning set forth in Treasury
Regulations Section 1.704-2(b)(4), which generally defines "Partner Nonrecourse
Debt" as any Partnership liability to the extent such liability is nonrecourse
and a Partner (or related Person) bears the economic risk of loss pursuant to
Treasury Regulations Section 1.752-2.
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulations Section 1.704-2(i)(2), which generally defines "Partner
Nonrecourse Debt Minimum Gain" as the Partnership Minimum Gain attributable to
Partner Nonrecourse Debt. The amount of Partner Nonrecourse Debt Minimum Gain
shall be determined in accordance with Treasury Regulations Section 1.704-
2(i)(3).
"Partner Nonrecourse Deductions" means losses, deductions, or Code Section
705(a)(2)(B) expenditures attributable to Partner Nonrecourse Debt. The amount
of Partner Nonrecourse Deductions shall be determined pursuant to Treasury
Regulations Section 1.704-2(i)(2), which provides generally that the amount of
Partner Nonrecourse Deductions for a Fiscal Year shall equal the net increase,
if any, in Partner Nonrecourse Debt Minimum Gain during that Fiscal Year,
reduced (but not below zero) by the proceeds of Partner Nonrecourse Debt
distributed during the Fiscal Year to the Partner bearing the economic risk of
loss for such Partner Nonrecourse Debt that are both attributable to such
Partner Nonrecourse Debt and allocable to an increase in Partner Nonrecourse
Debt Minimum Gain.
"Partnership" means the limited partnership formerly known as InterMedia
Partners Group VI, L.P. formed by ICP-VI and InterMedia Management, Inc.
pursuant to an Agreement of Limited Partnership dated October 30, 1997 and
continued under this Agreement.
"Partnership Interest" means the entire ownership interest of a Partner in
the Partnership at any particular time, including all of its rights and
obligations hereunder and under the Act.
"Partnership Minimum Gain" means the excess of the Nonrecourse Liabilities
of the Partnership over the adjusted tax basis of property securing such
Nonrecourse Liabilities of the Partnership. The amount of Partnership Minimum
Gain shall be determined in accordance with Treasury Regulations Section 1.704-
2(d), which provides generally that the amount of Partnership Minimum Gain shall
be determined by first computing for each Nonrecourse Liability any gain the
Partnership would realize if it disposed of the property subject to that
Nonrecourse Liability for no consideration other than full satisfaction of such
Nonrecourse Liability, and then aggregating the separately computed gains.
"Percentage Interest" means initially, with respect to each Partner, the
respective percentage specified on Schedule II hereto.
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<PAGE>
"Person" means an individual, partnership, joint venture, association,
corporation, trust, estate, limited liability company, limited liability
partnership, or any other legal entity.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, at any time, any Person that is controlled by the
Partnership at such time.
"Transferee" means any Person that acquires a Partnership Interest from a
Partner in accordance with the provisions of this Agreement.
"Treasury Regulations" means the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
"Voting Stock" means ownership interests in a Person of any class or kind
ordinarily giving the holder the power to vote for the election of directors,
managers, or other members of the governing body of such Person or (as may be
the case with general partnership interests in a partnership) giving the holder
the power to exercise rights typically exercised by directors of a corporation.
1.2 Terms Defined Elsewhere in this Agreement.
-----------------------------------------
For purposes of this Agreement, the following terms have the meanings set
forth in the sections indicated:
Term Section
- ---- -------
Contribution Agreement Recital A
ICP-VI Recital A
Indemnified Persons Section 9.1
Insight Recital A
Liquidator Section 8.2(b)
Regulatory Allocations Section 4.3(i)
Secretary Section 5.4(b)
TCI Recital A
Transfer Section 7.1(a)
Withholding Advance Section 4.1(c)(2)
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<PAGE>
1.3 Terms Generally.
---------------
The definitions in Section 1.1 and elsewhere in this Agreement shall apply
equally to both the singular and plural forms of the terms defined. Whenever
the context requires, any pronoun includes the corresponding masculine,
feminine, and neuter forms. The words "include," "includes," and "including"
are not limiting. Any reference in this Agreement to a "day" or number of
"days" (without the explicit qualification of "Business") shall be interpreted
as a reference to a calendar day or number of calendar days. If any action or
notice is to be taken or given on or by a particular calendar day, and such
calendar day is not a Business Day, then such action or notice shall be deferred
until, or may be taken or given on, the next Business Day.
ARTICLE 2
FORMATION AND PURPOSE
---------------------
2.1 Formation.
---------
The Partnership has been formed as a limited partnership pursuant to the
Act. The rights and liabilities of the Partners shall be determined pursuant to
the Act and this Agreement. To the extent that the rights or obligations of
either Partner are different by reason of any provision of this Agreement than
they would be in the absence of such provision, this Agreement shall, to the
extent permitted by the Act, control.
2.2 Name.
----
(a) The name of the Partnership is Insight Communications of Kentucky,
L.P. Except as provided in Section 2.2(b), the business of the Partnership may
be conducted under that name or, upon compliance with applicable laws, any other
name that the General Partner deems appropriate or advisable. The Partnership
shall file any assumed name certificates and similar filings, and any amendments
thereto, that the General Partner considers appropriate or advisable. Such
names and any trade or service names, marks, emblems or logos used by the
Partnership shall be exclusive property of the Partnership and no Person shall
have any right to use, and each Partner agrees not to use, any of said names,
marks, emblems or logos other than on behalf of the Partnership (other than any
of the foregoing that incorporates the name "Insight" or any variant thereof,
which shall remain the exclusive property of Insight and its Affiliates and may
be used by Insight and its Affiliates without limitation).
(b) The Partnership shall not conduct business under the name "Tele-
Communications, Inc.," "TCI," or any variation thereof without the approval of
TCI. The parties agree that "Communications" is not a variation of "Tele-
Communications, Inc." for purposes of this Section 2.2(b).
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<PAGE>
2.3 Principal and Registered Office.
-------------------------------
The office required to be maintained by the Partnership in the State of
Delaware pursuant to Section 17-104 of the Act shall initially be located at
1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The resident
agent of the Partnership pursuant to Section 17-104 of the Act shall initially
be The Corporation Trust Company. The Partnership may, upon compliance with the
applicable provisions of the Act, change its principal office or resident agent
from time to time in the discretion of the General Partner. The principal
office of the Partnership shall be located at 126 E. 56th Street, New York, New
York 10022, or at such other place as the General Partner shall from time to
time designate by written notice to the other Partner. The Partnership may
conduct business at such additional places as the General Partner shall deem
advisable.
2.4 Term.
----
The term of the Partnership commenced when the Certificate was filed with
the Secretary of State of Delaware, and shall continue until October 1, 2011,
unless sooner terminated as provided in this Agreement.
2.5 Purposes of Partnership.
-----------------------
The purposes of the Partnership are:
(a) to engage in the business, directly or indirectly through
interests in one or more Subsidiaries, of acquiring, developing, owning,
operating, managing, and selling cable television systems in the State of
Indiana and in the Commonwealth of Kentucky;
(b) to acquire, develop, own, operate, manage, and sell additional
cable television systems in the State of Indiana and the Commonwealth of
Kentucky and such other States as the General Partner may determine;
(c) to acquire, develop, own, operate, manage, and sell, or invest in,
businesses related to and ancillary to the ownership and operation of the cable
television systems referred to above (including, but not limited to, high speed
data service, Internet access, telephony services and other telephony-related
investments or businesses, and video wireless services and wireless
communications services and other wireless-related investments or businesses but
not including multipoint distribution systems ("MDS"), multichannel multipoint
distribution systems ("MMDS"), direct-to-home satellite systems ("DTH") or
Internet Backbone Services (as defined in the Insight Midwest Partnership
Agreement), it being agreed that the use of IP technology to provide telephone,
fax, video, video conferencing, telecommuting, virtual private networks,
security and energy management services to subscribers of the Partnership's
cable television systems does not constitute engaging in an Internet Backbone
Service and, subject to Section 16.1(b) of the Insight Midwest Partnership
Agreement, is within the purposes of the Partnership;
(d) to conduct other businesses as determined by the General Partner;
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<PAGE>
(e) in connection with the businesses described in Section 2.5(a)-(d),
to possess, transfer, mortgage, pledge, or otherwise deal in, and to exercise
all rights, powers, privileges, and other incidents of ownership or possession
with respect to securities or other assets held or owned by the Partnership, and
to hold securities or assets in the name of a nominee or nominees;
(f) in connection with the businesses described in Section 2.5(a)-(d),
to borrow or raise money, and from time to time to issue, accept, endorse, and
execute promissory notes, loan agreements, options, stock purchase agreements,
contracts, documents, checks, drafts, bills of exchange, warrants, bonds,
debentures, and other negotiable or non-negotiable instruments and evidences of
indebtedness, and to secure the payment of any thereof and of the interest
thereon by mortgage upon or pledge, conveyance, or assignment in trust of, the
whole or any part of the property of the Partnership whether at the time owned
or thereafter acquired and to guarantee the obligations of others and to sell,
pledge, or otherwise dispose of such bonds or other obligations of the
Partnership for its purposes;
(g) in connection with the businesses described in Section 2.5(a)-(d),
to guarantee the obligations of others in connection with the purchase or
acquisition by the Partnership of securities or assets;
(h) to maintain an office or offices in such place or places as the
General Partner shall determine and in connection therewith to rent or acquire
office space, engage personnel, and do such other acts and things as may be
necessary or advisable in connection with the maintenance of such office, and on
behalf of and in the name of the Partnership to pay and incur reasonable
expenses and obligations for legal, accounting, investment advisory,
consultative and custodial services, and other reasonable expenses including
taxes, travel, insurance, rent, supplies, interest, salaries and wages of
employees, and all other reasonable costs and expenses incident to the operation
of the Partnership;
(i) to form and own one or more corporations, trusts, partnerships or
other entities (but no entity so formed or owned, while it is a Subsidiary, may
do what the Partnership is prohibited by this Agreement from doing); and
(j) to own, lease, or otherwise acquire any and all assets and
services related to the foregoing purposes and to engage in such other
activities related either directly or indirectly to the foregoing purposes as
may be necessary, advisable, or appropriate, in the opinion of the General
Partner, for the promotion or conduct of the business of the Partnership.
2.6 Certificate.
-----------
The General Partner shall cause any amendment to the Certificate required
under the Act to be filed or recorded with the Secretary of State of Delaware
and in any other public office where filing or recording is required or is
deemed by the General Partner to be advisable.
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<PAGE>
2.7 Addresses of the Partners.
-------------------------
The respective addresses of the Partners are set forth on Schedule I.
2.8 Foreign Qualification.
---------------------
The General Partner shall take all necessary actions to cause the
Partnership to be authorized to conduct business legally in all appropriate
jurisdictions, including registration or qualification of the Partnership as a
foreign limited partnership in those jurisdictions that provide for registration
or qualification and the filing of a certificate of limited partnership in the
appropriate public offices of those jurisdictions that do not provide for
registration or qualification.
2.9 Tax Classification.
------------------
Notwithstanding any other provision of this Agreement, no Partner or
employee of the Partnership may take any action (including the filing of a U.S.
Treasury Form 8832 Entity Classification Election) that would cause the
Partnership to be characterized as an entity other than a partnership for
federal income tax purposes without the agreement of the other Partner. A
determination of whether any action will have the effect described in the
preceding sentence will be based upon a declaratory judgement or similar relief
obtained from a court of competent jurisdiction, a favorable ruling from the
Internal Revenue Service, or the receipt of an opinion of counsel reasonably
satisfactory to the Partners.
ARTICLE 3
PARTNERSHIP CAPITAL
-------------------
3.1 Contributions.
-------------
(a) Applicable Percentages; Capital Account Balances. Schedule II
------------------------------------------------
sets forth the Percentage Interest of each Partner as of the date of this
Agreement. The Capital Account balances of the Partners as of the date of this
Agreement will be determined pursuant to the provisions of the Insight Midwest
Partnership Agreement by mutual agreement of TCI and Insight.
(b) Determining Fair Market Value of Additional Contributed Assets.
--------------------------------------------------------------
Except as otherwise mutually agreed to by the Partners, the fair market value of
any asset contributed by a Partner to the Partnership after the date of this
Agreement shall be that value determined by the General Partner.
3.2 Additional Capital Contributions.
--------------------------------
There shall be no further assessments for additional Capital Contributions
by the Partners to the Partnership.
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<PAGE>
3.3 Return of Contributions.
-----------------------
Neither Partner shall have the right to demand a return of all or any part
of its Capital Contribution during the term of the Partnership, and any return
of the Capital Contribution of either Partner shall be made solely from the
assets of the Partnership and only in accordance with the terms of this
Agreement. No interest shall be paid to either Partner with respect to its
Capital Contribution to the Partnership.
ARTICLE 4
DISTRIBUTIONS; ALLOCATIONS OF PROFIT AND LOSS
---------------------------------------------
4.1 Distributions of Cash.
---------------------
(a) Amount and Timing of Distributions. Distributions shall be made
----------------------------------
to the Partners at the times and in the aggregate amounts determined by the
General Partner. Notwithstanding any other provision of this Agreement to the
contrary, no distribution shall be made that would render the Partnership
insolvent or which is prohibited by the Act.
(b) Allocation of Distributions. All distributions shall be made to
---------------------------
the Partners in proportion to their Percentage Interests.
(c) Tax Withholding.
---------------
(1) The Partnership shall seek to qualify for and obtain exemptions
from any provision of the Code or any provision of state, local, or foreign tax
law that would otherwise require the Partnership to withhold amounts from
payments or distributions to the Partners. If the Partnership does not obtain
any such exemption, the Partnership is authorized to withhold from any payment
or distribution to either Partner any amounts that are required to be withheld
pursuant to the Code or any provision of any state, local, or foreign tax law
that is binding on the Partnership.
(2) Any amount withheld with respect to any payment or distribution
to either Partner shall be credited against the amount of the payment or
distribution to which the Partner would otherwise be entitled. If the Code or
any provision of any state, local, or foreign tax law that is binding on the
Partnership requires that the Partnership remit to any taxing authority any
withholding tax with respect to, or for the account of, either Partner in its
capacity as a Partner, the Partnership shall, to the extent that Partnership
funds are available therefor, remit the full required amount of such withholding
tax to the taxing authority and shall notify such Partner in writing of its
obligation to pay to the Partnership such withholding tax to the extent it
exceeds the amount of any payment or distribution to which such Partner would
otherwise then be entitled. Each Partner shall pay to the Partnership, within
five Business Days after its receipt of written notice from the Partnership that
withholding is required with respect to such Partner, any amounts required to be
remitted by the Partnership to any taxing authority with respect to such Partner
that are in excess of the amount of any payment or distribution to which such
Partner would otherwise be entitled. If the Partnership is required to remit any
withholding tax with respect to, or for the account of, either
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Partner prior to the Partnership's receipt of any payment required to be made by
such Partner pursuant to the preceding sentence, the amount of the payment
required to be made by such Partner shall be treated as a loan (the "Withholding
Advance") from the Partnership to the Partner, which shall accrue interest from
the date the Partnership is required to remit such withholding tax until paid by
such Partner or credited against payments or distributions to which such Partner
would otherwise be entitled as provided in Section 4.1(c)(3) at a rate of
fifteen percent per year, compounded semi-annually.
(3) Any Withholding Advance made to a Partner and any interest accrued
thereon shall be credited against, and shall be offset by, the amount of any
later payment or distribution to which the Partner would otherwise be entitled
(without duplication of the credit provided in the first sentence of Section
4.1(c)(2)), with any credit for accrued and unpaid interest as of the date such
payment or distribution would otherwise have been made being applied before any
credit for the amount of the Withholding Advance. Any Withholding Advance made
to a Partner and any interest accrued thereon, to the extent it has not
previously been paid by the Partner in cash or fully credited against payments
or distributions to which the Partner would otherwise be entitled, shall be paid
by the Partner to the Partnership upon the earliest of (A) the dissolution of
the Partnership, (B) the date on which the Partner ceases to be a Partner of the
Partnership, or (C) demand for payment by the Partnership.
(4) All amounts that are credited against payments or distributions to
which a Partner would otherwise be entitled pursuant to this Section 4.1(c)
shall be treated as amounts distributed to such Partner pursuant to Section
4.1(a) for all purposes of this Agreement.
4.2 Allocations of Net Profit and Net Loss.
--------------------------------------
(a) Allocations of Net Profit and Net Loss. Except as provided in
--------------------------------------
Section 4.2(b), Net Profit and Net Loss for each Fiscal Year (or portion
thereof) shall be allocated between the Partners in proportion to their
Percentage Interests.
(b) Allocations of Net Profit and Net Loss Following Dissolution.
------------------------------------------------------------
Notwithstanding Section 4.2(a), following the dissolution of the Partnership
pursuant to Section 8.1, beginning in the Fiscal Year in which such dissolution
occurs or beginning in any Fiscal Year prior to the Fiscal Year in which such
dissolution occurs if the Partnership's Federal income tax return for such prior
Fiscal Year has not yet been required to be filed (not including extensions),
items of income and gain, loss, and deduction shall be allocated between the
Partners so as to cause the credit balances in the Partners' Capital Accounts to
be in proportion to their Percentage Interests.
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4.3 Special Provisions Regarding Allocations of Profit and Loss.
-----------------------------------------------------------
(a) Minimum Gain Chargeback. Notwithstanding any other provision of
-----------------------
this Article 4, if there is a net decrease in Partnership Minimum Gain for any
Fiscal Year, each Partner shall be specially allocated items of Partnership
income and gain for such Fiscal Year (and if necessary for succeeding Fiscal
Years) in an amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain, determined in accordance with Treasury Regulations
Section 1.704-2(g); provided, however, that this Section 4.3(a) shall not apply
to the extent the circumstances described in Treasury Regulations Sections
1.704-2(f)(2), 1.704-2(f)(3), 1.704-2(f)(4), or 1.704-2(f)(5) exist.
Allocations made pursuant to the preceding sentence shall be made in proportion
to the respective amounts required to be allocated to each Partner pursuant
thereto. The items of Partnership income and gain to be allocated pursuant to
this Section 4.3(a) shall be determined in accordance with Treasury Regulations
Section 1.704-2(f)(6). This Section 4.3(a) is intended to comply with the
minimum gain chargeback requirement in Treasury Regulations Section 1.704-2(f)
and shall be interpreted consistently therewith.
(b) Partner Minimum Gain Chargeback. Notwithstanding any other
-------------------------------
provision of this Article 4 except Section 4.3(a), if during any Fiscal Year
there is a net decrease in Partner Nonrecourse Debt Minimum Gain, each Partner
with a share of that Partner Nonrecourse Debt Minimum Gain (determined in
accordance with Treasury Regulations Section 1.704-2(i)(5)) as of the beginning
of such Fiscal Year must be allocated items of Partnership income and gain for
the Fiscal Year (and, if necessary, for succeeding Fiscal Years) equal to that
Partner's share of the net decrease in the Partner Nonrecourse Debt Minimum Gain
(determined in accordance with Treasury Regulations Section 1.704-2(i)(4));
provided, however, that this Section 4.3(b) shall not apply to the extent the
circumstances described in the third and fifth sentences of Treasury Regulations
Section 1.704-2(i)(4) exist. Allocations pursuant to the preceding sentence
shall be made in proportion to the respective amounts required to be allocated
to each Partner pursuant thereto. The items of Partnership income and gain to
be allocated pursuant to this Section 4.3(b) shall be determined in accordance
with Treasury Regulations Section 1.704-2(i)(4). This Section 4.3(b) is
intended to comply with the minimum gain chargeback requirement in Treasury
Regulations Section 1.704-2(i)(4) and shall be interpreted consistently
therewith.
(c) Qualified Income Offset. If a Partner unexpectedly receives any
-----------------------
adjustments, allocations, or distributions described in Treasury Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-
1(b)(2)(ii)(d)(6), items of Partnership income and gain shall be specially
allocated to such Partner in an amount and manner sufficient to eliminate, to
the extent required by the Treasury Regulations, the Adjusted Capital Account
Deficit of such Partner as quickly as possible; provided, however, that an
allocation pursuant to this Section 4.3(c) shall be made if and only to the
extent that such Partner would have an Adjusted Capital Account Deficit after
all other allocations provided for in this Article 4 have been tentatively made
as if this Section 4.3(c) were not in this Agreement. Allocations made pursuant
to the preceding sentence shall be made in proportion to the respective amounts
required to be allocated to each Partner pursuant thereto.
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<PAGE>
(d) Gross Income Allocation. If a Partner has a deficit Capital
-----------------------
Account at the end of any Fiscal Year that is in excess of the sum of (1) the
amount such Partner is obligated to restore to the Partnership pursuant to
Treasury Regulations Section 1.704-1(b)(2)(ii)(c), (2) the amount such Partner
is deemed to be obligated to restore pursuant to the penultimate sentence of
Treasury Regulations Section 1.704-2(g)(1), and (3) the amount such Partner is
deemed to be obligated to restore pursuant to the penultimate sentence of
Treasury Regulations Section 1.704-2(i)(5), such Partner shall be specially
allocated items of Partnership income and gain in the amount of such excess as
quickly as possible; provided, however, that an allocation pursuant to this
Section 4.3(d) shall be made if and only to the extent that such Partner would
have a deficit Capital Account in excess of such sum after all other allocations
provided for in this Article 4 have been tentatively made as if Section 4.3(c)
and this Section 4.3(d) were not in this Agreement. Allocations made pursuant
to the preceding sentence shall be made in proportion to the respective amounts
required to be allocated to each Partner pursuant thereto.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal
----------------------
Year or other period shall be specially allocated between the Partners in
proportion to their Percentage Interests.
(f) Partner Nonrecourse Deductions. Any Partner Nonrecourse
------------------------------
Deductions for any Fiscal Year or other period shall be specially allocated to
the Partner that bears the economic risk of loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable
in accordance with Treasury Regulations Section 1.704-2(i).
(g) Section 754 Adjustment. To the extent any adjustment to the
----------------------
adjusted tax basis of any asset of the Partnership pursuant to Code Section
734(b) or Code Section 743(b) is required, pursuant to Treasury Regulations
Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment shall be treated as an item of gain (if
the adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such gain or loss shall be specially allocated to the
Partners in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such section of the Treasury
Regulations.
(h) Excess Nonrecourse Liabilities. For purposes of determining a
------------------------------
Partner's proportionate share of the "excess nonrecourse liabilities" of the
Partnership within the meaning of Treasury Regulations Section 1.752-3(a)(3),
each Partner's interest in Partnership profits shall be deemed to be equal to
such Partner's Percentage Interest.
(i) Curative Allocations. The allocations set forth in this Article 4
--------------------
(other than Section 4.3(g), Section 4.3(h), and this Section 4.3(i)) (the
"Regulatory Allocations") are intended to comply with certain requirements of
the Treasury Regulations. The Partners intend that, to the extent possible, all
Regulatory Allocations shall be offset either with other Regulatory Allocations
or with special allocations of other items of Partnership income, gain, loss, or
deduction pursuant to this Section 4.3(i). Therefore, notwithstanding any other
provision of this Article 4 (other than the Regulatory Allocations), offsetting
special allocations of Partnership income, gain, loss, or deduction shall be
made so that, after such offsetting allocations are made, each Partner's Capital
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Account balance is, to the extent possible, equal to the Capital Account balance
such Partner would have had if the Regulatory Allocations were not part of this
Agreement and all Partnership items were allocated pursuant to Section 4.2. In
making such offsetting special allocations, future Regulatory Allocations under
Section 4.3(a) and Section 4.3(b) that, although not yet made, are likely to
offset Regulatory Allocations made under Section 4.3(e) and Section 4.3(f),
shall be taken into account.
4.4 Tax Allocations: Code Section 704(c).
------------------------------------
(a) In accordance with Code Section 704(c) and the Treasury
Regulations thereunder, income, gain, loss, and deduction with respect to any
property contributed to the capital of the Partnership shall, solely for tax
purposes, be allocated between the Partners so as to take account of any
variation between the adjusted basis of such property to the Partnership for
federal income tax purposes and its initial Gross Asset Value using the
traditional allocation method described in Treasury Regulations Section 1.704-
3(b).
(b) If the Gross Asset Value of any asset of the Partnership is
adjusted pursuant to paragraph (ii) of the definition of Gross Asset Value,
subsequent allocations of income, gain, loss, and deduction with respect to such
asset shall take account of any variation between the adjusted basis of such
asset for federal income tax purposes and its Gross Asset Value in the same
manner as under Code Section 704(c) and the Treasury Regulations thereunder.
(c) Allocations pursuant to this Section 4.4 are solely for purposes
of federal, state, and local taxes and shall not affect, or in any way be taken
into account in computing, either Partner's Capital Account or share of Net
Profit, Net Loss, other items, or distributions pursuant to any provision of
this Agreement.
4.5 Allocation in Event of Transfer.
-------------------------------
If an interest in the Partnership is transferred in accordance with Article
7 of this Agreement, the Net Profit and Net Loss of the Partnership and each
item thereof, and all other items attributable to the transferred interest for
such Fiscal Year, shall be divided and allocated between the transferor and the
transferee pursuant to the interim closing of the Partnership books method set
forth in Treasury Regulation Section 1.706-1(c)(2)(ii) unless the parties
otherwise mutually agree. This Section shall apply for purposes of computing a
Partner's Capital Account and for federal income tax purposes.
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<PAGE>
4.6 Alternative Allocations.
-----------------------
The General Partner is authorized and directed to allocate items of income,
gain, loss, or deduction arising in any Fiscal Year differently from the manner
that is otherwise provided for in this Agreement if, and to the extent that, the
General Partner believes that the allocation of items of income, gain, loss, or
deduction in the manner otherwise provided for in this Agreement would cause the
credit balances in the Partners' Capital Accounts not to be in proportion to
their Percentage Interests immediately prior to any distributions pursuant to
Section 8.2(d)(3) if the Partnership were dissolved and terminated on the last
day of such Fiscal Year. Any allocation that is made pursuant to this Section
4.6 shall be deemed to be a complete substitute for any allocation that is
otherwise provided for in this Agreement and no amendment to this Agreement
shall be required.
ARTICLE 5
AUTHORITY OF THE GENERAL PARTNER;
---------------------------------
OTHER MATTERS AFFECTING GENERAL PARTNER
---------------------------------------
5.1 Authority of General Partner.
----------------------------
(a) Except as otherwise expressly provided for herein, the business of
the Partnership shall be managed by the General Partner pursuant to the
provisions of this Agreement. The General Partner shall have exclusive
authority and full discretion with respect to the management of the business of
the Partnership and the Subsidiaries, subject to Sections 5.1(b) and (c).
Notwithstanding the foregoing, the General Partner shall not take any action
with respect to the Partnership or its Partnership Interest that requires the
consent of the limited partner of the General Partner pursuant to the Insight
Midwest Partnership Agreement without first obtaining such consent, including
any Transfer of its Partnership Interest.
(b) The General Partner may delegate such general or specific
authority to the officers of the Partnership with respect to the business and
day-to-day operations of the Partnership as it from time to time considers
desirable, and the officers of the Partnership may exercise the authority
granted to them, subject to any restraints or limitations imposed by any express
provisions of this Agreement.
(c) The General Partner agrees that acting alone it shall not give any
consent on any matter or take any other action as the General Partner,
including, without limitation, acting on behalf of or binding the Partnership
with respect to any matter in respect of which approval by the Limited Partner
is required by the provisions of this Agreement or the Act, unless such consent,
matter or other action shall first have been adopted or approved by the Limited
Partner in accordance with the provisions of this Agreement or the Act as
applicable.
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<PAGE>
5.2 No Personal Liability.
---------------------
The General Partner shall not have any personal liability for the repayment
of the Capital Contributions of any other Partner; provided that the General
Partner shall promptly return to the Partnership or to the Partner or Partners
entitled thereto any distributions received by the General Partner in excess of
those to which the General Partner is entitled under this Agreement.
5.3 Withdrawal of General Partner.
-----------------------------
(a) The General Partner may not resign or withdraw from the
Partnership without the consent of the Limited Partner, other than upon the
dissolution and winding up of the Partnership in accordance with the provisions
of Article 8.
(b) For purposes of this Agreement, the term "withdrawal" does not
include the happening of any event described in Section 17-402(a)(4) or (5) of
the Act, and no Partner shall cease to be a Partner solely upon the happening of
such event(s).
(c) The withdrawal of the General Partner shall not alter the
allocations and distributions to be made to the Partners pursuant to this
Agreement.
(d) Notwithstanding Section 5.3(a), the General Partner may withdraw
from the Partnership upon the transfer of all of its Partnership Interest to any
Transferee that is admitted to the Partnership as a Partner and substituted for
the General Partner in accordance with Section 7.1(b).
5.4 Tax Matters Partner.
-------------------
(a) The General Partner is hereby designated as the Tax Matters
Partner of the Partnership, as provided in Treasury Regulations pursuant to Code
Section 6231 and analogous provisions of state law. Each Partner, by the
execution of this Agreement, consents to such designation of the Tax Matters
Partner and agrees to execute, certify, acknowledge, deliver, swear to, file,
and record at the appropriate public offices such documents as may be necessary
or appropriate to evidence such consent.
(b) To the extent and in the manner provided by applicable law and
Treasury Regulations, the Tax Matters Partner shall furnish the name, address,
profits interest, and taxpayer identification number of each Partner and any
Transferee to the Secretary of the Treasury or his delegate (the "Secretary").
(c) The Tax Matters Partner shall notify each Partner of any audit
that is brought to the attention of the Tax Matters Partner by notice from the
Internal Revenue Service, and shall forward to each Partner copies of any
written notices, correspondence, reports, or other documents received by the Tax
Matters Partner in connection with such audit within ten Business Days following
its notification by the Internal Revenue Service or its receipt, as the case may
be. The Tax Matters Partner shall provide TCI with reasonable advance notice of
administrative proceedings with
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<PAGE>
the Internal Revenue Service, including any closing conference with the examiner
and any appeals conference.
(d) The Tax Matters Partner shall give the Partners written notice of
its intent to initiate judicial review, file a request for administrative
adjustment on behalf of the Partnership, extend the period of limitations for
making assessments of any tax against a Partner with respect to any Partnership
item, or enter into any agreement with the Internal Revenue Service that would
result in the settlement of any alleged tax deficiency or other tax matter, or
to any adjustment of taxable income or loss or any item included therein,
affecting the Partnership or any Partner. The Tax Matters Partner shall not
take any such action if TCI elects within thirty days after its receipt of the
Tax Matters Partner's notice to require that the Tax Matters Partner refrain
from taking such action.
(e) Subject to the foregoing provisions of this Section 5.4, the Tax
Matters Partner is hereby authorized, but not required:
(1) to enter into any settlement with the Internal Revenue Service
or the Secretary with respect to any tax audit or judicial review, in which
agreement the Tax Matters Partner may expressly state that such agreement shall
bind the other Partners, except that such settlement agreement shall not bind
either Partner that (within the time prescribed pursuant to the Code and
Treasury Regulations thereunder) files a statement with the Secretary providing
that the Tax Matters Partner shall not have the authority to enter into a
settlement agreement on the behalf of such Partner;
(2) if a notice of a final administrative adjustment at the
Partnership level of any item required to be taken into account by a Partner for
tax purposes (a "final adjustment") is mailed to the Tax Matters Partner, to
seek judicial review of such final adjustment, including the filing of a
petition for readjustment with the Tax Court, the District Court of the United
States for the district in which the Partnership's principal place of business
is located, or elsewhere as allowed by law, or the United States Claims Court;
(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the
Secretary at any time and, if any part of such request is not allowed by the
Secretary, to file a petition for judicial review with respect to such request;
(5) to enter into an agreement with the Internal Revenue Service to
extend the period for assessing any tax that is attributable to any item
required to be taken into account by a Partner for tax purposes, or an item
affected by such item; and
(6) to take any other action on behalf of the Partners (with respect
to the Partnership) or the Partnership in connection with any administrative or
judicial tax proceeding to the extent permitted by applicable law or Treasury
Regulations.
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<PAGE>
(f) The Partnership shall indemnify and reimburse the Tax Matters
Partner for all expenses (including legal and accounting fees) incurred pursuant
to this Section 5.4 in connection with any administrative or judicial proceeding
with respect to the tax liability of the Partners. The payment of all such
reasonable expenses shall be made before any distributions are made to the
Partners. The taking of any action and the incurring of any expense by the Tax
Matters Partner in connection with any such proceeding, except to the extent
provided herein or required by law, is a matter in the sole discretion of the
Tax Matters Partner and the provisions on limitations of liability of the
General Partner and indemnification set forth in Article 9 shall be fully
applicable to the General Partner in its capacity as the Tax Matters Partner.
(g) Any Partner that receives a notice of an administrative proceeding
under Code Section 6233 relating to the Partnership shall promptly notify the
Tax Matters Partner of the treatment of any Partnership item on such Partner's
federal income tax return that is or may be inconsistent with the treatment of
that item on the Partnership's return.
(h) Either Partner that enters into a settlement agreement with the
Secretary with respect to any Partnership item shall notify the Tax Matters
Partner of such agreement and its terms within thirty days after its date, and
the Tax Matters Partner shall notify the other Partners of the settlement
agreement within thirty days of such notification.
ARTICLE 6
STATUS OF LIMITED PARTNER; OTHER LIMITATIONS ON
-----------------------------------------------
PARTNERS
--------
6.1 No Management and Control.
-------------------------
Except as expressly provided in this Agreement, no Limited Partner shall
take part in or interfere in any manner with the control, conduct, or operation
of the Partnership or have any right or authority to act for or bind the
Partnership or to vote on matters relating to the Partnership. The Limited
Partner shall not take any action with respect to the Partnership or its
Partnership Interest that requires the consent of its members pursuant to its
operating agreement without first obtaining such consent, including any Transfer
of its Partnership Interest.
6.2 Limited Liability.
-----------------
No Limited Partner shall be bound by or personally liable for the expenses,
liabilities, or obligations of the Partnership. In no event shall any Partner
be required to make up a deficiency in its Capital Account upon the dissolution
and termination of the Partnership.
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6.3 Return of Distributions of Capital.
----------------------------------
A Limited Partner may, under certain circumstances, be required by law to
return to the Partnership, for the benefit of the Partnership's creditors,
amounts previously distributed. No Limited Partner shall be obligated by this
Agreement to pay those distributions to or for the account of the Partnership or
any creditor of the Partnership. However, if any court of competent
jurisdiction holds that, notwithstanding the provisions of this Agreement, a
Limited Partner must return or pay over any part of those distributions, the
obligation shall be that of such Limited Partner alone and not of any other
Partner. Any payment returned to the Partnership by a Partner or made directly
by a Partner to a creditor of the Partnership shall be deemed a Capital
Contribution by such Partner.
6.4 Specific Limitations.
--------------------
No Partner shall have the right or power to: (a) (i) withdraw as a Partner
except upon the disposition of all of its Partnership Interest in accordance
with the terms of this Agreement or (ii) reduce its Capital Contribution except
as a result of the dissolution of the Partnership or as otherwise provided by
law, (b) bring an action for partition against the Partnership or any assets of
the Partnership, (c) cause the termination and dissolution of the Partnership,
except as set forth in this Agreement, or (d) demand or receive property other
than cash in return for its Capital Contribution. Except as otherwise set forth
in this Agreement or in any agreement permitted to be entered into under this
Agreement with respect to the purchase, redemption, retirement, or other
acquisition of Partnership Interests, no Partner shall have priority over any
other Partner either as to the return of its Capital Contribution or as to Net
Profit, Net Loss, or distributions. Other than upon the termination and
dissolution of the Partnership as provided by this Agreement, there has been no
time agreed upon when the Capital Contribution of any Partner will be returned.
ARTICLE 7
TRANSFER OF PARTNERSHIP INTERESTS
---------------------------------
7.1 Transferees.
-----------
(a) No sale, assignment, transfer or other disposition (any or all of
the foregoing, a "Transfer") of a Partnership Interest will be effective nor
will any purported Transferee become a Partner or otherwise be entitled to any
of attributes of ownership of the Partnership purportedly Transferred unless
such Transfer is made in accordance with the provisions of this Article 7 and
the transferor and Transferee have complied with the following conditions:
(1) the transferor has executed and delivered to the Partnership a
copy of the assignment of the Partnership Interest to Transferee in form and
substance satisfactory to the Partnership;
(2) the Transferee, if not already a party to this Agreement,
becomes a party to this Agreement, assumes all of the obligations hereunder of
its transferor and agrees to be bound by the terms and conditions hereof in the
same manner as the transferor.
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(b) Upon compliance with Section 7.1(a), any Transferee shall be
substituted as a Partner for, and shall enjoy the same rights and be subject to
the same obligations as, its predecessor as a Partner hereunder.
(c) If there is a permitted Transfer of a Partnership Interest under
this Agreement:
(1) A Transferee's Percentage Interest shall equal the Percentage
Interest transferred to it by the transferring Partner;
(2) A Transferee's Capital Account shall initially be equal to the
Capital Account balance transferred to it by the transferring Partner;
(3) If requested to do so by any transferring Partner or by the
Transferee by notice given to the Partners, the Partnership shall make an
election under Section 754 of the Code (and a corresponding election under
applicable state and local law). Upon the request of either Partner, the
Partnership shall also make a timely election under Section 754 of the Code upon
a distribution of property or money to a Partner.
7.2 Other Consents and Requirements.
-------------------------------
Any Transfer must be in compliance with all requirements imposed by any
state securities administrator having jurisdiction over the Transfer and the
United States Securities and Exchange Commission and must not cause the
Partnership or any Subsidiary to be in violation of any Ownership Restriction
(as defined in the Insight Midwest Partnership Agreement).
7.3 Assignment Not In Compliance.
----------------------------
Any Transfer in contravention of any of the provisions of this Article 7
(whether voluntarily, involuntarily or by operation of law) shall be void and of
no effect, and shall neither bind nor be recognized by the Partnership.
7.4 Division of Partnership Interests.
---------------------------------
The several rights and obligations inherent in the Capital Account and
Percentage Interest attributable to a Partner's Partnership Interest are
indivisible except in equal proportions, such that the assignment of a specified
percentage of a Partner's Partnership Interest may only represent an equal
percentage of the total Capital Account and Percentage Interest that were
attributable to such Partner's Partnership Interest prior to the assignment.
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<PAGE>
7.5 Pledge of Partnership Interests.
-------------------------------
At the request of the General Partner, each Partner agrees to pledge its
Partnership Interest to secure any indebtedness of Insight Midwest, L.P. or its
Subsidiaries (as defined in the Insight Midwest Partnership Agreement) that is
permitted under this Agreement and the Insight Midwest Partnership Agreement, on
terms determined by the General Partner, so long as all Partners are required to
pledge their Partnership Interests and the terms of the pledge do not impose any
personal liability on any Partner. In negotiating the terms of any such pledge,
the General Partner will require that the secured party agree to enforce its
rights against the Partnership Interests of the Partners proportionately (based
on the Percentage Interest of each Partner). If the secured party under any
such pledge enforces its rights against the Partnership Interests of the
Partners other than proportionately, the Partners will afford each other such
rights of contribution and indemnity as are necessary to cause all liabilities,
losses, and damages suffered by the Partners as a result of the exercise by the
secured party of its rights under such pledge to be borne by the Partners
proportionately.
ARTICLE 8
DISSOLUTION AND LIQUIDATION OF PARTNERSHIP
------------------------------------------
8.1 Events of Dissolution.
---------------------
The Partnership shall be dissolved upon the happening of any of the
following events:
(a) the withdrawal of the General Partner;
(b) the expiration of the term of the Partnership as set forth in
Section 2.4;
(c) the sale, exchange, involuntary conversion, or other disposition
or transfer of all or substantially all of the assets of the Partnership;
(d) upon mutual agreement of the Partners; or
(e) subject to any provision of this Agreement that limits or prevents
dissolution, the happening of any event that, under applicable law, causes the
dissolution of a limited partnership.
8.2 Liquidation.
-----------
(a) Upon dissolution of the Partnership for any reason, the
Partnership shall immediately commence to wind up its affairs. A reasonable
period of time shall be allowed for the orderly termination of the Partnership
business, discharge of its liabilities, and distribution or liquidation of the
remaining assets so as to enable the Partnership to minimize the normal losses
attendant to the liquidation process.
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<PAGE>
(b) Liquidation of the assets of the Partnership shall be managed on
behalf of the Partnership by the "Liquidator," which shall be (1) if the
Partnership is being liquidated following a withdrawal by the General Partner,
the Limited Partner, and (2) in all other events, the General Partner or a
liquidating trustee selected by the General Partner. The Liquidator shall be
responsible for soliciting offers to purchase the entirety of the Partnership's
assets (including equity interests in other Persons) or portions or clusters of
assets of the Partnership. The Liquidator shall afford each Partner an
opportunity to offer to purchase any assets of the Partnership that are offered
for sale in connection with the liquidation of the Partnership to the extent
doing so would be consistent with the orderly liquidation of the Partnership.
(c) The Liquidator shall cause a full accounting of the assets and
liabilities of the Partnership to be taken and a statement thereof to be
furnished to each Partner within thirty days after the distribution of all of
the assets of the Partnership.
(d) The property and assets of the Partnership and the proceeds from
the liquidation thereof shall be applied in the following order of priority:
(1) first, to payment of the debts and liabilities of the
Partnership, in the order of priority provided by law (including any loans by
either Partner to the Partnership) and payment of the expenses of liquidation;
(2) second, to setting up of such reserves as the Liquidator may
deem reasonably necessary for any contingent or unforeseen liabilities or
obligations of the Partnership or any obligation or liability not then due and
payable; provided, however, that any such reserve shall be paid over by the
Liquidator into a Partnership account or a liquidating trust account established
for such purpose, to be held in such account for the purpose of disbursing such
reserves in payment of such liabilities, and, at the expiration of such holdback
period as the Liquidator shall deem advisable, to distribute the balance
thereafter remaining in the manner hereinafter provided; and
(3) finally, to payment to the Partners, in accordance with Section
4.1(b). The distributions pursuant to this Section 8.2(d)(3) shall, to the
extent possible, be made prior to the later of the end of the Fiscal Year in
which the dissolution occurs or the ninetieth day after the date of dissolution,
or such other time period which may be permitted under Treasury Regulations
Section 1.704-1(b)(2)(ii)(b).
(e) If in the course of the liquidation and dissolution of the
Partnership pursuant to this Article 8, the Liquidator determines that a sale by
all the Partners to any Person of their Partnership Interests, instead of a sale
by the Partnership and the Subsidiaries of their respective assets, would more
efficiently effect the liquidation of the Partners' economic interests in the
Partnership or would reduce negative tax consequences to the Partners and the
Partnership, but would not adversely affect the rights and obligations of either
Partner (including the tax consequences to either Partner), then each Partner
agrees to sell its Partnership Interest to such Person, and the Liquidator shall
have the authority, pursuant to the power of attorney granted in Section
13.5(b), to execute, acknowledge, deliver, swear to, file, and record all
agreements,
-24-
<PAGE>
instruments, and other documents that may be necessary or appropriate to effect
the sale of such Partner's Partnership Interest.
(f) Following the dissolution of the Partnership pursuant to Section
8.1, the Partners will use commercially reasonable efforts to structure the
liquidation of the Partnership in a manner that minimizes negative tax
consequences to the Partners and the Partnership to the extent doing so would
not materially adversely affect either Partner (except to the extent such
Partner is adequately compensated by the other Partner for such adverse effect).
Any structure agreed to by the Partners pursuant to this Section 8.2(f) shall
supersede the other provisions of this Article 8 to the extent it is
inconsistent with such other provisions, but nothing in this Section 8.2(f)
shall modify or otherwise affect the other provisions of this Article 8 if the
Partners are unable to agree on such a structure.
8.3 Distribution in Kind.
--------------------
The Partnership shall not distribute any non-cash asset to either Partner
without the consent of each Partner. Any asset distributed in kind to one or
more Partners shall first be valued at its fair market value to determine the
gain or loss used in determining Net Profit or Net Loss that would have resulted
if such asset were sold for such value, such gain or loss shall then be
allocated pursuant to Article 4, and the Partners' Capital Accounts shall be
adjusted to reflect such gain or loss. The amount distributed and charged to
the Capital Account of each Partner receiving an interest in such distributed
asset shall be the fair market value of such interest (net of any liability
secured by such asset that such Partner assumes or takes subject to). The fair
market value of any asset distributed in kind in connection with the liquidation
of the Partnership shall be determined by an independent appraiser (any such
appraiser must be nationally recognized as an expert in valuing the type of
asset involved) selected by the Liquidator.
8.4 No Action for Dissolution.
-------------------------
The Partners acknowledge that irreparable damage would be done to the
goodwill and reputation of the Partnership if either Partner should bring an
action in court to dissolve the Partnership under circumstances where
dissolution is not required by Section 8.1. This Agreement has been drawn
carefully to provide fair treatment of all parties and equitable payment in
liquidation of the Partnership Interests of both Partners. Accordingly, except
where liquidation and dissolution are required by Section 8.1, each Partner
hereby waives and renounces its right to initiate legal action to seek
dissolution or to seek the appointment of a receiver or trustee to liquidate the
Partnership.
8.5 No Further Claim.
----------------
Upon dissolution, each Partner shall look solely to the assets of the
Partnership for the return of its investment, and if the property of the
Partnership remaining after payment or discharge of the debts and liabilities of
the Partnership, including debts and liabilities owed to one or more of the
Partners, is insufficient to return the aggregate capital contributions of a
Partner, no Partner shall have any recourse against any other Partner.
-25-
<PAGE>
ARTICLE 9
INDEMNIFICATION
---------------
9.1 General.
-------
The Partnership shall indemnify, defend, and hold harmless each Partner and
their respective members, partners, officers, directors, shareholders,
employees, and agents, the employees, officers, and agents of the Partnership
(all indemnified persons being referred to as "Indemnified Persons" for purposes
of this Article 9), from any liability, loss, or damage incurred by the
Indemnified Person by reason of any act performed or omitted to be performed by
the Indemnified Person in connection with the business of the Partnership,
including costs and attorneys' fees (which attorneys' fees may be paid as
incurred) and any amounts expended in the settlement of any claims of liability,
loss, or damage; provided, however, that, if the liability, loss, damage, or
claim arises out of any action or inaction of an Indemnified Person,
indemnification under this Section 9.1 shall not be available if the action or
inaction is finally adjudicated to have constituted fraud, gross negligence,
breach of fiduciary duty (which shall not be construed to encompass mistakes in
judgment or any breach of any Indemnified Person's duty of care that did not
constitute gross negligence), or willful misconduct by the Indemnified Person;
and provided, further, however, that indemnification under this Section 9.1
shall be recoverable only from the assets of the Partnership and not from any
assets of the Partners. The Partnership may pay for insurance covering
liability of the Indemnified Persons for negligence in operation of the
Partnership's affairs.
9.2 Exculpation.
-----------
No Indemnified Person shall be liable, in damages or otherwise, to the
Partnership or to either Partner for any loss that arises out of any act
performed or omitted to be performed by it or him pursuant to the authority
granted by this Agreement unless the conduct of the Indemnified Person is
finally adjudicated to have constituted fraud, gross negligence, breach of
fiduciary duty (which shall not be construed to encompass mistakes in judgment
or any breach of any Indemnified Person's duty of care that did not constitute
gross negligence), or willful misconduct by such Indemnified Person.
9.3 Persons Entitled to Indemnity.
-----------------------------
Any Person who is within the definition of "Indemnified Person" at the time
of any action or inaction in connection with the business of the Partnership
shall be entitled to the benefits of this Article 9 as an "Indemnified Person"
with respect thereto, regardless of whether such Person continues to be within
the definition of "Indemnified Person" at the time of his or its claim for
indemnification or exculpation hereunder.
-26-
<PAGE>
9.4 Procedure Agreements.
--------------------
The Partnership may enter into agreements with any of its Partners,
employees, officers, and agents, any of the officers, directors, shareholders,
employees, and agents of the General Partner, and any member of the Advisory
Committee or other Indemnified Person, setting forth procedures for implementing
the indemnities provided in this Article 9.
ARTICLE 10
BOOKS, RECORDS, ACCOUNTING, AND REPORTS
---------------------------------------
10.1 Books and Records.
-----------------
The Partnership shall maintain at its principal office all of the
following:
(a) A current list of the full name and last known business or
residence address of each Partner together with the Capital Contributions and
Partnership Interest of each Partner;
(b) A copy of the Certificate, this Agreement, and any and all
amendments to either thereof, together with executed copies of any powers of
attorney pursuant to which any certificate or amendment has been executed;
(c) Copies of the Partnership's federal, state, and local income tax
or information returns and reports, if any, for the six most recent taxable
years;
(d) The audited financial statements of the Partnership for the six
most recent Fiscal Years; and
(e) The Partnership's books and records for at least the current and
past three Fiscal Years.
10.2 Delivery to Partner and Inspection.
----------------------------------
(a) Upon the request of a Partner, the Partnership shall promptly
deliver to the requesting Partner, at the expense of the Partnership, a copy of
the information required to be maintained by Section 10.1 except for Section
10.1(e).
(b) Each Partner, or its duly authorized representative, has the
right, upon reasonable request, to inspect and copy during normal business hours
any of the Partnership records.
-27-
<PAGE>
10.3 Tax Matters.
-----------
The Partnership shall be treated as a partnership for federal and state
income tax and franchise tax purposes. The Partnership, at Partnership expense,
shall prepare and timely file with the appropriate authorities all income tax
returns for the Partnership required to be filed by the Partnership.
10.4 Other Filings.
-------------
The Partnership, at Partnership expense, shall also prepare and timely
file, with appropriate federal and state regulatory and administrative bodies,
all reports required to be filed by the Partnership with those entities under
then current applicable laws, rules, and regulations. The reports shall be
prepared on the accounting or reporting basis required by the regulatory bodies.
Upon written request, each Partner shall be provided with a copy of any of the
reports without expense to the requesting Partner.
10.5 Non-Disclosure.
--------------
Each Partner agrees that, except as otherwise consented to by the other
Partner, all non-public information furnished to it or to which it has access
pursuant to this Agreement will be kept confidential and will not be disclosed
by such Partner (it being agreed that the standard each Partner shall adhere to
is to use the same degree of care it would use for its own confidential
information), or by any of its agents, representatives, or employees, in any
manner whatsoever, in whole or in part, except that:
(a) each Partner shall be permitted to disclose such information to
those of its agents, representatives, and employees who need to be familiar with
such information in connection with such Partner's investment in the
Partnership,
(b) each Partner shall be permitted to disclose such information to
its Affiliates,
(c) each Partner shall be permitted to disclose information to the
extent required by law, including federal or state securities laws or
regulations, or by the rules and regulations of any stock exchange or
association on which securities of such Partner or any of its Affiliates are
traded, so long as such Partner shall have first afforded the Partnership with a
reasonable opportunity to contest the necessity of disclosing such information,
(d) each Partner shall be permitted to disclose information to the
extent necessary for the enforcement of any right of such Partner arising under
this Agreement,
(e) each Partner shall be permitted to disclose information to a
permitted Transferee, so long as (1) such Partner shall first have provided to
the other Partner written notice thereof and of the identity of the Person to
whom the disclosure is to be made and (2) such Person agrees (in a writing which
provides the Partnership with an independent right of enforcement) to be bound
by the provisions of this Section 10.9,
-28-
<PAGE>
(f) each Partner shall be permitted to disclose information that is
or becomes generally available to the public other than as a result of a
disclosure by such Partner, its agents, representatives, or employees, and
(g) each Partner shall be permitted to disclose information that
becomes available to such Partner on a nonconfidential basis from a source
(other than the Partnership, any other Partner, or their respective agents,
representatives, and employees) that, to the best of such Partner's knowledge,
is not prohibited from disclosing such information to such Partner by a legal,
contractual, or fiduciary obligation to the Partnership or any other Partner.
ARTICLE 11
REPRESENTATIONS BY THE PARTNERS
-------------------------------
Each Partner represents and warrants to, and agrees with, the other Partner
and the Partnership as follows:
11.1 Binding Agreement.
-----------------
This Agreement is and will remain its valid and binding agreement,
enforceable in accordance with its terms (subject, as to the enforcement of
remedies, to any applicable bankruptcy, insolvency, or other laws affecting the
enforcement of creditor's rights).
11.2 Tax Position.
------------
Unless it provides prior written notice to the Partnership, it will not
take a position on its federal income tax return, on any claim for refund, or in
any administrative or legal proceedings that is inconsistent with any
information return filed by the Partnership or with the provisions of this
Agreement.
ARTICLE 12
AMENDMENTS AND WAIVERS
----------------------
12.1 Amendments to Operating Agreement.
---------------------------------
(a) This Agreement may only be modified or amended with the consent
of both Partners.
(b) The Partnership shall prepare and file any amendment to the
Certificate that may be required to be filed under the Act as a consequence of
any amendment to this Agreement.
-29-
<PAGE>
12.2 Waivers.
-------
The observance or performance of any term or provision of this Agreement
may be waived (either generally or in a particular instance, and either
retroactively or prospectively) by the party entitled to the benefits of such
term or provision.
ARTICLE 13
MISCELLANEOUS
-------------
13.1 Additional Documents.
--------------------
At any time and from time to time after the date of this Agreement, upon
the request of the Partnership or the other Partner, each Partner shall do and
perform, or cause to be done and performed, all such additional acts and deeds,
and shall execute, acknowledge, and deliver, or cause to be executed,
acknowledged, and delivered, all such additional instruments and documents, as
may be required to best effectuate the purposes and intent of this Agreement.
13.2 Inspection.
----------
Each Partner shall have the right at reasonable times to inspect the books
and records of the Partnership.
13.3 General.
-------
This Agreement: (a) shall be binding on the executors, administrators,
estates, heirs, and legal successors of the Partners; (b) be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to conflicts of law principles thereunder; (c) may be executed in more than one
counterpart as of the day and year first above written; and (d) contains the
entire agreement between the Partners as to the subject matter of this
Agreement. The waiver of any of the provisions, terms, or conditions contained
in this Agreement shall not be considered as a waiver of any of the other
provisions, terms, or conditions of this Agreement.
13.4 Notices, Etc.
------------
All notices and other communications required or permitted hereunder shall
be in writing and shall be deemed effectively given or delivered upon personal
delivery, confirmation of telex or telecopy, or receipt (which may be evidenced
by a return receipt if sent by registered mail), addressed (a) if to either
Partner, at the address of such Partner set forth on Schedule I or at such other
address as such Partner shall have furnished to the Partnership in writing, (b)
if to the Partnership, at 126 E. 56th Street, New York, New York 10022.
13.5 Execution of Papers.
-------------------
(a) The Partners agree to execute such instruments, documents, and
papers as the General Partner deems necessary or appropriate to carry out the
intent of this Agreement.
-30-
<PAGE>
(b) Each Partner, including each additional and substituted Partner,
by the execution of this Agreement, irrevocably constitutes and appoints the
Liquidator its true and lawful attorney-in-fact with full power and authority in
its name, place, and stead to execute, acknowledge, deliver, swear to, file, and
record all agreements, instruments, and other documents that may be necessary or
appropriate to effect the sale of such Partner's Partnership Interest pursuant
to Section 8.2(e).
(c) The power of attorney granted pursuant to Section 13.5(b) shall
be deemed to be a power coupled with an interest, in recognition of the fact
that each of the Partners under this Agreement will be relying upon the power of
the Liquidator to act as contemplated by this Agreement in any filing and other
action by it on behalf of the Partnership, and shall survive the bankruptcy,
death, adjudication of incompetence or insanity, or dissolution of any Person
hereby giving such powers and the transfer or assignment of all or any part of
such Person's Partnership Interest; provided, however, that in the event of a
Transfer by a Partner, the powers of attorney given by the transferor shall
survive such Transfer only until such time as the Transferee shall have been
admitted to the Partnership as a substituted Partner and all required documents
and instruments shall have been duly executed, filed, and recorded to effect
such substitution.
(d) Each Partner agrees to be bound by any actions taken by the
Liquidator acting in good faith pursuant to the power of attorney granted
pursuant to Section 13.5(b) that are consistent with and subject to the
provisions of this Agreement and hereby waives any and all defenses that may be
available to contest, negate, or disaffirm any action of the Liquidator taken in
good faith under the power of attorney granted pursuant to Section 13.5(b) that
are consistent with and subject to the provisions of this Agreement.
13.6 Attorneys' Fees.
---------------
In the event of commencement of suit or other action by either party to
enforce the provisions of this Agreement, the prevailing party shall be entitled
to receive such attorneys' fees and costs as the court or other forum in which
such suit or action is adjudicated may determine reasonable in addition to all
other relief granted.
13.7 No Third-Party Beneficiaries.
----------------------------
This Agreement is not intended to, and shall not be construed to, create
any right enforceable by any Person not a party hereto, including any partner or
Partner of either Partner or any creditor of the Partnership or of either of the
Partners.
13.8 Headings.
--------
The headings herein are included for ease of reference only and shall not
control or affect the meaning or construction of the provisions of this
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Partners have hereunto set their hands as of the
day first heretofore mentioned.
INSIGHT MIDWEST, L.P.
By: Insight Communications Company, L.P., its
general partner
By: Insight Communications Company, Inc., its
general partner
By:_________________________________________
Name:
Title:
INSIGHT KENTUCKY CAPITAL, LLC
By: Insight Communications Company, L.P., its
authorized member
By: Insight Communications Company, Inc., its
general partner
By:_________________________________________
Name:
Title:
<PAGE>
SCHEDULE I
TO
LIMITED PARTNERSHIP AGREEMENT
ADDRESSES OF THE PARTNERS
Insight Midwest, L.P.
126 E. 56th Street
New York, New York 10022
Attention: Sidney R. Knafel
Facsimile: (212) 371-1549
Insight Kentucky Capital, LLC
126 E. 56th Street
New York, New York 10022
Attention: Sidney R. Knafel
Facsimile: (212) 371-1549
<PAGE>
SCHEDULE II
TO
LIMITED PARTNERSHIP AGREEMENT
PERCENTAGE INTEREST
The Percentage Interests of the Partners as of the date of this Agreement are:
Insight Midwest 99.999%
Insight Kentucky Capital .001%
<PAGE>
Exhibit 10.7
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT is made and entered into on the 1st day of
October, 1999, by and between Insight Kentucky Partners II, L.P., a Delaware
limited partnership (the "Company"), and Insight Communications Company, L.P., a
Delaware limited partnership ("Insight" and, together with any permitted assigns
hereunder, the "Manager").
RECITALS
--------
A. The Company owns and operates certain cable television systems and
certain other assets, as more fully described in the Midwest Partnership
Agreement. The business and operations of the Company, as the same may be
conducted from and after the date hereof, are hereinafter referred to as the
"Business."
B. Manager has the experience and ability to manage the Business and is
willing to do so, and the Company desires to enter into this Agreement with
Manager providing for the management of the Business on the terms and conditions
set forth herein.
C. The Company is a subsidiary of Insight Midwest, L.P., a Delaware
limited partnership ("Insight Midwest"), and reference is hereby made to that
certain Limited Partnership Agreement, dated as of October 1, 1999, of Insight
Midwest (as the same may be amended from time to time, the "Midwest Partnership
Agreement").
AGREEMENTS
----------
In consideration of the covenants and agreements contained herein, the
Company and Manager agree as follows:
SECTION 1 DEFINITIONS. Except as otherwise defined herein, the following
-----------
terms shall have the following meanings when used in this Agreement:
Affiliate. With respect to either the Company or Manager, any other Person
that directly or indirectly through one or more intermediaries controls or is
controlled by or under direct or indirect common control with such party.
Applicable Law. Any statute, ordinance, law, rule or regulation of any
Governmental Authority, or any order, decree, injunction, writ, judgment or
award of any court, arbitrator or other Governmental Authority, applicable to
the Company or the Business.
<PAGE>
Authorizations. Any governmental or non-governmental license, permit,
franchise or other authorization, and applications therefor, which are necessary
to conduct the Business.
GAAP. Generally accepted accounting principles as in effect from time to
time.
Governmental Authority. Any governmental authority or regulatory body, or
any department, agency, division, bureau or other legal body thereof having
jurisdiction over the Company, the Business, or general jurisdiction over all
Persons.
Person. Any individual, corporation, partnership, firm, limited liability
company, joint venture, association, trust, joint stock company, unincorporated
organization or other entity, or a government or any agency or political
subdivision thereof.
Capitalized terms not otherwise defined herein shall have the meanings
given such terms in the Midwest Partnership Agreement.
SECTION 2 APPOINTMENT. On the terms and conditions hereinafter provided,
-----------
the Company hereby appoints Manager, and Manager hereby accepts such
appointment, as manager for all of the operations and conduct of the Business
for a period commencing on the date hereof and expiring as provided in Section 5
of this Agreement.
SECTION 3. MANAGEMENT AUTHORITY; MANAGEMENT SERVICES.
-----------------------------------------
3.1 Authority and Services To Be Performed By Manager. (a)(i) Subject to
-------------------------------------------------
the limitations set forth in Section 3.1(b) below, Manager shall have full and
exclusive authority to do all such acts and things as may be incidental to, or
necessary, proper or advisable in the furtherance of, the management of the day-
to-day operations and conduct of the Business. Subject to the terms and
conditions of this Agreement, Manager shall provide the Company with such
services as may, from time to time, be appropriate or reasonably required for
the proper and efficient operation and conduct of the Business in accordance
with sound business principles and practices customary in the cable television
industry (collectively, the "Management Services"). The Management Services
shall be provided both at such times as Manager may reasonably deem appropriate
and at such times as the Company may reasonably request.
(ii) Without limiting the generality of the preceding paragraph, the
Management Services shall include the following, but subject to any applicable
limitations set forth in this Agreement:
(1) (A) Evaluation of new equipment, materials and techniques and
making recommendations in accordance with its evaluations, (B) establishment of
general technical standards and procedures and directing their implementation,
and (C) establishment of programs for preventive maintenance and monitoring
their effectiveness;
<PAGE>
(2) Supervision of all construction and development arising out of or
related to the operation of the Business, including, without limitation, the
selection and appointment of all subcontractors, equipment suppliers and
vendors;
(3) Supervision of the purchasing of property, real, personal or
mixed, and all materials and supplies, if any, necessary to complete any
construction and development arising out of or related to the Business;
(4) Sale, lease, trade, exchange or other disposition of the Company's
assets in the ordinary course of business and the negotiation of, and entrance
into, in the name of and on behalf of the Company, of all agreements relating to
any of the foregoing;
(5) Negotiation of, and entrance into, in the name of and on behalf of
the Company, of all, contracts, leases, deeds, releases, assignments and any
other agreements on behalf of the Company for the purchase, lease, license or
use of such properties and rights as may be necessary or reasonably desirable in
connection with the Business;
(6) Formulation and supervision of all advertising, marketing and
sales programs and engagement and appointment on behalf of the Company of
advertising, marketing and public relations agencies and consultants for such
purposes;
(7) Subject to the provisions of all Authorizations, Applicable Law
and applicable agreements to which the Company is a party, the selection and
pricing of all services to be provided to the customers of the cable television
systems included in the Business;
(8) Supervision of performance of all aspects of the daily operation
and maintenance of the Business, instruction and supervision of all personnel
necessary to conduct daily operations of the Business and the setting of
salaries and wages for such personnel (with all such employees to be paid by the
Company);
(9) Entrance into, in the name of and on behalf of the Company, of any
agreements arising out of or related to the Business, including, without
limitation, cable television franchises or collective bargaining agreements with
employees of the Company;
(10) Supervision of the maintenance of all accounting, bookkeeping,
billing, collections and other financial systems and records relating to the
Business;
(11) Engagement of, on behalf of the Company, attorneys, accountants,
engineers, consultants and other qualified professionals;
(12) Preparation and filing, or causing to be prepared and filed, all
necessary applications, filings, reports, statements and other documents as are
required in connection with the Business with Governmental Authorities
(including any income tax filings);
-3-
<PAGE>
(13) Purchase of such policies of insurance (including Manager's
blanket coverage) as Manager may from time to time consider necessary and
appropriate in accordance with normal industry practice, with such policy naming
both the Company and Manager (and any other partner of the Company) as insured
thereunder as their interests may appear;
(14) Representation of the Company before all Governmental Authorities
with respect to any matter necessary or desirable to the management of the
Business; and
(15) Taking of any other action in connection with the construction,
development, operation and maintenance of the Business in the ordinary course of
business which is commercially reasonable, appropriate and necessary.
(b) Notwithstanding the foregoing in Section 3.1(a), the Manager
acknowledges that the Manager shall be subject to all express limitations of the
Midwest Partnership Agreement requiring approvals of the Partners of Insight
Midwest prior to taking of certain actions by the Company and shall otherwise be
subject to the terms of the Midwest Partnership Agreement.
3.2 Standard of Care. Manager will use reasonable commercial efforts in
----------------
managing the Business; provided, however, that notwithstanding anything
contained herein or Applicable Law to the contrary, neither Manager (nor any of
its direct or indirect partners, shareholders, members, officers, directors,
Affiliates, employees or agents) shall have any liability, express or implied,
for any action taken or omitted to be taken by Manager or for any failure or
delay in performing or exercising any obligation, duty, right, power or
authority possessed by Manager under this Agreement, or any other document
related hereto except for actual losses, if any, suffered by the Company that
are proximately caused either by Manager's gross negligence, willful misconduct
or willful breach of this Agreement.
3.3 Compliance with Authorizations. Notwithstanding anything in this
------------------------------
Agreement to the contrary, the Company shall continue to be the franchisee,
licensee and permittee, as applicable, of all Authorizations of any nature
whatsoever issued by any Governmental Authority in connection with the operation
of the Business and shall retain ultimate control over the Business. The
Company shall also retain ultimate responsibility for compliance with all
Applicable Law and the terms of any applicable Authorizations.
3.4 Payment of Expenses. The Company shall be responsible for the payment
-------------------
of all costs, expenses and liabilities of any nature whatsoever in connection
with the construction, development, operation, maintenance, repair and ownership
of the Business and the Company shall be the responsible party under all
agreements entered into on behalf of the Company by Manager pursuant hereto.
3.5 Inspection of Records. Originals or copies of all books and records
---------------------
related to this Management Agreement shall be maintained at the principal office
of Manager and shall be open
-4-
<PAGE>
to the inspection and examination of the Company and Insight Midwest's Partners
during normal business hours upon reasonable notice.
SECTION 4 COMPENSATION AND EXPENSES.
-------------------------
4.1 Management Fee. As compensation to Manager for the performance of its
--------------
services hereunder, the Company shall pay to Manager a management fee
("Management Fee") for each twelve month period during the term of this
Agreement, commencing on the date hereof, equal to three percent (3%) of the
total Gross Operating Revenues of the Company for that year.
4.2 Gross Operating Revenues. The term "Gross Operating Revenues" means
------------------------
all revenues arising out of or in connection with the operation of the Business,
but exclusive of all proceeds from the sale of assets or from other
extraordinary or non-recurring items and exclusive of all interest, dividends,
royalties, and other similar types of investment income that do not arise from
the operation of the Business in the ordinary course.
4.3 Quarterly Statement. Within 30 days after the end of each fiscal
-------------------
quarter, the Manager shall submit to the Company a quarterly and a cumulative
year-to-date Gross Operating Revenues statement indicating the quarterly
Management Fee payable and the cumulative year-to-date Management Fee payable to
Manager together with appropriate supporting documentation. Each quarterly
Management Fee payable hereunder shall be adjusted to reflect any cumulative
year-to-date adjustments in Gross Operating Revenues. The Management Fee shall
be payable each quarter within 10 days after the Management Fee statement for
such quarter has been received by the Company.
4.4 Annual Statement. Within 90 days after the end of each fiscal year,
----------------
the Company shall cause its independent public accountants to determine the
Gross Operating Revenues of the Company for that year and the amount of the
Management Fee payable to Manager for that year and deliver a copy to Manager.
Manager shall have the right to consult with the accountants regarding the
determination of Gross Operating Revenues prior to the final determination of
Gross Operating Revenues by the accountants. The accountants' determination
shall be final and binding on the Company and Manager.
4.5 Expense Reimbursement. The Management Fee described above shall be
---------------------
exclusive of reimbursement by the Company to Manager for all direct, out-of-
pocket expenditures incurred by or on behalf of Manager relating to its
obligations under this Agreement as provided for herein, including without
limitation, reimbursement for travel expenses. Manager shall be entitled to
reimbursement by the Company for services that would ordinarily be direct
expenditures of the Company. Manager shall act in good faith and in a reasonable
manner in making determinations of reimbursement. It is understood and agreed
that the intent of the expense reimbursement provisions contained in this
Section 4.5 is to reimburse Manager only for expenses incurred that are directly
related to the operation of the Business and
-5-
<PAGE>
not to reimburse Manager for any corporate overhead (including bonuses and
health, welfare, retirement and other benefits and overhead expenses of its
corporate office management, development, internal accounting and finance
management personnel), which shall be paid out of the Management Fee. Payment of
expense reimbursement shall be made monthly by the Company to Manager within
five days after receipt by the Company of a statement (the "Monthly Expense
Statement") of Manager's estimated reimbursable expenses for the preceding
month. The Monthly Expense Statement shall include an adjustment to reflect the
amount by which actual reimbursable expenses incurred during the month
immediately preceding the month of payment exceeded, or were exceeded by,
Manager's estimated reimbursable expenses with respect to such month.
4.6 Subordination. Manager acknowledges and agrees that notwithstanding
-------------
anything else contained herein, payment of the Management Fee may be limited by
the provisions of loan agreements of the Company (including, without limitation,
the Amended and Restated Revolving Credit and Term Loan Agreement, dated as of
October 1, 1999, among Insight Kentucky Partners I, L.P., the financial
institutions party thereto and Toronto Dominion (Texas), Inc. as Administrative
Agent (the "IKP-I Loan Agreement"), and that the Management Fee shall be paid if
and only to the extent that such payment will not create a default under such
loan agreements. To the extent that all or any portion of the Management Fee
may not be paid because of the terms of the loan agreements, any portion of the
Management Fee that is deferred shall be paid as soon as the same may be paid
without violating the provisions of the loan agreements. Payments of any
outstanding Management Fees (whether or not deferred) shall be paid prior to
payment of any partners distributions or similar payments to the partners of the
Company.
SECTION 5 DEFAULT AND TERMINATION.
-----------------------
5.1 A default by Manager or the Company shall occur under this Agreement
if Manager or the Company shall willfully breach in any material respect any
material covenant of this Agreement to be kept and performed by it.
5.2 Subject to Section 5.3 hereof, this Agreement shall be terminated
automatically upon the termination of the Company and may be terminated as
follows:
(a) by either the Company or Manager on written notice to the other
party in the event of any default (as defined in Section 5.1 hereof) by the
other party, as provided in Section 5.1, which is not cured within 90 days after
written notice thereof is received by the defaulting party (or if not curable
within that time period, within a reasonable time thereafter);
(b) by either the Company or Manager on written notice to the other
party upon a sale or other disposition of all or substantially all of the assets
of the Company.
-6-
<PAGE>
(c) Upon the resignation or removal of Insight as General Partner of
Insight Midwest pursuant to and in accordance with the terms of the Midwest
Partnership Agreement, other than in connection with a transfer by Insight of
its Partnership Interest in Insight Midwest to an Affiliate of Insight that is
permitted under the terms of the Midwest Partnership Agreement.
5.3 Subject to Section 4.6 herein, in the event of termination of this
Agreement pursuant to the terms hereof, Manager shall be entitled to receive
promptly following termination, and in any event within 30 days thereafter, the
amount of any accrued but unpaid Management Fees and any expense reimbursements.
SECTION 6 INDEMNIFICATION.
---------------
6.1 Indemnification by the Company. The Company will indemnify and hold
------------------------------
harmless Manager, its Affiliates, and all direct and indirect officers,
directors, employees, stockholders, partners, members and agents of Manager and
its Affiliates (individually, a "Manager Indemnitee") from and against any and
all claims, demands, costs, damages, losses, liabilities, joint and several,
expenses of any nature (including reasonable attorneys', accountants' and
experts' fees and disbursements, all of which shall be paid by the Company as
incurred by the Manager Indemnitee(s)), judgments, fines, settlements and other
amounts (collectively, "Damages") arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative, or investigative
(collectively "Claims") in which a Manager Indemnitee may be involved or
threatened to be involved, as a party or otherwise, arising out of Manager's
performance of its obligations under this Agreement or arising out of, related
to or in connection with, the Business regardless of whether this Agreement
continues to be in effect or such Manager Indemnitee continues to be an
Affiliate, or an officer, director, employee, stockholder, partner or agent of
Manager, at the time any such Claims are made or Damages incurred, provided that
in respect of any matter in which indemnification is sought, to the extent
applicable: (i) the Manager Indemnitee acted in good faith and in a manner it
reasonably believed to be in the best interest of the Company and, with respect
to any criminal proceeding, had no reasonable cause to believe its conduct was
unlawful, and (ii) the Manager Indemnitee's conduct for which indemnification is
sought did not constitute gross negligence, willful misconduct or a willful
breach of this Agreement. Any indemnification hereunder will be satisfied
solely out of the assets of the Company.
6.2 Indemnification by Manager. Manager will indemnify and hold harmless
--------------------------
the Company, its Affiliates, and all officers, directors, employees,
stockholders, partners, members and agents of the Company and its Affiliates
(individually, a "Company Indemnitee") from and against all Damages arising from
any Claim in which a Company Indemnitee may be involved or threatened to be
involved, as a party or otherwise, arising out of Manager's gross negligence,
willful misconduct or willful breach of this Agreement.
-7-
<PAGE>
6.3 Right to Indemnification Not Exclusive Remedy. The indemnification
---------------------------------------------
rights contained in this Section 6 will be cumulative of and in addition to any
and all other rights, remedies and recourse to which a Manager Indemnitee or a
Company Indemnitee, its heirs, successors, assigns and administrators are
entitled, whether pursuant to some other provision of this Agreement, at law or
in equity; provided, however, it is understood and agreed that notwithstanding
anything contained herein to the contrary, neither Manager (nor any of its
shareholders, officers, directors, employees or agents) shall have any liability
with respect to a breach of, or non-performance under this Agreement except as
expressly specified in this Agreement. The indemnification provided in this
Section 6 will inure to the benefit of the heirs, successors, assigns and
administrators of each Manager Indemnitee and Company Indemnitee.
6.4 Insurance. Manager may purchase, at the Company's expense, and
---------
maintain insurance on behalf of Manager and such other persons as Manager may
reasonably determine against any liability that may be asserted against it or
them in connection with the performance of Manager's obligations under this
Agreement; provided, however, that Manager will not purchase or maintain
insurance against liabilities of Manager or any other person arising out of acts
or omissions which were not made in good faith or which constituted gross
negligence, willful misconduct or a willful breach of this Agreement.
6.5 Interested Transactions. A Manager Indemnitee will not be denied
-----------------------
indemnification in whole or in part under this Section 6 solely because the
Manager Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by the terms
of this Agreement.
SECTION 7 MISCELLANEOUS.
-------------
7.1 Relationship Among the Parties. Nothing herein contained shall be
------------------------------
deemed to make Manager a partner, co-venturer or other participant in the
business or operations of the Company or in any manner to render Manager liable
as a principal, surety, guarantor, agent or otherwise for any of the debts,
obligations or liabilities of the Company, whether incurred directly by the
Company or by Manager on behalf of the Company in accordance with this
Agreement.
7.2 Other Activities of Manager. Nothing in this Agreement shall limit or
---------------------------
restrict the right of Manager to engage in any other business or to devote its
time and attention to the management or other aspects of any other business or
to render services of any kind. The Company acknowledges that Manager and its
Affiliates own, manage or operate cable television systems throughout the United
States. Manager will devote such of its attention, time, efforts and resources
to the Business as shall be reasonably necessary for it to carry out its duties
hereunder.
7.3 Notices. All notices and other communications given or made pursuant
-------
to this Agreement shall be in writing and shall be deemed to have been duly
given or made as of the date delivered if delivered by hand, by telecopier
device (confirmed by hand delivery or
-8-
<PAGE>
overnight courier service) or by overnight courier service to the parties at the
following address (or at such other address for a party as shall be specified by
like notice):
if to the Company, to:
c/o Insight Communications Company, Inc.
126 E. 56th Street
New York, New York 10022
Attention: Mr. Michael Willner
Telecopier: (212) 371-1549
with a copy to:
Tele-Communications, Inc. (d/b/a/ AT&T Broadband and Internet
Services)
9197 Peoria Street
Englewood, Colorado 80111
Attention: Mr. Derek Chang
Telecopier: (720) 875-5396
if to Manager, to:
c/o Insight Communications Company, Inc.
126 E. 56th Street
New York, New York 10022
Attention: Mr. Michael Willner
Telecopier: (212) 371-1549
7.4 Assignability; Benefit and Binding Effect. The Company agrees that
-----------------------------------------
Manager may assign this Agreement, without the consent of the Company, to any
Affiliate of Manager, or any successor to Manager by merger, consolidation or
otherwise. Except as set forth in the preceding sentence, neither party hereto
may assign this Agreement without the prior written consent of the other party.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
7.5 Governing Law. This Agreement shall be governed by the laws of the
-------------
State of Delaware as to all matters, including but not limited to matters of
validity, construction, effect, performance and remedies (without giving effect
to the principles of conflicts of law thereof).
7.6 Headings. The headings preceding the text of sections and
--------
subsections of this Agreement are included for ease of reference only and shall
not be deemed part of this Agreement.
-9-
<PAGE>
7.7 Gender and Number. Words used herein, regardless of the gender and
-----------------
number specifically used, shall be deemed and construed to include any other
gender, masculine, feminine or neuter, and any other number, singular or plural,
as the context requires.
7.8 Entire Agreement. This Agreement represents the entire understanding
----------------
and agreement between the Company and Manager with respect to the specific
subject matter hereof. This Agreement supersedes all prior negotiations between
the parties and cannot be amended, supplemented or changed except by an
agreement in writing which makes specific reference to this Agreement or an
agreement delivered pursuant hereto, as the case may be, and which is signed by
the party against which enforcement of any such amendment, supplement or
modification is sought.
7.9 Further Assurances. The parties shall take any actions and execute
------------------
any other documents that may be necessary or desirable to the implementation and
consummation of this Agreement or that may be reasonably requested by any other
party hereto. Each party will cooperate with the other party and provide any
assistance reasonably requested by the other party to effectuate the intent of
this Agreement.
7.10 Severability. If any provision of this Agreement or the application
------------
thereof to any person or circumstance shall be held invalid or unenforceable to
any extent by any court of competent jurisdiction, the remainder of this
Agreement and the application of such provision to other persons or
circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
7.11 Counterparts. This Agreement may be signed in counterparts, each of
------------
which shall be deemed to be an original but which, when taken together, shall
constitute one and the same instrument.
[SIGNATURES NEXT PAGE]
-10-
<PAGE>
IN WITNESS WHEREOF, this Management Agreement has been executed by the
parties hereto as of the date first above written.
THE COMPANY:
INSIGHT KENTUCKY PARTNERS II, L.P.
By: Insight Kentucky Partners I, L.P.,
its general partner
By: Insight Communications of Kentucky,
L.P., its general partner
By: Insight Capital Partners, L.P., its
general partner [If High Yield does not
Close October 1, 1999]
By: Insight Midwest, L.P., its general
partner
By: Insight Communications Company, L.P.,
its general partner
By: Insight Communications Company, Inc.,
its general partner
By:_______________________________________
Name: Kim D. Kelly
Title: Executive Vice President, Chief
Operating Officer and Chief Financial
Officer
MANAGER:
INSIGHT COMMUNICATIONS COMPANY, L.P.
By: Insight Communications Company, Inc.,
General Partner
By:_______________________________________
Name: Kim D. Kelly
Title: Executive Vice President, Chief
Operating Officer and Chief Financial
Officer
-11-
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF INSIGHT MIDWEST
Name Jurisdiction of Incorporation or Organization
- ---- ---------------------------------------------
Insight Capital, Inc. Delaware
Insight Communications of Indiana, LLC Delaware
Insight Communications of Kentucky, L.P. Delaware
Insight Kentucky Partners I, L.P. Delaware
Insight Kentucky Partners II, L.P. Delaware
<PAGE>
EXHIBIT 23.1(a)
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 29, 2000, related to the consolidated financial
statements of Insight Midwest, L.P. as of and for the year ended December 31,
1999, in the Registration Statement (Form S-4 No. 333-00000) and related
Prospectus of Insight Midwest, L.P. for the registration of $200,000,000 of its
9 3/4% Senior Notes due 2009.
/s/ Ernst & Young LLP
New York, New York
March 29, 2000
<PAGE>
EXHIBIT 23.1(b)
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 31, 1999, related to the financial statements of
Insight Communications of Indiana, LLC as of December 31, 1998 and for the
period from November 1, 1998 (date of inception) through December 31, 1998, in
the Registration Statement (Form S-4 No. 333-00000) and related Prospectus of
Insight Midwest, L.P. for the registration of $200,000,000 of its 9 3/4% Senior
Notes due 2009.
/s/ Ernst & Young LLP
New York, New York
March 29, 2000
<PAGE>
EXHIBIT 23.1(c)
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated September 13, 1999, related to the combined financial
statements of the Noblesville IN, Jeffersonville IN, and Lafayette IN cable
television systems as of October 31, 1998 and December 31, 1997 and the period
from January 1, 1998 to October 31, 1998 and the year ended December 31, 1997,
in the Registration Statement (Form S-4 No. 333-00000) and related Prospectus of
Insight Midwest, L.P. for the registration of $200,000,000 of its 9 3/4% Senior
Notes due 2009.
/s/ Ernst & Young LLP
New York, New York
March 29, 2000
<PAGE>
EXHIBIT 23.2(a)
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Tele-Communications, Inc.:
We consent to the inclusion in the registration statement on Form S-4 of Insight
Midwest, L.P. and Insight Capital, Inc. of our report, dated March 5, 1999,
relating to the combined balance sheet of the TCI Insight Systems (as defined in
Note 1 to the combined financial statements) as of October 31, 1998, and the
related combined statements of operations and parent's investment (deficit),
and cash flows for the ten-month period ended October 31, 1998 and for the year
ended December 31, 1997, and to the reference to our firm under the heading
"Experts" in the registration statement.
KPMG LLP
Denver, Colorado
March 29, 2000
<PAGE>
EXHIBIT 23.2(b)
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Tele-Communications, Inc.:
We consent to the inclusion in the registration statement on Form S-4 of Insight
Midwest, L.P. and Insight Capital, Inc. of our report, dated May 7, 1999,
relating to the combined balance sheet of the TCI IPVI Systems (as defined in
Note 1 to the combined financial statements) as of April 30, 1998, and the
related combined statements of operations and parent's investment (deficit), and
cash flows for the four-month period ended April 30, 1998 and for the year ended
December 31, 1997, and to the reference to our firm under the heading "Experts"
in the registration statement.
KPMG LLP
Denver, Colorado
March 29, 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-4 of
Insight Midwest, L.P. and Insight Capital, Inc. of our report dated January 5,
2000 relating to the consolidated financial statements of InterMedia Capital
Partners VI, L.P., which appear in such Registration Statement. We also consent
to the references to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
March 29, 2000
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