-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TCX4UBrbJavw/Xr+OsFs9LTcv7MC6nqyC91dDV8nhKvFK40OIe8r3hhrCifZTLwW Hplp0XYydvewbjm8QmyY9g== /in/edgar/work/20000811/0000940180-00-000985/0000940180-00-000985.txt : 20000921 0000940180-00-000985.hdr.sgml : 20000921 ACCESSION NUMBER: 0000940180-00-000985 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INSIGHT COMMUNICATIONS CO INC CENTRAL INDEX KEY: 0001084421 STANDARD INDUSTRIAL CLASSIFICATION: [4841 ] IRS NUMBER: 134053502 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26677 FILM NUMBER: 695132 BUSINESS ADDRESS: STREET 1: 126 EAST 56TH STREET CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2123712266 MAIL ADDRESS: STREET 1: INSIGHT COMMUNICATIONS CO INC STREET 2: 126 EAST 56TH STREET CITY: NEW YORK STATE: NY ZIP: 10022 10-Q 1 0001.txt FORM 10-Q __________________________________________________________________________ __________________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2000 Commission file number 0-26677 _______________________ INSIGHT COMMUNICATIONS COMPANY, INC. (Exact name of registrant as specified in its charter) Delaware 13-4053502 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 810 7th Avenue New York, New York 10019 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: 917-286-2300 _______________________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X__ No ___ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class Outstanding at August 10, 2000 - ----------------------------------------------------- ------------------------------ Class A Common Stock, $.01 Par Value 49,157,180 Class B Common Stock, $.01 Par Value 10,226,050
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and, therefore, do not include all information and footnotes required by generally accepted accounting principles. However, in the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of operations for the relevant periods have been made. Results for the interim periods are not necessarily indicative of the results to be expected for the year. These financial statements should be read in conjunction with the summary of significant accounting policies and the notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 1 INSIGHT COMMUNICATIONS COMPANY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
December 31, June 30, 1999 2000 ---------- ----------- ASSETS (Note A) (unaudited) Cash and cash equivalents $ 113,511 $ 72,425 Investment in debt and equity securities 21,650 40,446 Trade accounts receivable, net of allowance for doubtful accounts of $764 in 1999 and $751 in 2000 12,104 9,889 Due from affiliated companies 308 616 Prepaid expenses and other current assets 18,383 22,565 ---------- ---------- Total current assets 165,956 145,941 Fixed assets, net of accumulated depreciation of $104,857 in 1999 and $163,295 in 2000 643,138 685,429 Intangible assets, net of accumulated amortization of $94,164 in 1999 and $140,235 in 2000 1,140,117 1,093,790 Deferred financing costs, net of amortization of $1,055 in 1999 20,368 20,544 and $2,082 in 2000 Investment in unconsolidated affiliates 12,501 3,680 Officer and employee loans receivable 13,900 14,401 ---------- ---------- $1,995,980 $1,963,785 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 67,996 $ 55,612 Accrued expenses and other liabilities 9,431 8,869 Accrued property taxes 12,620 6,210 Deferred revenue 7,287 6,634 Interest payable 19,415 20,236 ---------- ---------- Total current liabilities 116,749 97,561 Investment in unconsolidated affiliates 6,510 10,120 Deferred income taxes 33,529 20,046 Debt 1,233,000 1,281,000 ---------- ---------- 1,389,788 1,408,727 Minority interest 18,132 (12,788) Stockholders' equity: Preferred stock, $.01 par value, 100,000,000 shares authorized, 0 shares issued and outstanding as of December 31, 1999 and June 30, 2000 - - Common stock, $0.01 par value: Class A - 300,000,000 shares authorized, 49,157,180 shares issued and outstanding as of December 31, 1999 and June 30, 2000 492 492 Class B - 100,000,000 shares authorized, 10,226,050 shares issued and outstanding as of December 31, 1999 and June 30, 2000 102 102 Additional paid in capital 656,486 656,286 Accumulated deficit (72,188) (48,515) Accumulated other comprehensive income (loss) 3,168 (40,519) ---------- ---------- 588,060 567,846 ---------- ---------- $1,995,980 $1,963,785 ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements. 2 INSIGHT COMMUNICATIONS COMPANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)
Three months ended Six months ended ------------------------------ ----------------------------- June 30, June 30, -------- -------- 1999 2000 1999 2000 -------- -------- -------- -------- Revenue $ 46,406 $106,898 $ 91,783 $210,521 Costs and expenses: Programming and other operating costs 12,598 38,133 25,861 73,522 Selling, general and administrative 10,672 19,698 20,852 42,916 Depreciation and amortization 26,201 53,405 51,940 104,525 -------- -------- -------- -------- 49,471 111,236 98,653 220,963 -------- -------- -------- -------- Operating loss (3,065) (4,338) (6,870) (10,442) Other income (expense): Gain on cable system exchanges - - 15,799 - Interest expense, net (11,081) (25,541) (21,574) (49,712) Other income (expense): (93) 122 - 97 -------- -------- -------- -------- (11,174) (25,419) (5,775) (49,615) -------- -------- -------- -------- Loss before minority interest, gain on sale of equity investment and equity in losses of investees (14,239) (29,757) (12,645) (60,057) Minority interest 2,183 15,466 6,676 30,920 Gain on sale of equity investment - - - 80,937 Equity in losses of investees (2,856) (5,317) (5,569) (10,931) -------- -------- -------- -------- Income (loss) before income taxes (14,912) (19,608) (11,538) 40,869 Provision (benefit) for income taxes - (7,760) - 17,196 -------- -------- -------- -------- Net income (loss) (14,912) (11,848) (11,538) 23,673 Accretion of redeemable Class B units (3,125) - (6,250) - -------- -------- -------- -------- Net income (loss) applicable to common stockholders $(18,037) $(11,848) $(17,788) $ 23,673 ======== ======== ======== ======== Basic income (loss) per share $(1.07) $(0.20) $(1.05) $0.40 Diluted income (loss) per share $(1.07) $(0.20) $(1.05) $0.40
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 INSIGHT COMMUNICATIONS COMPANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Six Months Ended June 30, ------------------------------ 1999 2000 -------- --------- Operating activities: Net income (loss) $(11,538) $ 23,673 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 51,940 104,525 Gain on sale of equity investment - (80,937) Gain on cable systems exchanges (15,899) - Deferred income taxes - 16,875 Equity in losses of investees 5,569 10,931 Minority interest (6,676) (30,920) Provision for losses on trade accounts receivable 866 3,387 Amortization of bond discount - (404) Change in operating assets and liabilities: Trade accounts receivable 1,338 (1,172) Due from and to affiliates (84) (308) Prepaid expenses and other assets (2,315) (4,683) Accounts payable 3,731 (12,384) Accrued expenses and other liabilities 1,976 (7,625) Interest payable (3,481) 821 -------- --------- Net cash provided by operating activities 25,427 21,779 -------- --------- Investing activities: Purchases of fixed assets (43,811) (99,718) Investment in unconsolidated affiliate - (5,000) Investment in equity securities - (5,000) Purchase of cable television system (2,900) - (Increase) decrease in intangible assets (12,621) 256 -------- --------- Net cash used in investing activities (59,332) (109,462) -------- --------- Financing activities: Proceeds from borrowings under bank credit facility 27,500 49,000 Repayment of borrowings - (1,000) Deferred financing costs - (1,203) Other - (200) -------- --------- Net cash provided by financing activities 27,500 46,597 -------- --------- Net decrease in cash and cash equivalents (6,405) (41,086) -------- --------- Cash and cash equivalents at beginning of period 19,902 113,511 -------- --------- Cash and cash equivalents at end of period $ 13,497 $ 72,425 ======== =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. Organization and Basis of Presentation On July 26, 1999, Insight Communications Company, Inc. (the "Company") completed an initial public offering ("IPO") of Class A common stock in which the Company sold approximately 26,450,000 shares of its common stock. Offering proceeds, net of underwriting discounts and other offering expenses, totaled approximately $607.0 million and were applied primarily toward the repayment of senior indebtedness and to finance the October 1, 1999 acquisition of Kentucky cable television systems (Note D). Prior to the IPO, the Company operated as a limited partnership. The Company was reconstituted as a corporation upon the completion of the IPO, at which time all of the limited partnership's units were exchanged for shares of common stock. The Company owns and operates cable television systems in Kentucky, Indiana, Illinois, Ohio, California and Georgia, as described below. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Insight Communications Company, L.P. ("Insight L.P.") and Insight Interactive LLC ("Insight Interactive"). Insight L.P. owns and operates cable television systems in Illinois, Indiana, California and Georgia. In addition, Insight L.P. owns a 50% interest in Insight Midwest, L.P. ("Insight Midwest"), which through its wholly-owned subsidiaries, Insight Communications of Indiana, LLC ("Insight Indiana") and Insight Communications of Kentucky, L.P. ("Insight Kentucky") owns and operates cable television systems in Indiana and Kentucky (Note D). Insight L.P. is the general partner of Insight Midwest and effectively controls all operating and financial decisions. Therefore, the accompanying consolidated financial statements include the accounts of Insight Midwest. Through its wholly-owned subsidiary, Insight Holdings of Ohio, LLC, Insight L.P. owns a 75% non-voting equity interest in Insight Communications of Central Ohio, LLC ("Insight Ohio"), which operates cable television systems in the Columbus, Ohio area (Note E). Insight L.P. accounts for its investment in Insight Ohio under the equity method of accounting. The Company's other wholly-owned subsidiary, Insight Interactive, owns a 50% equity interest in SourceSuite LLC (Note F), which is also accounted for under the equity method of accounting. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three month and six month periods ended June 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. The balance sheet at December 31, 1999 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the Company's consolidated financial statements and footnotes thereto for the year ended December 31, 1999, included in the Company's Annual Report on Form 10-K. 5 INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) B. Significant Accounting Policies Basis of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. As described above, the results of Insight Midwest, which is 50% owned but effectively controlled by Insight L.P., are included in the consolidated financial statements. The minority interest liability represents AT&T Broadband's 50% ownership interest in Insight Midwest. All significant intercompany balances and transactions have been eliminated in consolidation. Earnings Per Share As a result of the IPO, earnings per share is presented in the accompanying statements of operations as if a conversion of securities from partnership units to common shares occurred at the beginning of all periods presented. Basic earnings per share is computed using average shares outstanding during the period which includes the effect of the new shares issued in connection with the IPO. For 1999, diluted earnings per share equals basic earnings per share since the effect of an assumed conversion of certain partnership units and certain warrants to common shares was anti-dilutive. For 2000, diluted earnings per share equals basic earnings per share as there was no effect on weighted average shares outstanding from the assumed exercise of stock options calculated using the treasury stock method. Income Taxes Income taxes are provided for using the liability method. Under this approach, differences between the financial statements and tax bases of assets and liabilities are determined annually, and deferred income tax assets and liabilities are recorded for those differences that have future tax consequences. Valuation allowances are established, if necessary, to reduce deferred tax assets to an amount that will more likely than not be realized in future periods. Income tax expense is comprised of the current tax payable or refundable for the period plus or minus the net change in deferred tax assets and liabilities. Change in Estimate Effective January 1, 2000, the Company changed the estimated useful lives of fixed assets which related to the Company's current rebuild program. The changes in estimated useful lives were made to reflect management's evaluation of the economic lives of the newly rebuilt plant. This change was made on a prospective basis and resulted in an increase in net income for the three months and six months ended June 30, 2000 of approximately $1.5 million, or $0.02 per share and $2.7 million, or $0.05 per share, respectively. Recently Issued Accounting Standards In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" which as amended by SFAS No. 137 is effective for all quarters of fiscal years beginning after June 15, 2000. The statement requires the Company to recognize all derivatives on the balance sheet at fair value. Although the Company has not yet completed its assessment of the impact of FASB No. 137 on the Company's results of operations and financial position, the Company does not anticipate that the adoption of this statement will be material. 6 INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) C. Acquisitions and Gain on Cable System Exchanges On March 22, 1999 Insight L.P. exchanged its Franklin, Virginia cable system ("Franklin") servicing approximately 9,100 subscribers for Falcon Cable's Scottsburg ("Scottsburg") Indiana system servicing approximately 4,100 subscribers. In connection with the exchange, Insight L.P. received $8.0 million in cash. Furthermore, on February 1, 1999, Insight L.P. exchanged its Oldham Kentucky cable system ("Oldham") servicing approximately 8,500 subscribers for Intermedia Partners of Kentucky L.P.'s Henderson, Kentucky cable system ("Henderson") servicing approximately 10,600 subscribers. These transactions have been accounted for by Insight L.P. as sales of the Franklin and Oldham systems and purchases of the Scottsburg and Henderson systems. Accordingly, the Scottsburg and Henderson systems have been included in the accompanying condensed consolidated balance sheets at their fair values (approximately $31.3 million) and Insight L.P. recognized a gain on the sale of the Franklin and Oldham systems of approximately $16.0 million, which amount represents the difference between the carrying value of the Franklin and Oldham systems and their fair value. The Scottsburg and Henderson Systems purchase price was allocated to the cable television assets acquired in relation to their fair values as increases in property and equipment of $5.7 million and franchise costs of $25.6 million. Franchise costs arising from the acquisition of the Scottsburg and Henderson systems are being amortized over a period of 15 years. On March 31, 1999 Insight L.P. acquired Americable International of Florida Inc.'s Portland, Indiana and Fort Recovery, Ohio cable systems ("Portland") servicing approximately 6,100 subscribers for $10.9 million. The purchase price was allocated to the cable television assets acquired in relation to their fair values as increases in property and equipment of $2.3 million and franchise costs of $8.6 million. Insight L.P. has accounted for the acquisition of the Portland systems as a purchase. Franchise costs arising from the acquisition are being amortized over a period of 15 years. Insight L.P. paid for the acquisition with borrowings under its credit facilities and with the $8.0 million of cash received in the Franklin/Scottsburg system exchange described above. D. Insight Midwest Insight Midwest was formed in September 1999 to serve as the holding company and a financing vehicle for the Company's cable television system joint venture with AT&T Broadband LLC (formerly Tele-Communications, Inc.) ("AT&T Broadband"). Insight Midwest is owned 50% by Insight L.P and 50% by AT&T Broadband, through its indirect subsidiary TCI of Indiana Holdings, LLC ("TCI"). On October 1, 1999 the Company's Indiana and Kentucky systems and operations were contributed to Insight Midwest, as described further below. Through its operating subsidiaries Insight Indiana and Insight Kentucky, Insight Midwest owns and operates cable television systems in Indiana and Kentucky, which passed approximately 1.2 million homes and served approximately 734,000 customers as of June 30, 2000. 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 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 7 INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) D. Insight Midwest (continued) Noblesville, Jeffersonville and Lafayette systems already owned by Insight L.P. (the "Insight Contributed Systems"). Effective October 31, 1998, 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. Such management fee was approximately $1.0 million and $1.1 million for the three months ended June 30, 2000 and 1999, respectively, and $2.0 million and $2.2 million for the six months ended June 30, 2000 and 1999, respectively, and is eliminated in consolidation. 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 and is responsible for all of the operating and financial decisions pertaining to the Indiana systems. Pursuant to the terms of their respective operating agreements, Insight Midwest and Insight Indiana will continue for a twelve year term through October 1, 2011, unless extended by Insight L.P. and TCI. 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 total debt of the IPVI Partnership). The IPVI Partnership, through several intermediary partnerships, owned and operated 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. Such management fee was approximately $1.7 million and $3.4 million for the three months and six months ended June 30, 2000 and is eliminated in consolidation. Similar to Insight Indiana, in addition to managing the day-to-day operations of the Kentucky systems, Insight L.P. is the general partner and effectively controls Insight Midwest, including all of the operating and financial decisions 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 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 being amortized over 15 years. 8 INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) D. Insight Midwest (continued) The unaudited pro forma results of operations of the Company for the six months ended June 30, 1999, assuming the acquisition of the Kentucky systems, and each of the acquisitions and exchanges described in Note C occurred as of January 1, 1999 is as follows (in thousands, except per share data):
Six months ended June 30, 1999 ------------- Revenue $195,557 Net loss applicable to common stockholders (57,877) Basic and diluted loss per share (3.42)
E. Insight Ohio (See also Note J) On August 21, 1998, Insight L.P. and Coaxial Communications of Central Ohio, Inc. ("Coaxial") entered into a contribution agreement (the "Coaxial Contribution Agreement") pursuant to which Coaxial contributed to Insight Ohio (a newly formed limited liability company) substantially all of the assets and liabilities of its cable television systems located in Columbus, Ohio and Insight L.P. contributed to Insight Ohio $10.0 million in cash. As a result of the Coaxial Contribution Agreement, Coaxial owns 25% of the non-voting common equity and Insight L.P., through its subsidiary Insight Holdings of Ohio, LLC, owns 75% of the non-voting common equity of Insight Ohio. In addition, Coaxial also received two separate series of voting preferred equity (Series A Preferred Interest--$140.0 million and Series B Preferred Interest--$30.0 million) of Insight Ohio (collectively the "Voting Preferred Interests"). The Voting Preferred Interests provides for cash distributions to Coaxial and certain of its affiliates as follows; Series A--10% and Series B--12-7/8%. Insight Ohio cannot redeem the Voting Preferred Interests without the permission of Coaxial; however, Insight Ohio will be required to redeem the Series A Preferred Interest in August 2006 and the Series B Preferred Interest on August 21, 2008. Coaxial has pledged the Series A Preferred Interest and Series B Preferred Interest as security for $140.0 million of 10% senior notes due in 2006 issued by Coaxial and an affiliate ("Senior Notes") and $55.9 million of aggregate principal amount at maturity of 12-7/8% senior discount notes due in 2008 issued by Coaxial's majority shareholder ("Senior Discount Notes"), respectively. The Senior Notes and Senior Discount Notes are conditionally guaranteed by Insight Ohio. Insight Ohio was formed solely for the purpose of completing the aforementioned transaction. Insight L.P., as manager of Insight Ohio, earns a management fee from Insight Ohio equal to 3% of Insight Ohio's revenues. For the three months ended June 30, 1999 and 2000, Insight L.P. earned approximately $400,000 in management fees from Insight Ohio and for the six months ended June 30, 1999 and 2000, such management fees were approximately $727,000 and $729,000, respectively. Although Insight L.P. manages and controls the day to day operations of Insight Ohio, the shareholders of Coaxial have significant participating rights. Accordingly, Insight L.P. is accounting for its investment in Insight Ohio under the equity method of accounting. Insight L.P. is amortizing the 9 INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) E. Insight Ohio (continued) difference between its initial $10.0 million investment and its 75% interest in Insight Ohio's deficiency in assets over a period of 12 1/2 years. Such period takes into account the amortization periods related to the fair value of Insight Ohio's tangible and intangible assets. Accordingly, the accompanying statements of operations for the three months ended June 30, 1999 and 2000 include Insight L.P.'s share of Insight Ohio's operating loss of approximately $700,000 and $2.0 million, respectively and the amortization of the aforementioned deficiency in assets of approximately $2.1 million. For the six months ended June 30, 1999 and 2000, Insight L.P.'s share of Insight Ohio's operating loss was $1.2 million and $4.3 million, respectively. The Company has provided a commitment letter to Insight Ohio to fund any operating shortfall Insight Ohio may experience during 2000 and accordingly, the Company continued to apply the equity method of accounting for its investment. The Company contributed $5.0 million to Insight Ohio during the six months ended June 30, 2000. The Company's investment balance at June 30, 2000 was approximately $(10.1) million. F. SourceSuite LLC Effective November 17, 1999, Insight Interactive entered into a Contribution Agreement with Source Media, Inc. ("Source Media"), providing for the creation of a joint venture, SourceSuite LLC. Under the terms of the Contribution Agreement, Source Media contributed its Virtual Modem 2.5 software, the Interactive Channel products and services, including SourceGuide and LocalSource television content. Source Media manages the operations of the joint venture. The Company contributed $13.0 million in equity financing. Source Media and the Company each own 50% of the joint venture. On March 3, 2000, pursuant to a merger with a subsidiary of Liberate Technologies ("Liberate"), SourceSuite LLC sold all of its VirtualModem assets in exchange for the issuance to each of Insight Interactive and Source Media of 886,000 shares of Liberate common stock. SourceSuite LLC continues to own and operate its programming assets, LocalSource and Source Guide, and has entered into preferred content and programming services agreements with Liberate. As a result of this transaction, the Company recorded a gain on sale of joint venture assets of approximately $81.0 million during the six months ended June 30, 2000. In addition, as of June 30, 2000, the Company recorded an unrealized loss of approximately $61.5 million, which is reflected as a separate component of stockholders' equity. The unrealized loss was calculated as the difference between the fair value of the Liberate shares on June 30, 2000 as compared to March 3, 2000, the date the Company received the shares. The Company is accounting for its investment in SourceSuite LLC under the equity method of accounting. Accordingly, the accompanying statements of operations for the three months and six months ended June 30, 2000 include losses of approximately $1.2 million and $2.3 million, respectively which represents the Company's 50% share of SourceSuite LLC's net loss for the periods. In connection with the Contribution Agreement, the Company and Source Media entered into a Common Stock and Warrants Purchase Agreement dated as of July 29, 1999, whereby the Company agreed to purchase 842,105 shares of Source Media common stock at $14.25 per share, representing approximately 6% of Source Media's outstanding stock, for a purchase price of $12.0 million in cash. The 10 INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) F. SourceSuite LLC (continued) Company purchased the shares of common stock on November 17, 1999. As of June 30, 2000, the Company recorded a cumulative unrealized loss of approximately $8.7 million, which is reflected as a separate component of stockholders' equity (including an unrealized loss of approximately $8.3 million for the six month period ended June 30, 2000). The unrealized loss was calculated as the difference between the cost of the stock and its fair value at June 30, 2000. Fair value was determined using the quoted market price of the stock. Source Media also issued to the Company five-year warrants to acquire up to an additional 4,596,786 shares of its common stock at an exercise price of $20.00 per share. The Company had not exercised any of the warrants as of June 30, 2000. In addition, in October 1999, the Company purchased $10.2 million face amount of Source Media's 12% bonds for approximately $4.1 million. The bonds have a maturity date of November 1, 2004. The bond discount of $6.1 million is being amortized to interest income over the life of the bonds. As of June 30, 2000, the Company recorded a cumulative unrealized gain of approximately $1.5 million, which is reflected as a separate component of stockholders' equity (net of an unrealized loss of approximately $705,000 for the six month period ended June 30, 2000). The unrealized gain was calculated as the difference between the amortized cost of the bonds and their fair value at June 30, 2000. Fair value was determined using the quoted market price of the bonds. G. Managed Indiana Systems On March 17, 2000, the Company expanded its agreement with InterMedia Partners Southeast, an affiliate of AT&T Broadband, to provide consulting services beginning May 1, 2000 to cable television systems acquired by AT&T Broadband, which systems as of June 30, 2000 served approximately 122,000 customers in Indiana and Kentucky. The agreement provides for a term ending April 30, 2002, and the Company will earn an annual fee of 3% of gross revenues for providing such consulting services. Nearly all of these systems are contiguous to the Company's other Indiana systems. For the six months ended June 30, 2000, such management fee was approximately $300,000. H. Comprehensive Income SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), sets forth rules for the reporting and display of comprehensive income (net income plus all other changes in net assets from non-owner sources) and its components in the financial statements. For the three months ended June 30, 2000, total comprehensive loss was $ 34.6 million (net loss of $11.8 million plus an unrealized net loss of $22.8 million). For the six months ended June 30, 2000, total comprehensive loss was $20.0 million (net income of $23.7 million less an unrealized net loss of $43.7 million). At June 30, 2000, components of accumulated other comprehensive income consisted of the net unrealized loss on marketable securities of approximately $40.5 million, net of income tax of approximately $28.2 million. For the three months and six months ended June 30, 1999 there were no items of other comprehensive income (loss). 11 INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) I. Commitments and Contingencies The Company is a party to or may be affected by various matters under litigation. Management believes that the ultimate outcome of these matters will not have a significant adverse effect on either the Company's future results of operations or financial position. J. Recent Developments Greenwood Letter of Intent 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 by Insight Midwest of the Greenwood system would occur upon completion of a proposed trade of systems between Cable One and AT&T Broadband. The transaction is subject to the negotiation and execution of definitive agreements. Purchase of Coaxial Common Interest On August 8, 2000, Insight Ohio (Note E) purchased Coaxial's 25% non-voting common equity interest. The purchase price was 1,000,000 shares of common stock of the Company, 20% of which is payable by September 1, 2000 in cash or shares of common stock, at the Company's option. In connection with the purchase, Insight Ohio's operating agreement was amended to, among other things, remove certain participating rights of the principals of Coaxial and certain of its affiliates (the "Coaxial Entities"), and vest in the common equity interests of Insight Ohio 70% of its total voting power and in the preferred equity interests 30% of its total voting power. As a result of this transaction, the financial results of Insight Ohio will be consolidated with the financial results of the Company. Although the financial results of Insight Ohio will be consolidated into the Company as a result of this transaction, for financing purposes, Insight Ohio will be an unrestricted subsidiary of the Company. Insight Ohio's conditional guarantee of the Senior Notes and the Senior Discount Notes will remain in place. The purchase agreement also contains a provision stating that if at any time the Senior Notes or Senior Discount Notes are repaid or significantly modified, or in any case after August 15, 2008, the principals of the Coaxial Entities may require the Company to purchase their interests in the Coaxial Entities for a purchase price equal to the difference, if any, of $32.6 million less the then market value of the 800,000 shares of the Company's common stock issued on August 8, 2000. Telephony Agreements On July 17, 2000, the Company and its affiliates entered into definitive agreements with AT&T Broadband, LLC for the provision by AT&T Broadband of all- distance telephone service utilizing the cable systems' infrastructure under the AT&T brand name. Telephony revenues are to be attributed to AT&T Broadband who, in turn, will pay the cable affiliate a monthly per line access fee. AT&T Broadband will also pay the cable affiliate for marketing, installation and billing support. AT&T Broadband would be required to install and maintain the necessary switching equipment, and would be 12 INSIGHT COMMUNICATIONS COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) J. Recent Developments (continued) the local exchange carrier of record. It is expected that the cable affiliates will market the telephone services both independently and as part of a bundle of services. Expansion of Insight Midwest On March 23, 2000, Insight L.P. entered into a letter of intent with AT&T Broadband for the contribution to Insight Midwest of additional cable television systems serving approximately 537,000 customers. Initially, Insight L.P. will exchange its Claremont, California system for AT&T's system in Freeport, Illinois. Insight L.P. will also purchase from AT&T systems serving approximately 100,000 customers in North Central Illinois. Concurrently with this purchase, Insight L.P. will contribute to Insight Midwest such newly purchased systems, as well as all of its other systems not already owned by Insight Midwest, including the aforementioned Freeport, Illinois swap (comprising in total approximately 187,000 customers). At the same time, AT&T will contribute to Insight Midwest systems located in Central and North Central Illinois serving approximately 250,000 customers. Both Insight L.P. and AT&T Broadband will contribute their respective systems to Insight Midwest subject to an agreed-upon amount of indebtedness so that Insight Midwest will remain equally owned by Insight L.P. and AT&T. Insight L.P. will continue to serve as the general partner of Insight Midwest and manage and operate the Insight Midwest systems. The transactions are subject to the negotiation and execution of definitive agreements. 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Statements Some of the information in this quarterly report 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: . discuss our future expectations; . contain projections of our future results of operations or of our financial condition; or . 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 our most recent registration statement dated July 20, 1999, as well as any cautionary language in this quarterly report, 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. You should be aware that the occurrence of the events described in these risk factors and elsewhere in this quarterly report could have a material adverse effect on our business, operating results and financial condition. Introduction Because of corporate transactions completed over the past three years, including the contribution agreement with AT&T Broadband LLC ("AT&T Broadband") with respect to the Indiana systems and the acquisition of the Kentucky systems, 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 July 26, 1999, we completed our initial public offering of Class A common stock. The offering proceeds net of underwriting discounts and other offering expenses totaled approximately $607.0 million and were applied primarily toward the repayment of senior indebtedness and to finance our October 1, 1999 acquisition of Kentucky cable television systems, as described below. Prior to the offering, we operated as a limited partnership. We were reconstituted as a corporation upon completion of the offering, at which time all of the limited partnership's units were exchanged for shares of our common stock. On October 1, 1999, we 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. 14 General Substantially all of our revenues are earned from customer fees for cable television programming services including premium, pay-per-view and digital services as well as high-speed data services and ancillary services, such as rental of converters and remote control devices and installations and from selling advertising. In addition, we earn revenues from commissions for products sold through home shopping networks and from management fees for managing Insight Communications of Central Ohio, LLC and systems in Indiana and Kentucky owned by AT&T Broadband. Results of Operations The following table is derived for the periods presented from our consolidated financial statements that are included in this report and sets forth certain statement of operations data for our consolidated operations.
Three months ended Six months ended June 30, June 30, ------------------------- ------------------------- (in thousands) (in thousands) 1999 2000 1999 2000 --------- -------- -------- ------ Revenue $ 46,406 $106,898 $ 91,783 $ 210,521 Costs and expenses: Programming and other operating costs 12,598 38,133 25,861 73,522 Selling, general and administrative 10,672 19,698 20,852 42,916 Depreciation and amortization 26,201 53,405 51,940 104,525 --------- --------- --------- --------- 49,471 111,236 98,653 220,963 --------- --------- --------- --------- Operating loss (3,065) (4,338) (6,870) (10,442) EBITDA 22,370 59,338 61,976 195,106 Interest expense, net (11,081) (25,541) (21,574) (49,712) Provision (benefit) for income taxes - (7,760) - 17,196 Net income (loss) (14,912) (11,848) (11,538) 23,673 Net cash provided by (used in) operating activities 6,974 (7,221) 25,427 21,779 Net cash used in investing activities (31,644) (61,471) (59,332) (109,462) Net cash provided by financing activities 8,500 47,597 27,500 46,597
EBITDA represents earnings (loss) before interest, taxes, depreciation and amortization. Our management believes that EBITDA is commonly used in the cable television industry to analyze and compare cable television companies on the basis of operating performance, leverage and liquidity. However, EBITDA is not intended to be a performance measure that should be regarded as an alternative to, or more meaningful than, either operating income or net income as an indicator of operating performance or cash flows as a measure of liquidity, as determined in accordance with generally accepted accounting principles. EBITDA, as computed by management, is not necessarily comparable to similarly titled amounts of other companies. 15 Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999 Revenues increased 130.4% to $106.9 million for the three months ended June 30, 2000 compared to $46.4 million for the three months ended June 30, 1999. The results were impacted by the Kentucky acquisition completed on October 1, 1999. The incremental revenue generated by the Kentucky systems approximated $57.6 million, accounting for 95.2% of the consolidated revenue increase. Revenues per customer per month averaged $42.56 for the three months ended June 30, 2000 compared to $36.64 for the three months ended June 30, 1999 primarily reflecting an increase in average monthly basic revenue per customer of $3.88. Average monthly basic revenue per customer averaged $29.92 during the three months ended June 30, 2000 compared to $26.04 during the comparable period of 1999 reflecting the completion of rebuilds in most Indiana systems and the Rockford, Illinois system. In addition, higher basic rates in the Kentucky systems increased the average monthly basic revenue per customer by approximately $2.24. In addition, monthly revenue for high speed data services averaged $.88 per basic customer for the three months ended June 30, 2000 compared to $.06 per basic customer for the comparable period in 1999. Programming and other operating costs increased 202.7% to $38.1 million for the three months ended June 30, 2000 compared to $12.6 million for the three months ended June 30, 1999. The incremental expense generated by the Kentucky systems approximated $21.1 million accounting for 82.8% of the consolidated expense increase. Excluding these systems, these costs increased by approximately $4.4 million accounting for approximately 17.2% of the total increase, primarily as a result of increased programming rates and additional programming carried by the other systems. Selling, general and administrative expenses increased 84.6% to $19.7 million for the three months ended June 30, 2000 compared to $10.7 million for the three months ended June 30, 1999. The incremental expense generated by the Kentucky systems approximated $8.0 million accounting for 88.9% of the consolidated expense increase. Excluding these systems, these costs increased by approximately $1.0 million accounting for approximately 11.1% of the total increase, primarily reflecting increased marketing activity associated with new product introductions and increased corporate expenses. Depreciation and amortization expense increased 103.8% to $53.4 million for the three months ended June 30, 2000 compared to $26.2 million for the three months ended June 30, 1999. This increase was primarily due to the acquisition of the cable systems discussed above and additional capital expenditures associated with the rebuilds of our systems, partially offset by a decrease in depreciation expense attributable to a change in estimate as of January 1, 2000 which resulted in assets being depreciated over longer lives. For the three months ended June 30, 2000, an operating loss of $4.3 million was incurred as compared to an operating loss of $3.1 million for the three months ended June 30, 1999, primarily for the reasons set forth above. EBITDA increased 165.3% to $59.3 million for the three months ended June 30, 2000 as compared to $22.4 for the three months ended June 30, 1999 primarily due to the operating results generated by the Kentucky acquisition during the three months ended June 30, 2000. In addition, 16 minority interest income was $15.5 million for the second quarter of 2000 as compared to $2.2 million for the comparable period in 1999 primarily due to the Kentucky acquisition. Offsetting these increases are increased corporate overhead expenses driven by growth and product expansion. Interest expense, net increased 130.5% to $25.5 million for the three months ended June 30, 2000 compared to $11.1 million for the three months ended June 30, 1999. The increase was primarily due to higher average outstanding indebtedness related to the Kentucky acquisition. Average debt outstanding during the three months ended June 30, 2000 was $1.3 billion at an average interest rate of 8.5%. The benefit for income taxes was $7.8 million for the three months ended June 30, 2000, which represents an effective tax rate of 39.9%. For the three months ended June 30, 1999, there was no tax provision since prior to July 26, 1999, the date of the Company's initial public offering, the Company was organized as a limited partnership. As such, each of the individual partners included the taxable income or loss of the Company in their respective tax returns. For the three months ended June 30, 2000 a net loss of $11.8 million was realized for the reasons set forth above. Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999 Revenues increased 129.4% to $210.5 million for the six months ended June 30, 2000 compared to $91.8 million for the six months ended June 30, 1999 due primarily to the Kentucky acquisition. Revenues per customer per month averaged $41.87 for the six months ended June 30, 2000 compared to $36.50 for the six months ended June 30, 1999 primarily reflecting an increase in average monthly basic revenue per customer of $3.87. Average monthly basic revenue per customer averaged $29.78 during the six months ended June 30, 2000 compared to $25.91 during the comparable period of 1999 reflecting the completion of rebuilds in most Indiana systems and the Rockford, Illinois system. In addition, higher basic rates in the Kentucky systems increased the average monthly basic revenue per customer by approximately $2.55. In addition, monthly revenue for high speed data services averaged $.73 per basic customer for the six months ended June 30, 2000 versus $.03 per basic customer for the comparable period in 1999. Programming and other operating costs increased 184.3% to $73.5 million for the six months ended June 30, 2000 compared to $25.9 million for the six months ended June 30, 1999. The incremental expense generated by the Kentucky systems approximated $40.7 million accounting for 85.5% of the consolidated expense increase. Excluding these systems, these costs increased by approximately $6.9 million accounting for approximately 14.5% of the total increase, primarily as a result of increased programming rates and additional programming carried by the other systems. Selling, general and administrative expenses increased 105.8 % to $42.9 million for the six months ended June 30, 2000 compared to $20.9 million for the six months ended June 30, 1999. The incremental expense generated by the Kentucky systems approximated $18.5 million accounting for 84.1% of the consolidated expense increase. Excluding these systems, these costs increased by approximately $3.5 million accounting for approximately 15.9% of the total increase, primarily 17 reflecting increased marketing activity and corporate expenses associated with new product introductions. Depreciation and amortization expense increased 101.2% to $104.5 million for the six months ended June 30, 2000 compared to $51.9 million for the six months ended June 30, 1999. This increase was primarily due to the acquisitions of the cable systems discussed above and additional capital expenditures associated with the rebuilds of our systems, partially offset by a decrease in depreciation expense attributable to a change in estimate as of January 1, 2000 which resulted in assets being depreciated over longer lives. For the six months ended June 30, 2000, an operating loss of $10.4 million was incurred as compared to an operating loss of $6.9 million for the six months ended June 30, 1999, primarily for the reasons set forth above. EBITDA increased 214.8% to $195.1 million for the six months ended June 30, 2000 as compared to $62.0 million for the six months ended June 30, 1999 primarily resulting from a gain of $80.9 million on the sale of joint venture assets as compared to a gain on systems exchanges of $15.8 million for the six months ended June 30, 2000 and June 30, 1999, respectively, as well as the results generated by the Kentucky acquisition during the first six months of 2000. In addition, minority interest income of $30.9 million increased 363.2% for the first six months of 2000 compared to the first six months of 1999 primarily due to the Kentucky acquisition. Interest expense, net increased 130.4% to $49.7 million for the six months ended June 30, 2000 compared to $21.6 million for the six months ended June 30, 1999. The increase was primarily due to higher average outstanding indebtedness related to the Kentucky acquisition. Average debt outstanding during the six months ended June 30, 2000 was $1.2 billion at an average interest rate of 8.5%. The provision for income taxes was $17.2 million for the six months ended June 30, 2000, which represents an effective tax rate of 42.1%. For the six months ended June 30, 1999, there was no tax provision since prior to July 26, 1999, the date of the Company's initial public offering, the Company was organized as a limited partnership. As such, each of the individual partners included the taxable income or loss of the Company in their respective tax returns. For the six months ended June 30, 2000 net income of $23.7 million was realized for the reasons set forth above. Liquidity and Capital Resources Our business requires cash for operations, debt service, capital expenditures and acquisitions. The cable television business has substantial on- going capital requirements for the construction, expansion and maintenance of its broadband networks. Expenditures have primarily been used to rebuild and upgrade our existing cable network, and in the future will be used for plant extensions, new services, converters and system rebuilds. Historically, we have been able to meet our cash requirements with cash flow from operations, borrowings under our credit facilities, private equity and public sources. We believe we have adequate liquidity to operate our business plan, including making our planned capital expenditures. The completion of our recently announced acquisitions (discussed below under "Recent Developments") will require additional financings. 18 On July 26, 1999 we completed our initial public offering of shares of common stock, generating gross proceeds of $648.0 million. We incurred approximately $41.0 million of underwriting discounts and expenses in connection hhhhwith the offering resulting in net proceeds of $607.0 million. The net proceeds were applied primarily toward the repayment of senior indebtedness and to finance our October 1, 1999 acquisition of Kentucky cable television systems. For the six months ended June 30, 1999 and June 30, 2000, we spent $43.8 million and $99.7 million, respectively, in capital expenditures largely to support our plant rebuild, digital converter purchases and to a lesser extent network extensions. For the six months ended June 30, 1999 and June 30, 2000, cash from operations totaled $25.4 million and $21.8 million, which together with borrowings under our credit facilities, funded the above noted capital expenditures. It is anticipated that during 2000, we will have approximately $212.4 million of capital expenditures, exclusive of capital expenditures required for the deployment of telephone services. Included in the planned 2000 capital expenditures is $104.3 million for the continued upgrade 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 upgrades of all of our systems are planned to be completed by December 31, 2000. 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. At June 30, 2000, we had aggregate consolidated indebtedness of $1.3 billion, including $1.1 billion outstanding under senior bank credit facilities. The senior bank facilities consisted of: . $140.0 million reducing revolving credit facility maturing in December 2005, which supports our national systems, of which there were no borrowings; . $550.0 million reducing revolving credit/term loan facility maturing in December 2006, which supports our Indiana systems, of which $487.0 million was outstanding; and . $675.0 million reducing revolving credit/term loan facility maturing in October 2006, which supports our Kentucky systems, of which $594.0 million was outstanding. Each of the senior credit facilities is stand-alone, having a separate lending group. The credit facilities for the Indiana and Kentucky systems are non- recourse to us, and none of the three facilities has cross-default provisions relating to each other. Each credit facility has different revolving credit and term periods and contains separately negotiated, specifically tailored covenants. The weighted average interest rates for amounts outstanding under the Indiana and Kentucky senior credit facilities at June 30, 2000 were 8.6% and 8.7%, 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 the formation of Insight Midwest and our acquisition of a 50% interest in the Kentucky systems, Insight Midwest completed an offering of $200.0 million principal amount of its 9 3/4% senior notes due 2009. The net proceeds of the offering were used to repay 19 certain outstanding debt of the Kentucky systems. Interest on the notes is payable on April 1 and October 1 of each year. The indenture relating to the senior notes imposes certain limitations on the ability of Insight Midwest to, among other things, incur debt, make distributions, make investments and sell assets. During March 2000, we determined that Insight Ohio's cash flow from operations and amounts available under its credit facility may not be sufficient to finance the operating, capital and debt service requirements of the system. As such, we have provided a commitment letter to Insight Ohio to fund any operating shortfall through the year 2000. Through August 8, 2000, we have contributed $6.0 million to Insight Ohio. Recent Developments Greenwood Letter of Intent 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 by Insight Midwest of the Greenwood system would occur upon completion of a proposed trade of systems between Cable One and AT&T Broadband. The transaction is subject to the negotiation and execution of definitive agreements. Purchase of Coaxial Common Interest On August 8, 2000, Insight Ohio purchased Coaxial's 25% non-voting common equity interest. The purchase price was 1,000,000 shares of common stock of the Company, 20% of which is payable by September 1, 2000 in cash or shares of common stock, at the Company's option. In connection with the purchase, Insight Ohio's operating agreement was amended to, among other things, remove certain participating rights of the principals of Coaxial and certain of its affiliates (the "Coaxial Entities"), and vest in the common equity interests of Insight Ohio 70% of its total voting power and in the preferred equity interests 30% of its total voting power. As a result of this transaction, the financial results of Insight Ohio will be consolidated with the financial results of the Company. Although the financial results of Insight Ohio will be consolidated into the Company as a result of this transaction, for financing purposes, Insight Ohio will be an unrestricted subsidiary of the Company. Insight Ohio's conditional guarantee of the Senior Notes and the Senior Discount Notes will remain in place. The purchase agreement also contains a provision stating that if at any time the Senior Notes or Senior Discount Notes are repaid or significantly modified, or in any case after August 15, 2008, the principals of the Coaxial Entities may require the Company to purchase their interests in the Coaxial Entities for a purchase price equal to the difference, if any, of $32.6 million less the then market value of the 800,000 shares of the Company's common stock issued on August 8, 2000. Telephony Agreements On July 17, 2000, the Company and its affiliates entered into definitive agreements with AT&T Broadband, LLC for the provision by AT&T Broadband of all- distance telephone service utilizing the 20 cable systems' infrastructure under the AT&T brand name. Telephony revenues are to be attributed to AT&T Broadband who, in turn, will pay the cable affiliate a monthly per line access fee. AT&T Broadband will also pay the cable affiliate for marketing, installation and billing support. AT&T Broadband would be required to install and maintain the necessary switching equipment, and would be the local exchange carrier of record. It is expected that the cable affiliates will market the telephone services both independently and as part of a bundle of services. Expansion of Insight Midwest On March 23, 2000, Insight L.P. entered into a letter of intent with AT&T Broadband for the contribution to Insight Midwest of additional cable television systems serving approximately 537,000 customers. Initially, Insight L.P. will exchange its Claremont, California system for AT&T's system in Freeport, Illinois. Insight L.P. will also purchase from AT&T systems serving approximately 100,000 customers in North Central Illinois. Concurrently with this purchase, Insight L.P. will contribute to Insight Midwest such newly purchased systems, as well as all of its other systems not already owned by Insight Midwest, including the aforementioned Freeport, Illinois swap (comprising in total approximately 187,000 customers). At the same time, AT&T will contribute to Insight Midwest systems located in Central and North Central Illinois serving approximately 250,000 customers. Both Insight L.P. and AT&T Broadband will contribute their respective systems to Insight Midwest subject to an agreed-upon amount of indebtedness so that Insight Midwest will remain equally owned by Insight L.P. and AT&T. Insight L.P. will continue to serve as the general partner of Insight Midwest and manage and operate the Insight Midwest systems. The transactions are subject to the negotiation and execution of definitive agreements. Impact of Recently Issued Accounting Standards In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" which as amended by SFAS No. 137 is effective for all quarters of fiscal years beginning after June 15, 2000. The statement requires us to recognize all derivatives on the balance sheet at fair value. Although we have not completed our assessment of the impact of FASB No. 137 on our results of operations and financial position, we do not anticipate that the adoption of this statement will be material. Item 3. Quantitative and Qualitative Disclosure About Market Risk Our revolving credit and term loan agreements bear interest at floating rates. Accordingly, we are exposed to potential losses related to changes in interest rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes; however, in order to manage our exposure to interest rate risk, we enter into derivative financial instruments, typically interest rate swaps and collars. The counterparties to our swap and collar agreements are major financial institutions. As of June 30, 2000, our interest rate swap and collar agreements expire in varying amounts through 2002. The fair market value of our long-term debt approximates its carrying value as it bears interest at floating rates of interest. As of June 30, 2000, the estimated fair value of our interest rate swap and collar agreements was approximately $8.5 million, which amount represents the amount required to enter into offsetting contracts with similar remaining maturities based on quoted market prices. 21 As of June 30, 2000, we had hedged approximately $766.0 million, or 71.0%, of our borrowings under all of our credit facilities. Accordingly, a hypothetical 100 basis point increase in interest rates along the entire interest rate yield curve would increase our annual interest expense by approximately $3.2 million. 22 PART II OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds During the second quarter of 2000, we granted stock options to certain of our employees to purchase an aggregate of 106,000 shares of Class A common stock. The grants were not registered under the Securities Act of 1933 because the stock options either did not involve an offer or sale for purposes of Section 2(a)(3) of the Securities Act of 1933, in reliance on the fact that the stock options were granted for no consideration, or were offered and sold in transactions not involving a public offering, exempt from registration under the Securities Act of 1933 pursuant to Section 4 (2) and in compliance with Rule 506 thereunder. Item 4. Submission of Matters to a Vote of Security Holders. On May 16, 2000, we held our annual meeting of stockholders to (i) elect seven directors to serve for a term of one year and (ii) ratify the selection of our independent auditors for the year ending December 31, 2000. The following individuals were elected to serve as directors for a term of one year:
Vote For Vote Withheld Sidney R. Knafel 123,950,635 3,100,352 Michael S. Willner 124,113,175 2,937,812 Kim D. Kelly 123,963,075 3,087,912 Thomas L. Kempner 126,959,616 91,371 James S. Marcus 126,953,258 97,729 Prakash A. Melwani 126,834,883 216,104 Daniel S. O'Connell 126,841,241 209,746
These individuals constituted our entire Board of Directors and served as our directors immediately preceding the annual meeting. The stockholders ratified the selection of Ernst & Young LLP as our independent auditors for the year ending December 31, 2000. The result of the vote was as follows: 126,706,166 votes were for the selection and 338,512 votes were against the selection. 23 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 2.1 Purchase and Option Agreement, dated as of August 8, 2000, among Coaxial Communications of Central Ohio, Inc., Insight Communications of Central Ohio, LLC, Insight Holdings of Ohio, LLC, Insight Communications Company, L.P., Insight Communications Company, Inc., Coaxial LLC, Coaxial DJM LLC, Coaxial DSM LLC, Barry Silverstein, Dennis J. McGillicuddy and D. Stevens McVoy 3.1 Amended and Restated Operating Agreement of Insight Communications of Central Ohio, LLC, dated as of August 8, 2000 10.1 Cable Facilities Lease Agreement, dated July 17, 2000, among AT&T Broadband, LLC and Insight Communications Company, Inc. and certain of its affiliates (portions of this exhibit have been omitted and filed separately with the Commission pursuant to a request for confidential treatment) 27.1 Financial Data Schedule. (b) Reports on Form 8-K: There were no reports on Form 8-K filed during the period covered by this quarterly report. 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INSIGHT COMMUNICATIONS COMPANY, INC. Date: August 11, 2000 By: /s/ Michael S. Willner ---------------------------- Michael S. Willner President, Chief Executive Officer and Director By: /s/ Kim D. Kelly ---------------------- Kim D. Kelly Executive VP, Chief Financial & Operating Officer, Secretary and Director 25 EX-2.1 2 0002.txt PURCHASE AND OPTION AGREEMENT EXHIBIT 2.1 PURCHASE AND OPTION AGREEMENT PURCHASE AND OPTION AGREEMENT made as of the 8th day of August, 2000 by and among Coaxial Communications of Central Ohio, Inc. ("Coaxial"), Insight ------- Communications of Central Ohio, LLC ("Insight Ohio"), Insight Holdings of Ohio, ------------ LLC ("Insight Holdings"), Insight Communications Company, L.P. ("Insight LP"), ---------------- ---------- Insight Communications Company, Inc. ("ICCI"), Coaxial LLC, Coaxial DJM LLC ---- ("Coaxial DJM"), Coaxial DSM LLC ("Coaxial DSM," and, collectively with Coaxial - ------------- ----------- LLC and Coaxial DJM, the "Coaxial Shareholders"), Barry Silverstein -------------------- ("Silverstein"), Dennis J. McGillicuddy ("McGillicuddy") and D. Stevens McVoy - ------------- ------------ ("McVoy," and, collectively with Silverstein and McGillicuddy, the "Coaxial - ------- ------- Principals"). - ---------- WHEREAS, Coaxial owns a "Common Interest" in Insight Ohio (the "Insight ------- Ohio Common Interest") to which has been assigned 25% of the "Units" assigned to - -------------------- all the outstanding "Common Interests" in Insight Ohio (as such terms are defined in the Insight Ohio Operating Agreement); WHEREAS, Coaxial desires to sell to Insight Ohio the Insight Ohio Common Interest and Insight Ohio desires to purchase such Insight Ohio Common Interest from Coaxial on the terms described in this Agreement; WHEREAS, the Coaxial Principals collectively own all of the outstanding membership interests in the Coaxial Shareholders and all the outstanding capital stock in Coaxial Financing Corp.; and WHEREAS, the Coaxial Principals desire to acquire an option to sell to Insight LP all, but not less than all, of the outstanding membership interests in the Coaxial Shareholders and all the outstanding capital stock in Coaxial Financing Corp. (collectively, the "Coaxial Interests"), on the terms and conditions hereinafter set forth. NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. As used herein the following terms have the following ----------- respective meanings: "Affiliate" shall mean, with respect to any Person, any other Person that --------- directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with such Person. For purposes of this definition, the term "controls" shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. The terms "controlled by" and "under common control with" have meanings corresponding to the meaning of "controls." "Asset Disposition" means any sale or other disposition by Insight Ohio or ----------------- any subsidiary of Insight Ohio of any assets that were contributed to Insight Ohio by Coaxial or any assets the initial adjusted tax basis of which is or was determined, in whole in part, with reference to the adjusted tax basis of the assets contributed by Coaxial, other than (i) any sale or disposition of assets that does not involve the disposition of any cable television subscribers or (ii) any sale or disposition of assets that does not, together with all prior sales and dispositions previously made by Insight Ohio or any subsidiary of Insight Ohio, represent a portion of the business of Insight Ohio and its subsidiaries serving more than 1,000 cable television subscribers in the aggregate. "Closing Price" shall mean, with respect to any shares of capital stock of ------------- any Person, (i) the last reported sales price, regular way, as reported on the principal national securities exchange on which such shares are listed or admitted for trading or (ii) if such shares are not listed or admitted for trading on any national securities exchange, the last reported sales price, regular way, as reported on the Nasdaq National Market or, (iii) if such shares are not listed on the Nasdaq National Market, the average of the highest bid and lowest asked prices as reported on the Nasdaq Stock Market. For purposes of determining the "Closing Price" of any shares, (i) the applicable sales price or bid and asked prices of such shares on any day prior to any "ex-dividend" date for any dividend or distribution (other than a dividend or distribution contemplated by clause (B) of paragraph (ii) below) paid or to be paid with respect to such securities shall be reduced by the fair value of the per share amount of such dividend or distribution, and (ii) the applicable sales price or bid and asked prices of such shares on any day prior to (A) the effective date of any subdivision (by stock split or otherwise) or combination (by reverse stock split or otherwise) of such securities or (B) any "ex-dividend" date or any similar date for any dividend or distribution with respect to such securities to be made in such securities or securities that are convertible, exchangeable, or exercisable for such securities shall be appropriately adjusted to reflect such subdivision, combination, dividend, or distribution. "Coaxial Parties" shall mean Coaxial, the Coaxial Shareholders and the --------------- Coaxial Principals. "Discount Note Indenture" shall mean the Indenture among Coaxial LLC, ----------------------- Coaxial Financing Corp., Insight Ohio, as Guarantor, and Bank of Montreal Trust Company, as Trustee, dated August 21, 1998. "Existing Agreements" shall mean the Insight Ohio Operating Agreement; the ------------------- Contribution Agreement dated as of June 30, 1998, as amended, between Coaxial and Insight Communications Company, L.P.; the Close Corporation Agreement, dated as of August 21, 1998 among Coaxial and the Coaxial Shareholders; the Management Agreement, dated as of August 21, 1998, between Coaxial LLC and Insight Holdings; the Management Agreement, dated as of August 21, 1998, between Coaxial DJM and Insight Holdings; and the Management Agreement, dated as of August 21, 1998, between Coaxial DSM and Insight Holdings. "ICCI's SEC Filings" shall mean, at any date, (i) the most recent annual ------------------ report on Form 10-K filed by ICCI with the SEC, (ii) all reports filed by ICCI with the SEC pursuant to Section 13(a), Section 14, or Section 15 of the Securities Exchange Act of 1934, as amended, and the -2- rules and regulations of the SEC promulgated thereunder, since the filing of the most recent annual report on Form 10-K filed by ICCI with the SEC, and (iii) the most recent form of prospectus included in a registration statement on Form S-1 (or other form of prospectus that includes, or incorporates by reference, substantially the same information as that required to be included in a prospectus included in a registration statement on Form S-1) filed by ICCI with the SEC on or before that date pursuant to Rule 424(b) under the Securities Act. "ICCI Stock" shall mean the common stock, par value $.01 per share, of ---------- ICCI. "Insight Ohio Operating Agreement" shall mean the Operating Agreement of -------------------------------- Insight Ohio entered into effective as of August 21, 1998, by and among Coaxial, Insight Holdings and the Coaxial Principals, as amended. "Insight Parties" shall mean Insight Ohio, Insight Holdings, Insight LP, --------------- and ICCI. "Liens" shall mean claims, liabilities, security interests, mortgages, ----- liens, pledges, conditions, charges, rights of third parties and encumbrances of any kind and nature whatsoever. "Losses" shall mean any and all losses, liabilities, claims, demands, ------ actions, or causes of action, judgments, orders, deficiencies, fines, penalties, costs, damages, or expenses whatsoever, including, without limitation, taxes, whether foreseeable or unforeseeable, and further including, without limitation legal, accounting and other professional fees, disbursements and expenses incurred in the investigation, collection, prosecution and defense of claims and amounts paid in settlement thereof. "Person" shall mean an individual, corporation, limited liability company, ------ association, general partnership, limited partnership, limited liability partnership, joint venture, trust, estate, or other entity or organization. "Put Closing" means the closing of the purchase and sale of the Coaxial ----------- Interests upon exercise of the Put Option. "SEC" shall mean the Securities and Exchange Commission or any successor --- agency of the United States performing substantially the same functions. "Securities Act" shall mean the Securities Act of 1933, as amended. -------------- "Senior Debt" shall mean all obligations arising under the 10% Senior Notes ----------- due 2006 issued by Coaxial and Phoenix Associates, and every subsequent amendment, modification, restructuring, extension, renewal, or consolidation of any such obligations, and any obligation incurred in refinancing or replacement of or substitution for any such obligations. "Senior Note Indenture" shall mean the Indenture among Coaxial, Phoenix --------------------- Associates, Insight Ohio, as Guarantor, and Bank of Montreal Trust Company, as Trustee, dated August 21, 1998. "Subordinated Debt" shall mean all obligations arising under the 12 7/8% ----------------- Senior Discount Notes due 2008 issued by Coaxial LLC and Coaxial Financing Corp., and the LLC -3- Mirror Notes (as defined in the offering memorandum for such Senior Discount Notes) issued by Coaxial DJM and Coaxial DSM, and every subsequent amendment, modification, restructuring, extension, renewal, or consolidation of any such obligations, and any obligation incurred in refinancing or replacement of or substitution for any such obligations. "Target Amount" shall mean $32,600,000 decreased following any Asset ------------- Disposition by an amount equal to the quotient of (a) the product of (1) the amount of the income or gain recognized by the Coaxial Principals upon such Asset Disposition, multiplied by (2) the long-term capital gain rate, divided by (b) 1 minus the long-term capital gain rate. For purposes of this definition, "long-term capital gain rate" shall mean, with respect to any Asset Disposition, the marginal federal income tax rate that would apply to all income or gain recognized by the Coaxial Principals upon such Asset Disposition if all such income or gain were treated as long-term capital gain. "Triggering Event" shall mean: ---------------- (i) the repayment of the Senior Debt or the Subordinated Debt, (ii) any other action or failure to act by any Insight Party or any of their respective Affiliates that would modify the terms or the structure of the Senior Debt or the Subordinated Debt in a manner that is adverse to the Principals (as determined in accordance with Section 3.5 of the Insight Ohio Operating Agreement as in effect prior to the amendment to the Insight Ohio Operating Agreement to be entered into in accordance with this Agreement), or (iii) any Capital Default specified in Section 4.4(a)(i) or Section 4.4(a)(ii) of the Insight Ohio Operating Agreement as in effect prior to the amendment to the Insight Ohio Operating Agreement to be entered into in accordance with this Agreement and determined without regard to any other amendments to the Insight Ohio Operating Agreement contained in such amendment. ARTICLE II PURCHASE OF THE INSIGHT OHIO COMMON INTEREST 2.1 Purchase and Sale. Concurrently with the execution and delivery of ----------------- this Agreement, Coaxial shall sell, assign and deliver to Insight Ohio, and Insight Ohio shall purchase from Coaxial, all of Coaxial's right, title and interest in and to the Insight Ohio Common Interest, free of all Liens, other than restrictions arising under the Senior Note Indenture, the Discount Note Indenture or the Insight Ohio Operating Agreement. 2.2 Purchase Price. -------------- (a) As consideration for the purchase and sale of the Insight Ohio Common Interest: (i) Concurrently with the execution and delivery of this Agreement, Insight Ohio shall assign, transfer and deliver to Coaxial 800,000 shares of ICCI Stock; and -4- (ii) On or before September 1, 2000, ICCI shall: (A) Pay to the Coaxial Principals up to an amount equal to the sum of (1) 200,000 times the Closing Price of a share of ICCI Stock on the date of this Agreement plus (2) the Tax Amount (as defined in the Insight Ohio Operating Agreement) that would be distributable to Coaxial on the date of the next scheduled April Distribution (as defined in the Insight Ohio Operating Agreement), calculated as if Insight Ohio's fiscal year ended on the date of this Agreement, by Federal wire transfer to an account designated by the Coaxial Principals (or by other means agreed to between ICCI and the Coaxial Principals); and (B) Issue to the Coaxial Principals a number of shares of ICCI Stock that, upon their sale by the Coaxial Principals in accordance with Section 2.2(b)(i), the manner of sale provisions of the registration statement referred to in Section 2.2(b)(i), and the underwriting agreement described therein, would generate net proceeds (after deducting underwriting discounts, commissions, and other similar investment banking charges, but without deducting other expenses of sale) at least equal to the amount by which any payment made by ICCI pursuant to Section 2.2(a)(ii)(A) is less than the maximum amount specified in Section 2.2(a)(ii)(A). (b) If ICCI elects to issue shares of ICCI Stock to the Coaxial Principals pursuant to Section 2.2(a)(ii)(B), then: (i) All such shares of ICCI Stock (1) shall be duly authorized and shall be validly issued and outstanding, fully paid, and non-assessable, with no personal liability attaching to the ownership thereof and (2) shall be capable of being lawfully sold to the public by the Coaxial Principals within ten days after their delivery to the Coaxial Principals in a single transaction pursuant to a then effective registration statement under the Securities Act (and the registration of such shares shall be effected in accordance with the Registration Rights Agreement). (ii) The Coaxial Principals will repay to ICCI the amount, if any, by which the sum of (1) the net proceeds (after deducting underwriting discounts, commissions, and other similar investment banking charges, but without deducting other expenses of sale) realized by the Coaxial Principals from the sale of such shares of ICCI Stock plus (2) the amount of any payment made by ICCI pursuant to Section 2.2(a)(ii)(A) exceeds the maximum amount specified in Section 2.2(a)(ii)(A). (c) The parties agree that they will not take a position, including any position taken on any income tax return, before any governmental agency charged with the collection of income tax, in any judicial proceeding, or in any financial statements, that is in any way inconsistent with the treatment of the payments described in Section 2.2(a)(ii) as payments in exchange for the Insight Ohio Common Interest. 2.3 Deliveries. To effectuate the purchase and sale of the Insight Ohio ---------- Common Interest concurrently with the execution and delivery of this Agreement: (a) Insight Ohio shall deliver to Coaxial certificates representing 800,000 shares of ICCI Stock, duly endorsed or accompanied by appropriate stock powers. -5- (b) ICCI shall execute and deliver to the Coaxial Principals a Registration Rights Agreement in the form attached hereto as Exhibit A (the "Registration Rights Agreement"). - ------------------------------ (c) ICCI shall deliver to the Coaxial Principals an opinion of counsel to ICCI, dated as of the date hereof, in the form attached hereto as Exhibit B. (d) Coaxial shall execute and deliver to Insight Ohio an assignment of the Insight Ohio Common Interest. (e) Coaxial, the Coaxial Principals, and Insight Holdings shall execute and deliver an Amendment to the Insight Ohio Operating Agreement in the form attached hereto as Exhibit C. (f) The Coaxial Principals shall deliver to ICCI an opinion of counsel to the Coaxial Principals, dated as of the date hereof, in the form attached hereto as Exhibit D. ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties of Coaxial. Coaxial hereby represents ----------------------------------------- and warrants to each Insight Party as follows: (a) Coaxial has full corporate power and authority to execute, deliver and perform this Agreement and the execution, delivery and performance by it of this Agreement have been duly authorized by all necessary corporate action. (b) This Agreement has been duly and validly executed and delivered by Coaxial and constitutes a legal and binding obligation of Coaxial, enforceable against Coaxial in accordance with its terms. (c) The execution, delivery and performance of this Agreement by Coaxial do not violate or conflict with any law applicable to Coaxial, any provision of its constitutional documents, any order or judgment of any court or other agency or government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets, other than the Senior Note Indenture, the Discount Note Indenture, any other agreements related thereto and the Existing Agreements. (d) Coaxial is the sole owner of the Insight Ohio Common Interest and has good and valid title to the Insight Ohio Common Interest, free and clear of all Liens, other than restrictions arising under the Senior Note Indenture, the Discount Note Indenture, any other agreements related thereto and the Existing Agreements. -6- 3.2 Representations and Warranties of the Coaxial Principals. Each -------------------------------------------------------- Coaxial Principal hereby represents and warrants to each Insight Party as to himself only, as follows: (a) This Agreement has been duly and validly executed and delivered by such Coaxial Principal and constitutes a legal and binding obligation of such Coaxial Principal, enforceable against such Coaxial Principal in accordance with its terms. (b) The execution, delivery and performance of this Agreement by such Coaxial Principal do not violate or conflict with any law applicable to such Coaxial Principal, any order or judgment of any court or other agency or government applicable to it or any of its assets or any contractual restriction binding on or affecting him or any of his assets, other than the Senior Note Indenture, the Discount Note Indenture, any other agreements related thereto, and the Existing Agreements. (c) Such Coaxial Principal is the sole owner of his Coaxial Interests and has good and valid title to such Coaxial Interests, free and clear of all Liens, other than restrictions arising under the Senior Note Indenture, the Discount Note Indenture, any other agreements related thereto, and the Existing Agreements. 3.3 Representations and Warranties of Insight Ohio. Insight Ohio hereby ---------------------------------------------- represents and warrants to the Coaxial Parties as follows: (a) Insight Ohio has full limited liability company power and authority to execute, deliver and perform this Agreement and the execution, delivery and performance by it of this Agreement have been duly authorized by all necessary limited liability company action. (b) This Agreement has been duly and validly executed and delivered by Insight Ohio and constitutes a legal and binding obligation of Insight Ohio, enforceable against Insight Ohio in accordance with its terms. (c) The execution, delivery and performance of this Agreement by Insight Ohio and the other parties to this Agreement do not violate or conflict with any law applicable to Insight Ohio, any provision of the constitutional documents of Insight Ohio, any order or judgment of any court or other agency or government applicable to Insight Ohio or any of Insight Ohio's assets, any contractual restriction binding on or affecting Insight Ohio or any of its assets, the Senior Note Indenture, or the Discount Note Indenture. (d) Insight Ohio is the sole owner of the shares of ICCI Stock to be delivered pursuant to Section 2.2(a)(i), and has good and valid title to such shares, free and clear of all Liens, other than restrictions arising under the Senior Note Indenture and the Discount Note Indenture. 3.4 Representations and Warranties of ICCI and Insight LP. ICCI and ----------------------------------------------------- Insight LP hereby jointly and severally represent and warrant to the Coaxial Parties as follows: (a) ICCI and Insight LP each has full power and authority to execute, deliver and perform this Agreement and the execution, delivery and performance by each of them of this Agreement have been duly authorized by all necessary action. -7- (b) This Agreement has been duly and validly executed and delivered by ICCI and Insight LP and constitutes a legal and binding obligation of ICCI and Insight LP, enforceable against each of ICCI and Insight LP in accordance with its terms. (c) The execution, delivery and performance of this Agreement by ICCI and Insight LP do not violate or conflict with any law applicable to ICCI or Insight LP or any provisions of their respective constitutional documents, any order or judgment of any court or other agency or government applicable to them or any of their assets or any contractual restriction binding on or affecting them or any of their assets. (d) As of their respective filing dates, none of ICCI's SEC Filings contained any untrue statement of a material fact or omitted to state any material fact required to be stated or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. As of their respective filing dates, each of ICCI's SEC Filings complied in all material respects with the requirements of the Securities Act and the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder, to the extent applicable. Except as disclosed in ICCI's SEC Filings, no event has occurred that has resulted in a material adverse effect on, or material adverse change in, the business, financial condition, net worth, assets, liabilities, personnel, operations, or results of operations of ICCI, other than changes generally affecting the industry in which ICCI conducts its business. ICCI has delivered to the Coaxial Principals true and complete copies of ICCI's SEC Filings. (e) The shares of ICCI Stock to be delivered pursuant to Section 2.2(a)(i) have been duly authorized and are validly issued and outstanding, fully paid, and non-assessable, with no personal liability attaching to the ownership thereof. ARTICLE IV PUT OPTION 4.1 Grant and Acquisition of Option. Insight LP hereby grants to the ------------------------------- Coaxial Principals, and the Coaxial Principals hereby acquire from Insight LP, an option (the "Put Option") for the Coaxial Principals to sell all, but not ---------- less than all, of the Coaxial Interests to Insight LP on the terms and conditions hereinafter set forth. 4.2 Purchase Price. -------------- (a) As consideration for the purchase of the Coaxial Interests upon exercise of the Put Option, Insight LP will: (i) Pay to the Coaxial Principals up to the full amount of the Put Price specified in Section 4.8 by Federal wire transfer to an account designated by the Coaxial Principals (or by other means agreed to between Insight LP and the Coaxial Principals); and (ii) Subject to Section 4.2(b), issue to the Coaxial Principals a number of shares of ICCI Stock that, upon their sale by the Coaxial Principals in accordance with Section 4.2(a)(ii)(A), the manner of sale provisions of the registration statement referred to in Section 4.2(a)(ii)(A), and the underwriting agreement described therein, would generate net proceeds -8- (after deducting underwriting discounts, commissions, and other similar investment banking charges, but without deducting other expenses of sale) at least equal to the amount by which any payment made by Insight LP pursuant to Section 4.2(a)(i) is less than the full amount of the Put Price specified in Section 4.8. If Insight LP elects to issue shares of ICCI Stock to the Coaxial Principals pursuant to this Section 4.2(a)(ii), then: (A) All such shares of ICCI Stock (A) shall be duly authorized and shall be validly issued and outstanding, fully paid, and non-assessable, with no personal liability attaching to the ownership thereof and (B) shall be capable of being lawfully sold to the public by the Coaxial Principals within ten days after their delivery to the Coaxial Principals in a single transaction pursuant to a then effective registration statement under the Securities Act (and the registration of such shares shall be effected in accordance with the Registration Rights Agreement). (B) The Coaxial Principals will repay to Insight LP the amount, if any, by which the sum of (A) the net proceeds (after deducting underwriting discounts, commissions, and other similar investment banking charges, but without deducting other expenses of sale) realized by the Coaxial Principals from the sale of such shares of ICCI Stock plus (B) the amount of any payment made by Insight LP pursuant to Section 4.2(a)(i) exceeds the full amount of the Put Price specified in Section 4.8. (b) If the Coaxial Principals notify Insight LP in writing at least five days prior to the Put Closing that they do not desire to sell the shares of ICCI Stock issued to them pursuant to Section 4.2(a)(ii) immediately following the Put Closing, then (1) the number of shares of ICCI Stock issued to the Coaxial Principals shall be such that the aggregate value of such shares (calculated at the average Closing Price per share of ICCI Stock for the ten consecutive trading days immediately preceding the Put Closing) equals the amount by which any payment made by Insight LP pursuant to Section 4.2(a)(i) is less than the full amount of the Put Price specified in Section 4.8; and (2) the Coaxial Principals will have no obligation under Section 4.2(a)(ii)(B) with respect to such shares of ICCI Stock. 4.3 Notice of Triggering Event; Exercise of Put Option. -------------------------------------------------- (a) Insight LP will give the Coaxial Principals written notice at least thirty days prior to the time that any Insight Party takes any action that would cause a Triggering Event (the "Debt Repayment Notice"). A Debt Repayment --------------------- Notice shall specify the nature of the anticipated Triggering Event and the date on which Insight LP expects that the Triggering Event will occur. A Debt Repayment Notice shall identify itself as such and specify that it is being given pursuant to this Section 4.3. Upon receipt of a Debt Repayment Notice, the Coaxial Principals will take any action reasonably requested by Insight Ohio and Insight LP to permit Insight Ohio, Coaxial, and the Coaxial Shareholders to consummate the repayment or modification of the Senior Debt or the Subordinated Debt that constitutes the Triggering Event (including executing and delivering any consent, approval, or authority); provided that the Coaxial Principals will have no obligation to incur any expense or liability in connection with the repayment or modification of the Senior Debt or the Subordinated Debt, and Insight Ohio shall pay all costs and expenses incurred by any of the Coaxial Principals in connection with the consummation of such repayment or modification. -9- (b) The Put Option shall be exercisable: (i) during the period beginning upon the delivery to the Coaxial Principals in the manner provided in Section 9.1 of any Debt Repayment Notice and ending twenty days later, unless the period expires earlier due to the revocation of such Debt Repayment Notice; and (ii) during the period beginning on the date on which the Coaxial Principals and Insight LP receive an opinion of counsel for the Coaxial Principals that a Triggering Event has occurred (other than a Triggering Event described in a Debt Repayment Notice that occurs within five business days of the expected closing date specified in the Debt Repayment Notice) and ending ten (10) days later; and (iii) during the period beginning upon the delivery to the Coaxial Principals in the manner provided in Section 9.1 of a notice from Insight LP pursuant to Section 6.3(a), if Insight LP makes the election described in Section 6.2, and ending twenty days later; and (iv) at any time after August 15, 2008. (c) Insight LP may revoke a Debt Repayment Notice at any time prior to the Triggering Event by giving notice of such revocation to the Coaxial Principals, whereupon any exercise of the Put Option in response to such Debt Repayment Notice shall become null and void. After revoking a Debt Repayment Notice, Insight LP may deliver a subsequent Debt Repayment Notice in accordance with this Section 4.3. (d) Insight LP may revoke a notice pursuant to Section 6.3(a) at any time prior to the Asset Disposition described in the notice by giving notice of such revocation to the Coaxial Principals, whereupon any exercise of the Put Option pursuant to Section 4.3(b)(iii) in response to such notice shall become null and void. (e) During such time as the Put Option is exercisable, the Coaxial Principals may exercise the Put Option by the giving of notice of such exercise to Insight LP. Any exercise of the Put Option following the delivery of a Debt Repayment Notice in accordance with Section 4.3(b)(i) shall be contingent on the consummation of the transaction described in such Debt Repayment Notice that constitutes a Triggering Event. Any exercise of the Put Option following the delivery of a notice pursuant to Section 6.3(a) in accordance with Section 4.3(b)(iii) shall be contingent on the consummation of the Asset Disposition described in such notice. 4.4 Closing of Purchase of Coaxial Interests Upon Exercise of the Put ----------------------------------------------------------------- Option. - ------ (a) Closing. Subject to the conditions in Section 4.6, the Put Closing ------- shall take place (i) if the Put Option is exercised following the delivery of a Debt Repayment Notice in accordance with Section 4.3(b)(i), immediately prior to the consummation of the transaction constituting the Triggering Event described in the Debt Repayment Notice; (ii) if the Put Option is exercised following the occurrence of a Triggering Event in accordance with Section 4.3(b)(ii), on the first business day that is at least ten (10) days after the exercise of the Put Option; (iii) if the Put Option is exercised pursuant to Section 4.3(b)(iii), immediately prior to -10- the consummation of the Asset Disposition that gave rise to Insight LP's election pursuant to Section 6.2; and (iv) if the Put Option is exercised in accordance with Section 4.3(b)(iv), on the first business day that is at least ten (10) days after the exercise of the Put Option. The Put Closing shall take place at the offices of Sonnenschein Nath & Rosenthal, New York, New York, or at such other location as may be agreed to between Insight LP and the Coaxial Principals. (b) Deliveries. At the Put Closing: ----------- (i) The Coaxial Principals shall deliver to Insight LP or its designee certificates representing the Coaxial Interests, duly endorsed or accompanied by appropriate stock powers, or, if any of the Coaxial Interests are not certificated, a written assignment of such interests to Insight LP or its designee. (ii) Insight LP shall pay the Put Price to the Coaxial Principals. To the extent that Insight LP pays any portion of the Put Price in shares of ICCI Stock, Insight LP will deliver to the Coaxial Principals certificates representing such shares, duly endorsed or accompanied by appropriate stock powers. (iii) If Insight LP pays any portion of the Put Price in shares of ICCI Stock pursuant to Section 4.2(a)(ii), ICCI shall deliver to the Coaxial Principals a certificate, dated as of the date of the Put Closing, to the effect that: (A) As of their respective filing dates, none of ICCI's SEC Filings contained any untrue statement of a material fact or omitted to state any material fact required to be stated or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. (B) As of their respective filing dates, each of ICCI's SEC Filings complied in all material respects with the requirements of the Securities Act and the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder, to the extent applicable. (C) Except as disclosed in ICCI's SEC Filings, no event has occurred that has resulted in a material adverse effect on, or material adverse change in, the business, financial condition, net worth, assets, liabilities, personnel, operations, or results of operations of ICCI, other than changes generally affecting the industry in which ICCI conducts its business. (iv) Each Coaxial Principal shall deliver to Insight LP or its designee a certificate, dated as of the date of the Put Closing, to the effect that such Coaxial Principal is conveying good and valid title to his Coaxial Interests, free and clear of all Liens, other than restrictions arising under the Senior Note Indenture, the Discount Note Indenture, any other agreements related thereto, and the Existing Agreements, and Liens securing liabilities permitted by Section 4.6(a) and Section 4.6(b). -11- 4.5 Distribution of Assets. ---------------------- (a) Except as provided in Section 4.5(b), Section 4.5(c), and Section 4.5(d), at any time after the first anniversary of the date of this Agreement, immediately prior to the assignment of the Coaxial Interests upon exercise of the Put Option, Coaxial shall distribute to the Coaxial Shareholders and the Coaxial Shareholders shall distribute to the Coaxial Principals, free and clear of all liens, security interests or other adverse claims (other those created by or consented to by the Coaxial Principals), all assets held by either Coaxial or the Coaxial Shareholders immediately prior to the Put Closing other than (1) membership interests in Insight Ohio, (2) shares of capital stock in Coaxial, (3) contractual rights arising under or in connection with the Senior Debt or Subordinated Debt, the Insight Ohio Operating Agreement and any other agreement between Coaxial or any of the Coaxial Shareholders and any Insight Party or any of their Affiliates, (4) assets acquired at the direction of Insight Holdings, directly or indirectly, through its control over the business and affairs of the Coaxial Shareholders, and (5) internal corporate records and other similar assets. (b) Except as otherwise agreed to by the Coaxial Principals, Coaxial and the Coaxial Shareholders shall not make the distributions pursuant to Section 4.5(a) if the assets to be distributed are subject to any adverse claim made by or on behalf of the holders of the Senior Debt or the Subordinated Debt as a result of any actual or alleged violation of the Senior Note Indenture, the Discount Note Indenture, or any other agreements relating to the Senior Debt or the Subordinated Debt (other than any actual or alleged violation to be cured in full upon the repayment of the Senior Debt and the Subordinated Debt in connection with the Triggering Event that gave rise to the exercise by the Coaxial Principals of the Put Option). (c) Coaxial and the Coaxial Shareholders shall not make the distributions pursuant to Section 4.5(a) if the Coaxial Principals exercise the Put Option pursuant to Section 4.3(b)(iii). (d) Coaxial and the Coaxial Shareholders shall not make any distributions of Stock Consideration pursuant to Section 4.5(a) without the consent of Insight LP. 4.6 Conditions to Purchase of Coaxial Interests. Insight LP, or its ------------------------------------------- designee, shall not be required to purchase the Coaxial Interests upon the exercise of the Put Option, or to pay the Put Price specified in Section 4.2, unless, on the date on which the Coaxial Interests are to be conveyed to Insight LP: (a) The Coaxial Shareholders and Coaxial Financing Corp. shall have no liabilities other than (i) the Subordinated Debt, liabilities arising under or in connection with the Discount Note Indenture, or under any agreement between any of the Coaxial Shareholders and any Insight Party or any of their Affiliates, and liabilities incurred at the direction of Insight Holdings, directly or indirectly, through its control over the business and affairs of the Coaxial, Shareholders and (ii) other liabilities (such as accrued administrative expenses) that are not significant in amount and for which the Coaxial Principals agree to indemnify Insight LP. (b) Coaxial shall have no liabilities other than (i) the Senior Debt, liabilities arising under the Insight Ohio Operating Agreement or under any other agreement between -12- Coaxial and any Insight Party or any of their Affiliates, and liabilities incurred at the direction of Insight Holdings, directly or indirectly, through its control over the business and affairs of Coaxial, and (ii) other liabilities (such as accrued administrative expenses) that are not significant in amount and for which the Coaxial Principals agree to indemnify Insight LP. (c) The Coaxial Principals shall have satisfied or made adequate provision for the satisfaction of all liabilities described in clause (ii) of Section 4.6(a) and clause (ii) of Section 4.6(b) to the extent that the amount of such liabilities can be determined as of the Put Closing. 4.7 Certain Covenants. Prior to the earlier of the Put Closing or the ----------------- termination of the Put Option: (a) No party hereto shall make an election under Sections 338 or 338(h)(10) of the Internal Revenue Code of 1986, as amended (the "Code"), with ---- respect to Coaxial, without the consent of each of the other parties. (b) No party hereto shall take any action that would change Coaxial's classification as an "S" corporation as defined in Section 1361(a)(i) of the Code. 4.8 Put Price. --------- (a) Subject to Section 4.8(b), the purchase price to be paid for the Coaxial Interests upon exercise of the Put Option (the "Put Price") shall be the --------- Target Amount reduced, but not below one dollar, by the sum of the following amounts: (i) If Coaxial or the Coaxial Principals have consummated a Qualifying Sale of any part of the Stock Consideration, the Put Price shall be reduced by the net proceeds (after deducting underwriting discounts, commissions, and other similar investment banking charges, but without deducting other expenses of sale) realized by Coaxial or the Coaxial Principals from such Qualifying Sale. (ii) If Coaxial or the Coaxial Principals have sold any part of the Stock Consideration and Section 4.8(a)(i) does not apply to such part of the Stock Consideration, the Put Price shall be reduced by the aggregate Market Value of such part of the Stock Consideration as of the Put Closing; provided, however, that if Coaxial or the Coaxial Principals sold such part of the Stock Consideration and, at any time after the closing of such sale and prior to the Put Closing, the Market Value of such part of the Stock Consideration exceeds the product of the Target Amount times a fraction, the numerator of which is the number of shares or units represented by the Stock Consideration sold by Coaxial and the Coaxial Principals and the denominator of which is the number of shares or units represented by all the Stock Consideration, then the Put Price shall be reduced by the product of the Target Amount times a fraction, the numerator of which is the number of shares or units represented by the Stock Consideration sold by Coaxial or the Coaxial Principals and the denominator of which is the number of shares or units represented by all the Stock Consideration. -13- (iii) If Section 4.8(a)(i) and Section 4.8(a)(ii) do not apply to any part of the Stock Consideration, then the Put Price shall be reduced by: (A) if the Coaxial Principals did not elect pursuant to Section 4.8(d) to sell such part of the Stock Consideration, the aggregate Market Value of such part of the Stock Consideration as of the Put Closing; or (B) if the Coaxial Principals elected pursuant to Section 4.8(d) to sell such part of the Stock Consideration, the net proceeds (after deducting underwriting discounts, commissions, and other similar investment banking charges, but without deducting other expenses of sale) realized by the Coaxial Principals from the sale of such part of the Stock Consideration. (b) No reduction in the Put Price shall be made pursuant to Section 4.8(a) with respect to any part of the Stock Consideration unless such part of the Stock Consideration or the net proceeds of the sale of such part of the Stock Consideration (in whatever form such proceeds may be invested or reinvested prior to the Put Closing) has been distributed to the Coaxial Principals at any time at or prior to the Put Closing, pursuant to Section 4.5(a) or otherwise. (c) For purposes of this Section 4.8: (i) "Stock Consideration" shall mean the shares of ICCI Stock issued to Coaxial pursuant to Section 2.2(a)(i), subject to the following adjustments with respect to each event described in this Section 4.8(c)(i) that occurs after the date of this Agreement and prior to the Put Closing: (A) If such shares of ICCI Stock (or other securities constituting Stock Consideration) are increased, decreased, changed into, or exchanged for a different number or kind of shares or securities of ICCI (or any successor) through reorganization, recapitalization, reclassification, stock dividend, stock split or reverse stock split, or other similar transaction, an appropriate adjustment shall be made with respect to number and kind of shares or securities constituting the Stock Consideration. (B) Upon a reorganization, merger or consolidation of ICCI (or any successor) with one or more other corporations or entities (any of the foregoing, a "Business Combination") pursuant to which ICCI Stock (or other -------------------- securities constituting Stock Consideration) are converted into or exchanged for any other security ("Replacement Securities"), the Stock Consideration shall ---------------------- become the number of shares or units of Replacement Securities issued in exchange for the Stock Consideration pursuant to such Business Combination. (ii) The "Market Value" of a share of ICCI Stock or any other securities constituting the Stock Consideration as of any date shall be the average Closing Price thereof for the ten consecutive trading days immediately preceding such date. (iii) The "Market Value" of any asset that is not listed or admitted for trading on a national securities exchange, the Nasdaq National Market or the Nasdaq Stock -14- Market shall be the fair market value of such asset as agreed to among ICCI and the Coaxial Principals. (iv) A "Qualifying Sale" means a sale of all or part of the Stock Consideration then owned by Coaxial or the Coaxial Principals in which the net proceeds realized by Coaxial or the Coaxial Principals (after deducting underwriting discounts, commissions, and other similar investment banking charges, but without deducting other expenses of sale) exceed the product of the Target Amount times a fraction, the numerator of which is the number of shares or units represented by the Stock Consideration sold by Coaxial or the Coaxial Principals and the denominator of which is the number of shares or units represented by the Stock Consideration. (d) With respect to any part of the Stock Consideration to be distributed to the Coaxial Principals immediately prior to the Put Closing pursuant to Section 4.5(a), the Coaxial Principals may elect to sell such part of the Stock Consideration as soon as practicable after the Put Closing. The Coaxial Principals may make an election pursuant to this Section 4.8(d) by giving written notice of their election to Insight LP within five business days after Insight LP consents pursuant to 4.5(d) to the distribution of such Stock Consideration to the Coaxial Principals. If the Coaxial Principals elect pursuant to this Section 4.8(d) to sell any part of the Stock Consideration, then: (i) Insight LP and ICCI will cooperate with the Coaxial Principals to allow the orderly and lawful disposition of such part of the Stock Consideration to be consummated as quickly as practicable, consistent with legal requirements and market conditions. To the extent required for the orderly and lawful disposition of such part of the Stock Consideration, ICCI shall undertake to cause such part of the Stock Consideration to be registered in accordance with the Registration Rights Agreement. The Coaxial Principals will undertake to sell such part of the Stock Consideration in accordance with any reasonable plan of distribution developed by Insight LP. that complies with this Section 4.8(d)(i). (ii) At the Put Closing, Insight LP will pay to the Coaxial Principals, in the manner specified in Section 4.2(a), the Put Price, calculated, solely for purposes of determining the amount payable at the Put Closing, as if the net proceeds from the sale of such part of the Stock Consideration were equal to the aggregate Market Value of such part of the Stock Consideration as of the Put Closing. (A) If the amount paid to the Coaxial Principals pursuant to Section 4.8(d)(ii) exceeds the Put Price, as finally determined under Section 4.8(a)(iii)(B) based on the actual net proceeds realized from the sale of such part of the Stock Consideration, the Coaxial Principals will promptly repay to Insight LP the amount of such excess. (B) If the amount paid to the Coaxial Principals pursuant to Section 4.8(d)(ii) is less than the Put Price, as finally determined under Section 4.8(a)(iii)(B) based on the actual net proceeds realized from the sale of such part of the Stock Consideration, Insight LP will promptly pay to the Coaxial Principals the amount of such deficiency. -15- 4.9 Termination of Put Option. ------------------------- (a) The Put Option shall terminate, and the Coaxial Principals shall no longer have the right to sell the Coaxial Interests to Insight LP, if, at any time after the date of this Agreement, all of the following conditions are satisfied simultaneously: (i) Coaxial or the Coaxial Principals shall continue to own any of the Stock Consideration; (ii) all of the Stock Consideration then owned by Coaxial and the Coaxial Principals shall be listed or admitted for trading on a national securities exchange, the Nasdaq National Market or the Nasdaq Stock Market; (iii) Insight LP shall have delivered to the Coaxial Principals an undertaking from an independent investment banking firm to underwrite a sale by Coaxial and the Coaxial Principals of all Stock Consideration then owned by any of them, on customary terms and subject only to customary conditions, together with an opinion of such independent investment banking firm that the net proceeds of a sale of such Stock Consideration to the public in an underwritten public offering (after deducting underwriting discounts, commissions, and other similar investment banking charges, but without deducting other expenses of sale) are likely to be greater than the product of the Target Amount times a fraction, the numerator of which is the number of shares or units represented by the Stock Consideration then owned by Coaxial and the Coaxial Principals, collectively, and the denominator of which is the number of shares or units represented by the Stock Consideration; (iv) all of the Stock Consideration then owned by Coaxial may be sold in an underwritten public offering as described in Section 4.9(a)(iii) without violating or conflicting with the Senior Note Indenture, the Discount Note Indenture, or any other agreements relating to the Senior Debt or the Subordinated Debt; (v) either (i) all net proceeds from Coaxial's sales of the Stock Consideration may be distributed by Coaxial to the Coaxial Shareholders and by the Coaxial Shareholders to the Coaxial Principals without violating any contractual restriction binding on or affecting Coaxial or any of the Coaxial Shareholders or any of their respective assets, including the Senior Note Indenture, the Discount Note Indenture, and any other agreements related thereto or (ii) ICCI or an Affiliate of ICCI shall have agreed to lend to each Coaxial Principal the amount of any tax liabilities incurred by him on a sale of the Stock Consideration by Coaxial on the following terms: (A) the loan shall be non-recourse to the borrower, (B) the loan shall be secured only by the borrower's interest in the Coaxial Shareholders and any distributions thereon, (C) payments of principal or interest on the loan shall only be required at such time as Coaxial and the Coaxial Shareholders are able to distribute proceeds from the sale of the Stock Consideration to the Coaxial Principals, and then only to the extent of such distributions to the Coaxial Principals, and (D) the loan shall bear interest at the weighted average cost of funds of ICCI and its subsidiaries for their secured debt or, if ICCI and its subsidiaries have no secured debt, for their senior debt; and -16- (vi) either (i) the Coaxial Principals shall have failed to notify Insight LP in writing within thirty days after their receipt of the undertaking and opinion described in Section 4.9(a)(iii) of their intent to sell and to cause Coaxial to sell all of the Stock Consideration then owned by Coaxial and the Coaxial Principals in such an underwritten public offering or (ii) the Coaxial Principals shall have notified Insight LP in writing within thirty days after their receipt of the undertaking and opinion described in Section 4.9(a)(iii) of their intent to sell and to cause Coaxial to sell all of the Stock Consideration then owned by Coaxial and the Coaxial Principals in such an underwritten public offering, but shall have failed to use their good faith efforts for at least ninety days thereafter to cause such a sale that would constitute a Qualifying Sale to be consummated. (b) The Put Option shall terminate, and the Coaxial Principals shall no longer have the right to sell the Coaxial Interests to Insight LP, upon the happening of any of the following events: (i) upon the consummation of a transaction described in a Debt Repayment Notice that constitutes a Triggering Event, if such transaction is consummated within five business days of the expected closing date specified in the Debt Repayment Notice and the Coaxial Principals did not exercise the Put Option pursuant to Section 4.3(b)(i) following their receipt of such Debt Repayment Notice; (ii) upon the consummation of the Asset Disposition described in a notice pursuant to Section 6.3(a), if the Coaxial Principals did not exercise the Put Option pursuant to Section 4.3(b)(iii) following their receipt of such notice; and (iii) if a Triggering Event described in Section 4.3(b)(ii) has occurred, upon the expiration of the period during which the Coaxial Principals may exercise the Put Option pursuant to Section 4.3(b)(ii), if the Coaxial Principals failed to exercise the Put Option pursuant to Section 4.3(b)(ii) during such period. ARTICLE V RIGHT OF FIRST OFFER WITH RESPECT TO STOCK CONSIDERATION 5.1 First Offer. If Coaxial or any Coaxial Principal (each, a "Seller") ----------- ------ desires to sell any of the Stock Consideration, it shall first offer to sell to Insight LP all of the Stock Consideration that such Seller desires to sell, for a purchase price equal to the aggregate Market Value of such Stock Consideration (determined in accordance with Section 4.8(a)(i)) as of the date on which the offer is made. If Insight LP desires to purchase some or all of the Stock Consideration that such Seller desires to sell, Insight LP shall deliver a written acceptance of such Seller's offer to such Seller within five business days after its receipt of the offer, specifying the amount of the Stock Consideration that Insight LP desires to purchase. After compliance with the foregoing provisions of this Section 5.1, a Seller may sell any or all of the Stock Consideration that such Seller offered to Insight LP (other than that portion that Insight LP elected to purchase) to any Person on any terms, so long as (a) the sale is consummated within thirty days after the later of (i) the deadline for Insight LP's acceptance of the Seller's offer or (ii) the date on which any registration statement relating to the sale of such Stock Consideration becomes effective and (b) if the sale is not a Market Sale, the purchase price per share paid to the -17- Seller in such sale is not less than the purchase price per share at which such Stock Consideration was offered to Insight LP. Any sale by a Seller of Stock Consideration after the expiration of such thirty-day period, and any sale by Coaxial or any Coaxial Principal of Stock Consideration that was not offered to Insight LP, shall continue to be subject to the rights of Insight LP under this Section 5.1. For purposes of this Section 5.1, a "Market Sale" shall mean a sale in accordance with Rule 144 or Rule 145 under the Securities Act (or any successor to either of such rules), a sale that satisfies the manner of sale requirements of Rule 144 or Rule 145 under the Securities Act (or any successor to either of such rules), whether or not either of such rules is applicable to such sale, or a sale in public offering pursuant to a registration statement filed under the Securities Act. 5.2 Closing. The closing of the purchase and sale of the Stock ------- Consideration upon exercise of the right of first offer described in Section 5.1 shall take place (a) on the first business day that is at least ten (10) days after Insight LP's acceptance of the Seller's offer and (b) at the offices of Sonnenschein Nath & Rosenthal, New York, New York, or at such other location as may be agreed to between Insight LP and the Seller. 5.3 Termination. The provisions of this Article V shall terminate ----------- automatically upon the earlier of the Put Closing or the termination of the Put Option pursuant to Section 4.9. ARTICLE VI CERTAIN ASSET DISPOSITIONS 6.1 Asset Dispositions. If Insight Ohio or any subsidiary of Insight Ohio ------------------ consummates any Asset Disposition, then, except as provided in Section 6.2, Insight LP will pay to the Coaxial Principals an amount equal to the aggregate tax liabilities incurred by the Coaxial Principals (a) as a result of such Asset Disposition and (b) as a result of any payment to the Coaxial Principals under this Section 6.1 (the "Disposition Taxes"). ----------------- 6.2 Exception. In lieu of making a payment pursuant to Section 6.1 in --------- connection with any Asset Disposition, Insight LP may elect, in its notice to the Coaxial Principals pursuant to Section 6.3(a), to grant the Coaxial Principals the right to exercise the Put Option in accordance with Section 4.3(b)(iii). 6.3 Procedures. ---------- (a) Insight LP will give the Coaxial Principals written notice at least thirty days prior to effecting any Asset Disposition. The notice pursuant to Section 6.3(a) shall (i) specify whether Insight LP has elected pursuant to Section 6.2 to grant the Coaxial Principals the right to exercise the Put Option in accordance with Section 4.3(b)(iii); (ii) describe the Asset Disposition in reasonable detail; and (iii) include an estimate of the amount and character of the income to be recognized by the Coaxial Principals as a result of such Asset Disposition. (b) If Insight LP does not elect to grant the Coaxial Principals the right to exercise the Put Option in accordance with Section 4.3(b)(iii), then, as soon as practicable and in any event within thirty days after the consummation of such Asset Disposition, Insight LP will furnish the Coaxial Principals with all information concerning such Asset Disposition that is -18- necessary to enable the Coaxial Principals to calculate the aggregate tax liabilities to be incurred by the Coaxial Principals as a result of such Asset Disposition. (c) As soon as practicable and in any event within thirty days after their receipt from Insight LP of all the information described in Section 6.3(b), the Coaxial Principals will calculate the Disposition Taxes relating to such Asset Disposition and will deliver written notice to Insight LP specifying the amount of such Disposition Taxes. The Coaxial Principals will furnish Insight LP will all information necessary to enable Insight LP to verify the calculation of such Disposition Taxes (other than information concerning the Asset Disposition that was furnished to the Coaxial Principals by Insight LP). (d) Insight LP shall pay to the Coaxial Principals the amount specified in the notice from the Coaxial Principals specified in Section 6.3(c) by Federal wire transfer to an account designated by the Coaxial Principals (or by other means agreed to between Insight LP and the Coaxial Principals) on the later of (a) the first business day that is at least ten days after Insight LP receives the notice from the Coaxial Principals specified in Section 6.3(c) or (b) the date on which such Asset Disposition is consummated. (e) If Insight LP disagrees with the Coaxial Principals' calculation of the Disposition Taxes relating to any Asset Disposition, it shall notify the Coaxial Principals in writing within ten days after its receipt of the notice and other information required to be furnished to Insight LP pursuant to Section 6.3(c). If the Coaxial Principals determine that the Disposition Taxes actually incurred by them exceed the amount specified in their notice to Insight LP pursuant to Section 6.3(c), the Coaxial Principals shall promptly notify Insight LP of the amount of the Disposition Taxes actually incurred by them. In either event, Insight LP and the Coaxial Principals shall attempt in good faith to agree on the actual amount of the Disposition Taxes. If Insight LP and the Coaxial Principals are unable to agree on the actual amount of the Disposition Taxes, either Insight LP or the Coaxial Principals may elect to submit their disagreement to a nationally recognized firm of independent public accountants agreed to by Insight LP and the Coaxial Principals (the "Auditor") for ------- resolution. The decision of the Auditor shall be binding on the parties; provided, however, that any final determination pursuant to this Section 6.3(e) of the actual Disposition Taxes shall take into account all tax returns filed by the Coaxial Principals. In the event of a subsequent audit or examination of the amount of the Disposition Taxes by any tax authority, the amount of the Disposition Taxes determined upon the final resolution of such audit or examination shall be the final determination of the actual Disposition Taxes under this Section 6.3(e). Following the resolution of any disagreement between Insight LP and the Coaxial Principals concerning the Disposition Taxes resulting from any Asset Disposition: (i) If the amount paid to the Coaxial Principals pursuant to Section 6.3(d) exceeds the actual Disposition Taxes, as finally determined pursuant to this Section 6.3(e), the Coaxial Principals will promptly repay to Insight LP the amount of such excess. (ii) If the amount paid to the Coaxial Principals pursuant to Section 6.3(d) is less than the actual Disposition Taxes, as finally determined pursuant to this Section 6.3(e), Insight LP will promptly pay to the Coaxial Principals the amount of such deficiency. -19- ARTICLE VII INDEMNIFICATION 7.1 Indemnification by Coaxial Parties. The Coaxial Principals, jointly ---------------------------------- and severally, shall indemnify, protect and hold harmless ICCI, Insight LP and Insight Ohio from and against all Losses arising from (a) any breach of any representation or covenant of a Coaxial Party contained in this Agreement or in any certificate delivered by a Coaxial Party to any of the Insight Parties pursuant to this Agreement, (b) any liability of Coaxial, Coaxial Financing Corp., or the Coaxial Shareholders that is not described in Section 4.6(a) or Section 4.6(b), or (c) any liability of Coaxial, Coaxial Financing Corp., or the Coaxial Shareholders for which the Coaxial Principals have agreed to indemnify Insight LP pursuant to clause (ii) of Section 4.6(a) or clause (ii) of Section 4.6(b). The Coaxial Principals further agree, jointly and severally, to satisfy any liability described in clause (ii) of Section 4.6(a) or clause (ii) of Section 4.6(b) that is not satisfied at or prior to the Put Closing as soon thereafter as the amount of such liability can be determined. 7.2 Indemnification by Insight LP. ----------------------------- (a) Insight LP shall indemnify, protect and hold harmless each Coaxial Party from and against all Losses arising from any breach of any representation or covenant of ICCI, Insight LP or Insight Ohio contained in this Agreement or in any certificate delivered by an Insight Party to any of the Coaxial Parties pursuant to this Agreement. (b) If a Triggering Event occurs that was not described in a Debt Repayment Notice or if any Asset Disposition is consummated prior to the Put Closing, Insight LP shall indemnify the Coaxial Principals for any federal tax liabilities incurred by them (i) as a result of such Triggering Event or Asset Disposition, to the extent that the total federal tax liabilities incurred by them as a result of such Triggering Event or Asset Disposition and the sale of the Coaxial Interests at the Put Closing exceed the total federal tax liabilities that would have been incurred by the Coaxial Principals if the Coaxial Interests had been sold to Insight LP before the Triggering Event or Asset Disposition had occurred and (ii) as a result of their receipt of any indemnification payment under this Section 7.2(b); provided, however, that (A) Insight LP's aggregate liability under clause (i) of this Section 7.2(b) shall not exceed $7,000,000; (B) Insight LP shall have no liability under this Section 7.2(b) with respect to any Triggering Event that occurs after the termination of the Put Option pursuant to Section 4.9; and (C) Insight LP's aggregate liability under clause (i) of this Section 7.2(b) with respect to any Asset Disposition shall be reduced by the difference between (x) the amount of the payment made pursuant to Section 6.1 with respect to such Asset Disposition and (y) the amount by which the Target Amount was decreased pursuant to the definition thereof as a result of such payment. (c) Insight LP shall satisfy its obligation to make any indemnification payment to the Coaxial Principals pursuant to Section 7.2(b) by: (i) paying to the Coaxial Principals up to the full amount of the indemnification payment to which they are entitled by Federal wire transfer to an account designated by the Coaxial Principals (or by other means agreed to between Insight LP and the Coaxial Principals); and -20- (ii) subject to Section 7.2(e), issuing to the Coaxial Principals a number of shares of ICCI Stock that, upon their sale by the Coaxial Principals in accordance with Section 7.2(d)(i), the manner of sale provisions of the registration statement referred to in Section 7.2(d)(i), and the underwriting agreement described therein, would generate net proceeds (after deducting underwriting discounts, commissions, and other similar investment banking charges, but without deducting other expenses of sale) at least equal to the amount by which any payment made by Insight LP pursuant to Section 7.2(c)(i) is less than the full amount of the indemnification payment to which they are entitled. (d) If Insight LP elects to issue shares of ICCI Stock to the Coaxial Principals pursuant to this Section 7.2(c)(ii), then: (i) All such shares of ICCI Stock (A) shall be duly authorized and shall be validly issued and outstanding, fully paid, and non-assessable, with no personal liability attaching to the ownership thereof and (B) shall be capable of being lawfully sold to the public by the Coaxial Principals within ten days after their delivery to the Coaxial Principals in a single transaction pursuant to a then effective registration statement under the Securities Act (and the registration of such shares shall be effected in accordance with the Registration Rights Agreement). (ii) The Coaxial Principals will repay to Insight LP the amount, if any, by which the sum of (1) the net proceeds (after deducting underwriting discounts, commissions, and other similar investment banking charges, but without deducting other expenses of sale) realized by the Coaxial Principals from the sale of such shares of ICCI Stock plus (2) the amount of any payment made by Insight LP pursuant to Section 7.2(c)(i) exceeds the full amount of the indemnification payment to which they are entitled. (e) If the Coaxial Principals notify Insight LP in writing at least five days prior to the date on which the shares of ICCI Stock are delivered to them pursuant to Section 7.2(c)(ii) that they do not desire to sell such shares immediately following their receipt of such shares, then (A) the number of shares of ICCI Stock issued to the Coaxial Principals shall be such that the value of such shares (calculated at the average Closing Price per share of ICCI Stock for the ten consecutive trading days immediately preceding the date on which such shares of ICCI Stock are delivered to the Coaxial Principals) equals the amount by which any payment made by ICCI pursuant to Section 7.2(c)(i) is less than the full amount of the indemnification payment to which they are entitled; and (B) the Coaxial Principals will have no obligation under Section 7.2(d)(ii) with respect to such shares of ICCI Stock. (f) If Insight LP makes any indemnification payment pursuant to Section 7.2(c) in shares of ICCI Stock, ICCI shall deliver to the Coaxial Principals a certificate, dated as of the date on which such shares of ICCI Stock are delivered to the Coaxial Principals, to the effect that: (i) As of their respective filing dates, none of ICCI's SEC Filings contained any untrue statement of a material fact or omitted to state any material fact required to be stated or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. -21- (ii) As of their respective filing dates, each of ICCI's SEC Filings complied in all material respects with the requirements of the Securities Act and the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder, to the extent applicable. (iii) Except as disclosed in ICCI's SEC Filings, no event has occurred that has resulted in a material adverse effect on, or material adverse change in, the business, financial condition, net worth, assets, liabilities, personnel, operations, or results of operations of ICCI, other than changes generally affecting the industry in which ICCI conducts its business. ARTICLE VIII GUARANTY BY ICCI 8.1 ICCI hereby guarantees to the Coaxial Parties the full, complete, and timely performance by Insight LP of its payment obligations hereunder, including any payment obligations arising under Section 7.2. If any default shall be made by Insight LP in the performance of any of such obligations, then ICCI will itself perform or cause to be performed such obligation immediately upon notice from any of the Coaxial Parties specifying in summary form the default. Any Coaxial Party may proceed to enforce its rights against ICCI, from time to time prior to, contemporaneously with, or after any enforcement against Insight LP, or without any enforcement against Insight LP. 8.2 The obligations of ICCI under this Article VIII shall be absolute and unconditional and shall remain in full force and effect without regard to and shall not be released, discharged, or in any way affected by (a) any amendment or modification of or supplement to the this Agreement, (b) any exercise or non- exercise of or delay in exercising any right, remedy, power, or privilege under or in respect of this Agreement, (c) any bankruptcy, insolvency, arrangement, composition, assignment for the benefit of creditors, or similar proceeding commenced by or against Insight LP or ICCI, (d) the dissolution (voluntarily or involuntarily) of Insight LP, (e) the genuineness, validity, or enforceability of this Agreement, or (f) any other circumstances that might otherwise constitute a legal or equitable discharge of a guarantor or surety. If payment of any sum by Insight LP pursuant to this Agreement is recovered as a preference or fraudulent transfer under any applicable bankruptcy or insolvency law, the liability of ICCI under this Article VIII shall continue and remain in full force and effect notwithstanding such recovery. 8.3 ICCI waives presentment, protest, demand, or action or delinquency in respect of any of the obligations of Insight LP under this Agreement. ICCI waives all set-offs and counterclaims and all notices of nonperformance, notices of protest, notices of dishonor, and notices of acceptance of this guaranty. 8.4 This guaranty shall be deemed a continuing guaranty, and the above consents and waivers of ICCI shall remain in full force and effect until the satisfaction in full of all obligations of Insight LP under this Agreement. 8.5 ICCI agrees that any and all claims in its favor against Insight LP, any endorser or any other guarantor of all or any part of the obligations of Insight LP under this Agreement, or -22- against any of their respective properties, arising by reason of any payment by ICCI to any Coaxial Party pursuant to the provisions hereof or otherwise, shall be subordinate and subject in right of payment to the prior payment, in full, of all obligations of Insight LP under this Agreement. ARTICLE IX MISCELLANEOUS 9.1 Notices. All notices or other communications required or permitted ------- hereunder shall be in writing and shall be deemed given or delivered when delivered personally, by overnight commercial courier, facsimile transmission or mail (return receipt requested, first class postage prepaid) to the parties at the addresses or facsimile numbers set forth below: To the Coaxial Parties: ---------------------- c/o Coaxial Communications 5111 Ocean Boulevard Suite C Sarasota, FL 34242 Attention: Dennis McGillicuddy Fax: (941) 346-2788 With copies to: -------------- Fried, Frank, Harris, Shriver & Jacobson 1001 Pennsylvania Avenue, N.W., Suite 800 Washington, D.C. 20004-2505 Attention: Alan S. Kaden, Esq. Fax: (202) 639-7008 and Dow, Lohnes & Albertson 1200 New Hampshire Avenue, N.W. Washington, D.C. 20036 Attention: David D. Wild Fax: (202) 776-4704 To any Insight Party: -------------------- c/o Insight Communications Company, Inc. 810 Seventh Avenue New York, NY 10019 Attention: Elliot Brecher, Senior Vice President and General Counsel Fax: (917) 286-2301 -23- With a copy to: -------------- Sonnenschein Nath & Rosenthal 1221 Avenue of the Americas New York, NY 10020 Attention: Robert L. Winikoff, Esq. Fax: (212) 768-6800 or to such other address, facsimile number or attention of such other person as any party shall advise the other parties in writing. 9.2 Survival of Representations and Warranties. All representations, ------------------------------------------ warranties and covenants made hereunder shall survive the closing of the transactions contemplated by this Agreement. 9.3 Governing Law; Jurisdiction; Venue; Waiver of Jury Trial. This -------------------------------------------------------- Agreement shall be governed by and enforced in accordance with the law of the State of New York, excluding its conflict of laws provisions. The parties agree that the state and federal courts sitting in and for New York County, New York shall have jurisdiction in any matter arising out of this Agreement, and the parties consent to such jurisdiction and agree that the venue of any such matter shall also be proper in such state and federal courts sitting in the State of New York. The parties irrevocably and unconditionally waive trial by jury in any legal action or proceeding relating to this Agreement. 9.4 Further Assurances. The parties hereto shall execute and deliver all ------------------ documents, provide all information and take, or forbear from taking, any and all actions that may be necessary or appropriate to achieve the purposes of this Agreement. 9.5 Successors and Assigns. This Agreement shall be binding upon, and ---------------------- inure to the benefit of, the parties hereto and their respective successors, heirs, administrators and assigns. 9.6 Headings. The Article and Section headings contained in this -------- Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 9.7 Counterparts. This Agreement may be executed in multiple ------------ counterparts, each of which shall be an original, but all of which shall constitute a single agreement. 9.8 Amendment. This Agreement may be amended only in a writing executed --------- by each of the parties hereto. 9.9 Entire Agreement. This Agreement sets forth the entire agreement and ---------------- understanding of the parties with respect to the transactions contemplated hereby and supersedes all prior agreements, arrangements and understandings relating to the subject matter hereof, whether written or oral. -24- 9.10 Existing Agreements. Each party to this Agreement irrevocably waives ------------------- any provision of any of the Existing Agreements to the extent any such provision conflicts with or is otherwise inconsistent with this Agreement. 9.11 Payments to Coaxial Principals; Actions by Coaxial Principals. ------------------------------------------------------------- (a) Any payments required to be made to the Coaxial Principals under this Agreement, whether in cash or other funds, shares of ICCI Stock, or other property, shall be allocated among the Coaxial Principals as they may determine by agreement among themselves. (b) The provisions of Section 14.5 of the Insight Ohio Operating Agreement shall apply to any action required or permitted to be taken by the Coaxial Principals under this Agreement. 9.12 Consent Solicitation. If the distribution of the Stock Consideration -------------------- or the proceeds of any sale of the Stock Consideration (in whatever form such proceeds may be invested or reinvested) by Coaxial to the Coaxial Shareholders or by the Coaxial Shareholders to the Coaxial Principals would violate any contractual restriction binding on or affecting Coaxial or any of the Coaxial Shareholders or any of their respective assets arising under the Senior Note Indenture, the Discount Note Indenture, or any other agreements related thereto, and any Insight Party (or any of their respective Affiliates) proposes to solicit the consents of the holders of the Senior Debt or the Subordinated Debt to the amendment or waiver of any provisions of the Senior Note Indenture, the Discount Note Indenture, or any other agreement related thereto, then: (a) The party making such solicitation (the "Solicitor") will consider --------- in good faith including in such solicitation a request for the waiver of all contractual restrictions on the distribution of the Stock Consideration or the proceeds of the sale of the Stock Consideration; and (b) unless the Solicitor determines, in good faith (but otherwise in its sole discretion), that including such a waiver in the solicitation would be adverse to its interests (after taking into account any reimbursement of expenses agreed to by the Coaxial Principals), the Solicitor will include a request for such a waiver in such solicitation request. -25- IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective authorized officers as of the date first above written. COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. By: ______________________________ Name: Title: INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC By Insight Holdings of Ohio, LLC, a Member By Insight Communications Company, L.P. , a Member By Insight Communications Company, Inc., its General Partner By: ______________________________ Name: Title: INSIGHT HOLDINGS OF OHIO, LLC By Insight Communications Company, L.P. , a Member By Insight Communications Company, Inc., its General Partner By: ______________________________ Name: Title: -26- INSIGHT COMMUNICATIONS COMPANY, L.P. By Insight Communications Company, Inc., its General Partner By: ______________________________ Name: Title: INSIGHT COMMUNICATIONS COMPANY, INC. By: ______________________________ Name: Title: COAXIAL LLC By: ______________________________ Name: Title: COAXIAL DJM LLC By: ______________________________ Name: Title: COAXIAL DSM LLC By: ______________________________ Name: Title: --------------------------------------- BARRY SILVERSTEIN -27- -------------------------------------- DENNIS J. MCGILLICUDDY -------------------------------------- D. STEVENS MCVOY -28- EX-3.1 3 0003.txt AMENDED AND RESTATED OPERATING AGREEMENT Exhibit 3.1 AMENDED AND RESTATED OPERATING AGREEMENT OF INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC THIS AMENDED AND RESTATED OPERATING AGREEMENT of INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC is entered into effective as of August 8, 2000, by and among Coaxial Communications of Central Ohio, Inc., an Ohio corporation, Insight Holdings of Ohio, LLC, a Delaware limited liability company, Barry Silverstein, an individual resident of the State of Florida, Dennis McGillicuddy, an individual resident of the State of Florida, and D. Stevens McVoy, an individual resident of the State of Ohio, and Insight Communications Company, L.P., a Delaware limited partnership, as Manager, and amends and restates the Operating Agreement dated as of August 21, 1998. RECITALS Barry Silverstein is the sole member of Coaxial LLC, a Delaware limited liability company, Dennis McGillicuddy is the sole member of Coaxial DJM LLC, a Delaware limited liability company, and D. Stevens McVoy is the sole member of Coaxial DSM LLC, a Delaware limited liability company. The Shareholders collectively own all the issued and outstanding shares of Central. Insight and the Shareholders have entered into certain Management Agreements, providing for the management by Insight of the Shareholders. Through its management of the Shareholders, Insight possesses the right to direct the business and affairs of the Shareholders, subject to certain exceptions. Central and Insight desire to enter into this Operating Agreement to provide for the formation and organization of the Company, the allocation of profits and losses, cash flow, and other proceeds of the Company among the Members, the respective rights, obligations, and interests of the Members to each other and to the Company, and certain other matters. Central, Insight, and the Principals further desire to set forth in this Operating Agreement certain agreements and understandings among them concerning the ownership and operation of the Company and Central. The parties intend, therefore, that this Operating Agreement will constitute both a "limited liability company agreement" among the Members for purposes of the Act as well as an agreement among all the parties with respect to the matters set forth herein. Central's Common Interest in the Company was repurchased by the Company as of the date hereof. -1- The Members wish to appoint Insight Communications Company, L.P. as Manager of the Company and Insight Communications Company, L.P. is willing to serve as Manager of the Company. AGREEMENT In consideration of the mutual covenants and agreements set forth in this Agreement, the parties agree as follows. SECTION 1. DEFINITIONS 1.1 Terms Defined in this Section. ----------------------------- The following terms, as used in this Agreement, have the meanings set forth in this Section: "Act" means the Delaware Limited Liability Company Act, as amended from time to time. "Adjusted Capital Account" means with respect to a Member, the balance in such Member's Capital Account as of the end of the relevant Fiscal Year, after: (i) crediting to such Capital Account any amounts that such Member is obligated to restore to the Company pursuant to Treasury Regulations Section 1.704-1(b)(2)(ii)(c) or is deemed to be obligated to restore pursuant to the penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and 1.704- 2(i)(5); and (ii) debiting from such Capital Account the items described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6). The foregoing definition of Adjusted Capital Account is intended to comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. "Affiliate" means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with such Person. For purposes of this definition and the definition of "Subsidiary," the term "controls" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. The terms "controlled by" and "under common control with" have meanings corresponding to the meaning of "controls." "Agreement" means this Operating Agreement, as it may be amended from time to time. -2- "Assignee" means a Person that has acquired a beneficial interest in a Membership Interest in accordance with the provisions of Section 9 but has not become a Member in accordance with the provisions of Section 9.3. "Borrowers" means, with respect to the Senior Debt, Central and Phoenix Associates, and, with respect to the Subordinated Debt, the Shareholders and Coaxial Financing Corp., a Delaware corporation. "Business Day" means any day (other than a day that is a Saturday or Sunday) on which banks are permitted to be open for business in the State of New York. "Capital Account" means an account to be maintained for each Member in accordance with the Code, which, subject to any contrary requirements of the Code, shall equal (i) the amount of money contributed by such Member to the Company, if any; (ii) the fair market value without regard to Code Section 7701(g) of property, if any, contributed by such Member to the Company (net of liabilities secured by such contributed property that the Company or the other Member is considered to assume under Code Section 752); (iii) allocations to such Member of Net Profit pursuant to Section 5; and (iv) other additions made in accordance with the Code; and decreased by (i) the amount of cash distributed to such Member by the Company; (ii) allocations to such Member of Net Loss pursuant to Section 5; (iii) the fair market value without regard to Code Section 7701(g) of property distributed to such Member by the Company (net of liabilities secured by such distributed property that such Member is considered to assume or is considered to take under Code Section 752); and (iv) other deductions made in accordance with the Code. The Members' respective Capital Accounts shall be determined and maintained at all times in accordance with all the provisions of Treasury Regulations Section 1.704-1(b)(2)(iv). "Capital Contributions" means, with respect to each Member, the amount of money and the net fair market value of property contributed by such Member to the Company pursuant to this Agreement. "Central" means Coaxial Communications of Central Ohio, Inc., an Ohio corporation. "Closing" and "Closing Date" have the meanings assigned to them in the Contribution Agreement. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any subsequent federal law of similar import, and, to the extent applicable, the Treasury Regulations. "Common Interest" means that portion of the Membership Interest of a Member other than the Preferred A Interest and the Preferred B Interest, including that portion of the Membership Interest of a Member having the rights and privileges specified in this Agreement as pertaining to the Common Interest. -3- "Company" means the limited liability company formed by the Members pursuant to this Agreement. "Contribution Agreement" means the Contribution Agreement, dated as of June 30, 1998, between Central and Insight Communications Company, L.P. (which assigned its rights and delegated its obligations thereunder to Insight), as amended by amendments thereto dated as of July 15, 1998 and as of August 21, 1998, and as it may hereafter be amended from time to time in accordance with its terms. "Depreciation" means, for each Fiscal Year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Fiscal Year, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such Fiscal Year, Depreciation shall be determined in the manner described in Treasury Regulations Section 1.704-1(b)(2)(iv)(g)(3). "Discount Notes" means the Senior Discount Notes issued by Coaxial LLC and Coaxial Financing Corp., a Delaware corporation, concurrently with the Closing. "Distributable Cash" means, on any Guaranteed Payment Date, Preferred A Distribution Date, or Preferred B Distribution Date, (a) the total amount on such date of the Company's cash, cash equivalents, and other assets, such as marketable securities, that can readily be converted into cash, plus (b) the amount then available to be borrowed by the Company under any existing credit facility the proceeds of which may be used to make distributions to Members, plus (c) the amount of any discretionary capital expenditures made by the Company during the period since the preceding Guaranteed Payment Date, Preferred A Distribution Date, or Preferred B Distribution Date, as applicable, less (d) any portion of such amounts that the Company is then prohibited from distributing to its Members pursuant to Section 18-607(a) of the Act. "Fiscal Year" means the Company's fiscal year, as specified in Section 2.11. "Gross Asset Value" means with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows: (i) The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as agreed to by the Members; (ii) The Gross Asset Values of all assets of the Company shall be adjusted to equal their respective gross fair market values, as determined by the Manager, as of the following times: (A) the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (B) the distribution by the Company to a Member of more than a de minimis amount of property (including cash) as consideration for an interest in the Company; and (C) the liquidation of the Company within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g); provided, however, that the adjustments pursuant to clauses -4- (A) and (B) above shall be made only if and to the extent that the Manager determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company; (iii) The Gross Asset Value of any asset of the Company distributed to any Member shall be the gross fair market value of such asset on the date of distribution, as agreed to by the Members or, in the absence of an agreement by the Members, as determined by the Manager; and (iv) The Gross Asset Value of the assets of the Company shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and Section 5.3; provided, however, that Gross Asset Value shall not be adjusted pursuant to this paragraph (iv) to the extent that the Manager determines that an adjustment pursuant to paragraph (ii) of this definition is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this paragraph (iv). If the Gross Asset Value of an asset has been determined or adjusted pursuant to paragraph (i), (ii), or (iv) of this definition, the Gross Asset Value of such asset shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Net Profit and Net Loss. "Insight" means Insight Holdings of Ohio, LLC, a Delaware limited liability company, or any other Person that succeeds to its Membership Interest and is admitted as a Member in accordance with the provisions of this Agreement. "Lien" has the meaning specified in the Contribution Agreement. "Loan Document" means any agreement or other instrument, including any note or indenture, evidencing all or any part of the Senior Debt or the Subordinated Debt or pursuant to which all or any part of the Senior Debt or the Subordinated Debt exists or is outstanding. "Management Return" means, for each Management Return Payment Date (or for the date on which a distribution pursuant to Section 10.2(d)(iii)(D) is made), the product of (x) three percent and (y) the gross revenues received by the Company from services or goods sold to subscribers or other customers of the Company (including subscriber fees, pay channel fees, leased channel fees, installation fees, disconnection fees, launch or incentive fees, and advertising revenue, but excluding extraordinary or non-recurring income, any customer deposits (unless forfeited to the Company), interest, dividends, royalties, and other investment income, and proceeds of the sale of any capital assets or any financing), determined in accordance with generally accepted accounting principles consistently applied, during the period beginning on the preceding Management Return Payment Date (or, in the case of the first Management Return Payment Date, the Closing Date) and ending -5- on the day prior to such Management Return Payment Date (or, in the case of a distribution pursuant to Section 10.2(d)(iii)(D), the date on which such distribution is made). "Manager" means Insight Communications Company, L.P. and any new Manager appointed in accordance with the provisions of this Agreement. "Member" means Central, Insight, and any other Person who may hereafter become a Member pursuant to this Agreement, but does not include any of the Principals (except to the extent that any of the Principals hereafter becomes a Member pursuant to this Agreement). "Membership Interest" means the entire ownership interest of a Member in the Company at any particular time, including all of its rights and obligations hereunder and under the Act, which may include one or more of a Common Interest, a Preferred A Interest, or a Preferred B Interest. "Net Profit" and "Net Loss" means for each Fiscal Year or other period, an amount equal to the Company's taxable income or loss for such year or period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments: (i) Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Net Profit or Net Loss shall be added to such taxable income or loss; (ii) Any expenditures of the Company described in Code Section 705(a)(2)(B), or treated as Code Section 705(a)(2)(B) expenditures pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and which are not otherwise taken into account in computing such Net Profit or Net Loss, shall be subtracted from such taxable income or loss; (iii) If the Gross Asset Value of any asset of the Company is adjusted pursuant to paragraph (ii) or (iii) of the definition of Gross Asset Value, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Profit or Net Loss; (iv) Gain or loss resulting from any disposition of property by the Company with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value; (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; -6- (vi) Notwithstanding anything to the contrary in the definition of the terms "Net Profit" and "Net Loss," any items that are specially allocated pursuant to Section 5.2 of this Agreement shall not be taken into account in computing Net Profit or Net Loss; and (vii) For purposes of this Agreement, any deduction for a loss on a sale or exchange of property that is disallowed to the Company under Code Section 267(a)(1) or Code Section 707(b) shall be treated as a Code Section 705(a)(2)(B) expenditure. "Nonrecourse Deductions" means losses, deductions, or Code Section 705(a)(2)(B) expenditures attributable to Partnership Nonrecourse Liabilities. The amount of Nonrecourse Deductions shall be determined pursuant to Treasury Regulations Section 1.704-2(c), which provides generally that the amount of Nonrecourse Deductions for a Fiscal Year shall equal the net increase, if any, in Partnership Minimum Gain during that Fiscal Year, reduced (but not below zero) by the aggregate distributions made during that Fiscal Year of proceeds of a Nonrecourse Liability that are allocable to an increase in Partnership Minimum Gain. "Nonrecourse Liability" has the meaning set forth in Treasury Regulations Section 1.752-1(a)(2). "Partner Nonrecourse Debt" has the meaning set forth in Treasury Regulations Section 1.704-2(b)(4), which generally defines "Partner Nonrecourse Debt" as any liability of the Company to the extent such liability is nonrecourse and a Member (or related person) bears the economic risk of loss pursuant to Treasury Regulations Section 1.752-2. "Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in Treasury Regulations Section 1.704-2(i)(2), which generally defines "Partner Nonrecourse Debt Minimum Gain" as the Partnership Minimum Gain attributable to Partner Nonrecourse Debt. The amount of Partner Nonrecourse Debt Minimum Gain shall be determined in accordance with Treasury Regulations Section 1.704- 2(i)(3). "Partner Nonrecourse Deductions" means losses, deductions, or Code Section 705(a)(2)(B) expenditures attributable to Partner Nonrecourse Debt. The amount of Nonrecourse Deductions shall be determined pursuant to Treasury Regulations Section 1.704-2(i)(2), which provides generally that the amount of Partner Nonrecourse Deductions for a Fiscal Year shall equal the net increase, if any, in Partner Nonrecourse Debt Minimum Gain during that Fiscal Year, reduced (but not below zero) by the proceeds of Partner Nonrecourse Debt distributed during the Fiscal Year to the Member bearing the economic risk of loss for such Partner Nonrecourse Debt that are both attributable to such Partner Nonrecourse Debt and allocable to an increase in Partner Nonrecourse Debt Minimum Gain. "Partnership Minimum Gain" means the excess of the Partnership Nonrecourse Liabilities over the adjusted tax basis of property securing such Liabilities. The amount of Partnership Minimum Gain shall be determined in accordance with Treasury Regulations Section 1.704-2(d), -7- which provides generally that the amount of Partnership Minimum Gain shall be determined by first computing for each Nonrecourse Liability any gain the Company would realize if it disposed of the property subject to that Nonrecourse Liability for no consideration other than full satisfaction of such Nonrecourse Liability, and then aggregating the separately computed gains. "Percentage Interest" means, with respect to a Member, the number of Units assigned to the Common Interest held by such Member divided by the aggregate number of Units assigned to the Common Interests held by all of the Members. "Permitted Liens" has the meaning specified in the Contribution Agreement. "Person" means an individual, corporation, limited liability company, association, general partnership, limited partnership, limited liability partnership, joint venture, trust, estate, or other entity or organization. "Phoenix Associates" means Phoenix Associates, a Florida general partnership. "Preferred A Capital Amount" means, at any time, the product of (A) $140,000,000 times (B) the percentage of the Preferred A Interest that as of such time has not been redeemed pursuant to Section 4.3. "Preferred B Capital Amount" means, at any time, the product of (A) the sum of (i) $30,000,000 and (ii) the cumulative increases in the Preferred B Capital Amount made pursuant to Section 4.1(a)(iii), times (B) the percentage of the Preferred B Interest that as of such time has not been redeemed pursuant to Section 4.3. "Preferred A Interest" means that portion of the Membership Interest of Central (or any other Person that succeeds to that portion of the Membership Interest of Central) represented by a Capital Account balance of $140,000,000 as of the Closing and having the rights and privileges specified in this Agreement as pertaining to the Preferred A Interest. "Preferred B Interest" means that portion of the Membership Interest of Central (or any other Person that succeeds to that portion of the Membership Interest of Central) represented by a Capital Account balance of $30,000,000 as of the Closing and having the rights and privileges specified in this Agreement as pertaining to the Preferred B Interest. "Preferred A Preference Amount" means, for each Preferred A Distribution Date (or for the date on which a distribution pursuant to Section 10.2(d)(iii)(B) is made), an amount equal to the excess of (A) the product of (x) the Preferred A Rate and (y) the Preferred A Capital Amount, computed for the period since the later of the Closing Date or the preceding Preferred A Distribution Date on the basis of a 360-day year of twelve 30-day months, over (B) with respect to the first Preferred A Distribution Date after the date of this Agreement, a pro rata portion of the Guaranteed Payment Amount, based on the ratio of the number of days between the Closing Date and such date -8- to the number of days between the preceding Guaranteed Payment Date (although prior to the Closing Date) and such date, computed on the basis of a 360-day year of twelve 30-day months, and, with respect to any other Preferred A Distribution Date, the Guaranteed Payment Amount. "Preferred B Preference Amount" shall mean, for each Preferred B Distribution Date (or for the date on which a distribution pursuant to Section 10.2(d)(iii)(C) is made), the product of (x) the Preferred B Rate and (y) the Preferred B Capital Amount, computed for the period since the later of the Closing Date or the preceding Preferred B Distribution Date on the basis of a 360-day year of twelve 30-day months. "Principals" means Barry Silverstein, Dennis McGillicuddy, and D. Stevens McVoy, and their respective permitted successors and assigns, as provided in Section 14.3. "Securities Act" means the Securities Act of 1933, as amended. "Senior Debt" means all obligations arising under the Senior Notes and every subsequent amendment, modification, restructuring, extension, renewal, or consolidation of any such obligations, and any obligation incurred in refinancing or replacement of or substitution for any such obligations. "Senior Notes" means the obligations of Central and Phoenix Associates, originally incurred under that certain Credit Agreement, dated November 15, 1994, among Central, Phoenix Associates, certain other parties, and the lenders named therein, as amended, as such obligations shall have been restructured in connection with the purchase thereof concurrently with the Closing. "Shareholders" means Coaxial LLC, a Delaware limited liability company, Coaxial DJM LLC, a Delaware limited liability company, and Coaxial DSM LLC, a Delaware limited liability company. "Subordinated Debt" means all obligations arising under the Discount Notes and the LLC Mirror Notes (as defined in the offering memorandum for the Discount Notes) issued by Coaxial DJM LLC and Coaxial DSM LLC concurrently with the Closing, and every subsequent amendment, modification, restructuring, extension, renewal, or consolidation of any such obligations, and any obligation incurred in refinancing or replacement of or substitution for any such obligations. "Subsidiary" means any corporation, limited liability company, general partnership, limited partnership, limited liability partnership, or joint venture controlled by the Company. "Tax Matters Member" means the Member designated pursuant to Section 6.3 as the "tax matters partner" of the Company in accordance with Code Section 6231(a)(7). -9- "Treasury Regulations" means the Income Tax Regulations, including Temporary Regulations, promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "Unit" means, for purposes of calculating a Member's Percentage Interest, the value assigned to such Member's Common Interest in accordance with the following provisions: (i) in consideration for the Capital Contributions made pursuant to Section 3.1(a), there has been assigned to the Common Interest issued to Insight a number of Units equal to the product of 100,000 times a fraction, the numerator of which is the sum of $10,000,000 plus the aggregate amount of any Capital Contributions made by Insight pursuant to Section 2.1(d)(4)(A)(1) of the Contribution Agreement and the denominator of which is $13,333,333; (ii) in consideration for the Capital Contributions made pursuant to Section 3.1(a), after giving effect to the issuance to Central of the Preferred A Interest and the Preferred B Interest, there was assigned to the Common Interest issued to Central 25,000 Units; (iii) in consideration for any Capital Contribution made by any Person pursuant to Section 2.1(d)(4)(A)(2) of the Contribution Agreement, there shall be assigned to the Common Interest of such Person, effective as of the date of this Agreement, a number of Units equal to the product of 100,000 times a fraction, the numerator of which is the amount of all Capital Contribution made by such Person pursuant to Section 2.1(d)(4)(A)(2) of the Contribution Agreement and the denominator of which is $13,333,333; and (iv) there shall be assigned to any other Common Interest issued pursuant to Section 7.5, including any additional Common Interest issued to Insight or Central, the number of Units required to be assigned to such Common Interest under the terms of its issuance. "Voting Interests" means, (i) at such time as (a) Central owns the Preferred A Interest and the Preferred B Interest and (b) the Principals own, directly or indirectly, the outstanding interests in Central, the Preferred A Interest and the Preferred B Interest (which shall have, collectively, 30% of the total voting power) and the Common Interests (which shall have, collectively, 70% of the total voting power) and (ii) at any other time, the Common Interests. Voting power shall be allocated to the Common Interest held by a Member in proportion to the number of Units assigned to the Common Interest held by such Member divided by the aggregate number of Units assigned to the Common Interests held by all of the Members. -10- 1.2 Terms Defined Elsewhere in this Agreement. ----------------------------------------- For purposes of this Agreement, the following terms have the meanings set forth in the sections indicated: Term Section - ---- ------- AMT Liability Section 4.1(e)(iii) April Distribution Section 4.1(a)(iv) Estimated Tax Distributions Section 4.1(a)(iv) Guaranteed Payment Amount Schedule III Guaranteed Payment Date Schedule III Indemnified Persons Section 11.1 Liquidator Section 10.2(b) Management Return Payment Date Schedule III Preferred A Distribution Date Schedule III Preferred A Rate Schedule III Preferred B Distribution Date Schedule III Preferred B PIK Termination Date Schedule III Preferred B Rate Schedule III Regular Tax Liability Section 4.1(e)(ii) Regulatory Allocations Section 5.2(f) Secretary Section 6.3(c) Secured Party Section 9.7 Tax Amount Section 4.1(e) Transfer Section 9.1(a) SECTION 2. THE COMPANY AND ITS BUSINESS 2.1 Formation. --------- The Members agree to form the Company as a limited liability company pursuant to the provisions of the Act. Except as provided in this Agreement, all rights, liabilities, and obligations of the Members, both as between themselves and with respect to Persons not parties to this Agreement, shall be as provided in the Act, and this Agreement shall be construed in accordance with the provisions of the Act. To the extent that the rights or obligations of any Member are different by reason of any provision of this Agreement than they would be in the absence of such provision, this Agreement shall, to the extent permitted by the Act, control, except that no Member shall be personally liable for obligations of the Company beyond the liability provided in the Act. -11- 2.2 Filing of Certificate of Formation. ---------------------------------- The Manager has caused a Certificate of Formation conforming with the Act to be filed with the Secretary of State of Delaware. The Manager will cause the Certificate of Formation to be filed or recorded in any other public office where filing or recording is required or advisable. The Members and the Company shall do, and continue to do, all other things that are required or advisable to maintain the Company as a limited liability company existing pursuant to the laws of the State of Delaware. 2.3 Company Name. ------------ The name of the Company shall be "Insight Communications of Central Ohio, LLC." The business and operations of the Company may be conducted under that name or any other name or names that the Manager may from time to time select. The Company shall file any assumed name certificates and similar filings, and any amendments thereto, that the Manager considers appropriate or advisable. 2.4 Term of the Company. ------------------- The term of the Company commenced on the date of the filing of the Certificate of Formation of the Company with the Secretary of State of Delaware and shall continue until the Company is terminated pursuant to Section 10 of this Agreement. 2.5 Purposes of the Company. ----------------------- The purposes of the Company are to do the following, directly or indirectly through interests in one or more Subsidiaries: (a) to engage in the business of acquiring, developing, owning, designing, constructing, maintaining, operating, managing, and selling the cable television systems and other assets contributed to the Company by Central pursuant to the Contribution Agreement; (b) to acquire, develop, own, design, construct, maintain, operate, manage, and sell additional cable television systems; (c) to acquire, develop, own, design, construct, maintain, operate, manage, and sell, or invest in, businesses related to and ancillary to those referred to above (including high-speed data service, Internet access, telephony services, and other telecommunications and telephony-related investments or businesses, and video wireless services and wireless communications services and other wireless-related investments or businesses); (d) to conduct other business of the type and character in which cable television operators generally become involved; -12- (e) to possess, transfer, mortgage, pledge, or otherwise deal in, and to exercise all rights, powers, privileges, and other incidents of ownership or possession with respect to securities or other assets held or owned by the Company, and to hold securities or assets in the name of a nominee or nominees; and (f) to form and own one or more corporations, trusts, or partnerships (but no entity so formed or owned, while it is a Subsidiary, may do what the Company is prohibited by this Agreement from doing). 2.6 Authority of the Company. ------------------------ The Company shall be empowered and authorized to do all lawful acts and things necessary, appropriate, proper, advisable, incidental to, or convenient for the furtherance and accomplishment of its purposes. Without limiting the foregoing, the Company shall be empowered and authorized, for itself or on behalf of any Subsidiary, to the extent necessary, appropriate, proper, advisable, incidental to, or convenient for the furtherance and accomplishment of its purposes, to: (a) construct, operate, maintain, improve, expand, buy, own, sell, convey, assign, mortgage, refinance, rent, or lease real and personal property, which shall be held in the name of the Company or a Subsidiary, as applicable; (b) enter into, perform, and carry out contracts, leases, and agreements of any kind necessary to, in connection with, or incidental to accomplishing the purposes of the Company; (c) operate, maintain, finance, improve, construct, own, grant options with respect to, sell, convey, assign, mortgage, and lease real and personal property; (d) sell, exchange, or otherwise dispose of all or any part of the property and assets of the Company or of any Subsidiary for property, cash, or on terms, or any combination thereof; (e) obtain loans, secured and unsecured, for the Company or any Subsidiary and secure the same by mortgaging, assigning for security purposes, pledging, or otherwise hypothecating all or any part of the property and assets of the Company or of any Subsidiary (and in connection therewith to place record title to any such property or assets in the name or names of a nominee or nominees); (f) prepay in whole or in part, refinance, recast, increase, decrease, modify, amend, restate, or extend any such mortgage, security assignment, pledge, or other security instrument, and in connection therewith to execute and deliver, for and on behalf of the Company or any Subsidiary, any extensions, renewals, or modifications thereof, any new mortgage, security assignment, pledge, or other security instrument in lieu thereof; (g) draw, make, accept, endorse, sign, and deliver any notes, drafts, or other negotiable instruments or commercial paper; -13- (h) establish, maintain, and draw upon checking, savings, and other accounts in the name of the Company or any Subsidiary in such banks or other financial institutions as the Manager may from time to time select; (i) employ, fix the compensation of, oversee, and discharge agents and employees of the Company and of any Subsidiary as it shall deem advisable in the operation and management of the business of the Company, including such accountants, attorneys, consultants, engineers, and appraisers, on such terms and for such compensation, as the Manager shall determine; (j) enter into management agreements with third parties pursuant to which the management, supervision, or control of the business or assets of the Company may be delegated to third parties for reasonable compensation; (k) enter into joint ventures, general or limited partnerships, or other agreements relating to the Company's purposes; (l) compromise any claim or liability due to the Company or any Subsidiary; (m) execute, acknowledge, verify, and file any notifications, applications, statements, and other filings that the Manager considers necessary or desirable to be filed with any state or federal securities administrator or commission; (n) execute, acknowledge, verify, and file any and all certificates, documents, and instruments that the Manager considers necessary or desirable to permit the Company or any Subsidiary to conduct business in any state in which the Manager deems advisable; (o) bring and defend actions in law and equity; (p) to borrow or raise money, and from time to time to issue, accept, endorse, and execute promissory notes, loan agreements, options, stock purchase agreements, contracts, documents, checks, drafts, bills of exchange, warrants, bonds, debentures, and other negotiable or non-negotiable instruments and evidences of indebtedness, and to secure the payment of any thereof and of the interest thereon by mortgage upon or pledge, conveyance, or assignment in trust of, the whole or any part of the property of the Company whether at the time owned or thereafter acquired and to guarantee the obligations of others and to sell, pledge, or otherwise dispose of such bonds or other obligations of the Company for its purposes; and (q) to maintain an office or offices in such place or places as the Manager shall determine and in connection therewith to rent or acquire office space, engage personnel, and do such other acts and things as may be necessary or advisable in connection with the maintenance of such office, and on behalf of and in the name of the Company to pay and incur reasonable expenses and obligations for legal, accounting, investment advisory, consultative, and custodial services, and other reasonable expenses including taxes, travel, insurance, rent, supplies, interest, salaries and wages of employees, and all other reasonable costs and expenses incident to the operation of the Company. -14- 2.7 [RESERVED] 2.8 Scope of Members' Authority. --------------------------- Except as otherwise expressly and specifically provided in this Agreement, no Member shall have any authority to act for, or assume any obligation or responsibility on behalf of, the Company. 2.9 Principal Office and Other Offices; Registered Agent. ---------------------------------------------------- The address of the Company's registered office that is required to be maintained by the Company in the State of Delaware pursuant to Section 18-104 of the Act shall initially be located at 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, and the name of the Company's registered agent at such address is The Corporation Trust Company. The principal office of the Company shall be located at 810 Seventh Avenue, New York, New York 10019, or at such other place as the Manager shall from time to time designate. The Company may maintain any other offices and conduct business at any other places that the Manager deems advisable. The Company may, upon compliance with the applicable provisions of the Act, change its principal office or registered agent from time to time in the discretion of the Manager. 2.10 Foreign Qualification. --------------------- The Manager shall cause the Company to be authorized to conduct business legally in the State of Ohio and all other appropriate jurisdictions, including registration or qualification of the Company as a foreign limited liability company in those jurisdictions that provide for registration or qualification and the filing of a certificate of limited liability company in the appropriate public offices of those jurisdictions that do not provide for registration or qualification. 2.11 Fiscal Year. ----------- The Fiscal Year of the Company shall be the calendar year, except that the first Fiscal Year commenced on the date on which the Company was formed under the Act and the last Fiscal Year shall end on the date on which the winding up of the Company is completed. The Company shall have the same Fiscal Year for income tax purposes and for financial and partnership accounting purposes. 2.12 Addresses of the Members. ------------------------ The respective addresses of the Members are set forth on Schedule I. 2.13 Tax Classification. ------------------ Notwithstanding any other provision of this Agreement, no Member nor any Affiliate of any Member, nor any employee of the Company, may take any action (including the filing of a U.S. Treasury Form 8832 Entity Classification Election) that would cause the Company to be characterized as an entity other than a partnership for federal income tax purposes without the -15- affirmative unanimous consent of the Members and the prior written consent of the Principals, except that this sentence shall not preclude or in any way limit any Person from taking any action that would cause any Affiliate of Insight (other than the Company and any Person more than half of the assets of which consist of direct or indirect equity interests in the Company at the time such action is taken) to be characterized as a corporation for federal income tax purposes. A determination of whether any action would cause the Company to be characterized as an entity other than a partnership for federal income tax purposes will be based upon a declaratory judgment or similar relief obtained from a court of competent jurisdiction, a favorable ruling from the Internal Revenue Service, or the receipt of an opinion of counsel reasonably satisfactory to the Members. SECTION 3. COMPANY CAPITAL 3.1 Contributions. ------------- (a) Contributions Pursuant to Contribution Agreement. At the Closing, ------------------------------------------------ Central and Insight contributed the assets required to be contributed by the Contribution Agreement. (b) Fair Market Value of Contributions. The fair market value of the ---------------------------------- assets contributed to the Company by Central pursuant to Section 3.1(a) was as specified in the Contribution Agreement. 3.2 Additional Capital Contributions. -------------------------------- The Manager may, in its reasonable discretion, call for additional Capital Contributions from the holders of Common Interests. No Member shall be required to make any such additional Capital Contribution. In the event that a Member chooses not to make any such additional Capital Contributions, the other holders of Common Interests may elect, on five (5) days' notice in writing to the other holders of Common Interests, to make such additional Capital Contributions as have not been made by the non-contributing Member. If more than one holder of Common Interests elects to make the additional Capital Contribution, then all such electing holders shall contribute on a pro rata basis determined by their respective Percentage Interests. If any additional Capital Contributions are made, the Units assigned to the Common Interest of each contributing Member shall be increased by an amount equal to the Gross Asset Value of such additional Capital Contribution times seventy-five ten thousandths (0.0075). 3.3 Assumption of Liabilities. ------------------------- In accordance with the terms and conditions of the Contribution Agreement, the Company, at the Closing, assumed and undertook to pay, discharge, and perform only those obligations and liabilities of Central and Insight that were specified in Section 4.1 and Section 12.2 of the Contribution Agreement or were otherwise required to be paid by the Company pursuant to Section 6.4(b). -16- 3.4 Return of Contributions. ----------------------- Except as provided in Section 4.3, no Member shall have the right to demand a return of all or any part of its Capital Contribution during the term of the Company, and any return of the Capital Contribution of any Member shall be only in accordance with the terms of this Agreement. 3.5 Refinancing and Purchase of Senior Debt and Subordinated Debt. ------------------------------------------------------------- (a) Refinancing. (i) Insight may obtain and submit to Central and the Principals at any time and from time to time a proposal from a financial institution of nationally recognized standing for the refinancing of the Senior Debt or the Subordinated Debt. (ii) After obtaining any proposal pursuant to Section 3.5(a)(i), Insight may require that the Borrowers refinance or modify the Senior Debt or the Subordinated Debt in accordance with the terms of such proposal, and the parties agree that the Borrowers will comply with such requirement. (b) [RESERVED] (c) Funding Purchase of Debt. The Company may make loans to Insight or any ------------------------ Affiliate of Insight for the purpose of funding the acquisition by such Person of any of the outstanding Senior Debt or Subordinated Debt. The proceeds used to make such loans may include the proceeds of the issuance of Membership Interests. The terms of any such loan shall: (i) provide that all obligations and liabilities of such Person with respect to such loan shall be secured by all of such Person's interest in the Senior Debt or Subordinated Debt so purchased, and any replacements or proceeds thereof (but such loan shall otherwise be non-recourse to such Person); (ii) require the payment to the Company, either as principal, interest, or additional interest, of all amounts received by such Person with respect to the Senior Debt or Subordinated Debt so purchased; and (iii) require that the Person to which the loan is made, if other than Insight, remain an Affiliate of Insight. (d) RESERVED (e) RESERVED -17- (f) Other General Provisions. (i) The manner of soliciting and obtaining any refinancing proposal pursuant to this Section 3.5 shall be determined by Insight. The Principals will cooperate, as reasonably requested by Insight, in connection with Insight's efforts to solicit and obtain any refinancing proposal pursuant to this Section 3.5. (ii) In connection with any refinancing pursuant to this Section 3.5, the Company shall pay all costs and expenses incurred by any of the Borrowers, any of the Principals, or any of their respective Affiliates in connection with the consummation of such refinancing, including the authorization, preparation, execution, and performance of any agreements or other instruments relating thereto, to the extent such costs and expenses are similar in kind to the costs and expenses that the Company would have incurred in issuing indebtedness similar to the Senior Debt or the Subordinated Debt. (iii) In connection with any refinancing or purchase of any of the Senior Debt or the Subordinated Debt pursuant to this Section 3.5, Insight and the Principals shall agree to appropriate modifications to the terms of the Preferred A Interest and the Preferred B Interest, to the extent necessary to preserve the reasonable expectations of Insight and the Principals under this Agreement. Any agreement between Insight and the Principals pursuant to this Section 3.5(f)(iii) as to any modification to the terms of the Preferred A Interest and the Preferred B Interest shall be binding on the Members. SECTION 4. CASH DISTRIBUTIONS 4.1 Distributions Prior to Liquidation. ---------------------------------- (a) Distributions Generally. Except as provided in Section 10.2(d), the ----------------------- Company shall make cash distributions as follows: (i) First, on each Guaranteed Payment Date, commencing on the first Guaranteed Payment Date after the Closing, so long as the Preferred A Interest is outstanding, the Company shall distribute to the holder of the Preferred A Interest (A) on the first such date, a pro rata portion of the Guaranteed Payment Amount, based on the ratio of the number of days between the Closing Date and such date to the number of days between the preceding Guaranteed Payment Date (although prior to the Closing Date) and such date, computed on the basis of a 360-day year of twelve 30-day months, and (B) on each other such date, the Guaranteed Payment Amount. (ii) Second, on each Preferred A Distribution Date, commencing on the first Preferred A Distribution Date after the Closing, so long as the Preferred A Interest is outstanding, the Company shall distribute to the holder of the Preferred A Interest the Preferred A Preference Amount. -18- (iii) Third, on each Preferred B Distribution Date, commencing on the first Preferred B Distribution Date after the Closing, so long as the Preferred B Interest is outstanding, the Company shall distribute to the holder of the Preferred B Interest the Preferred B Preference Amount; provided, however, that on any such Preferred B Distribution Date falling prior to the Preferred B PIK Termination Date, the Company shall, in lieu of making such distribution, accrue such amount, and any such accrued and unpaid amount shall be added to the Preferred B Capital Amount. (iv) Fourth, no less than three days prior to April 15 of each year, the Company shall distribute to each Member holding a Common Interest, the excess of such Member's Tax Amount over the amounts previously distributed to such Member under this Section 4.1(a)(iv), including Estimated Tax Distributions (the "April Distribution"). If the Company's taxable income for any year is increased above the amount used to compute the April Distribution as a result of an adjustment deemed necessary by the Company or as the result of a tax audit, the Company shall distribute to the Members holding the Common Interests such amount as the Manager shall determine is appropriate, in its good faith discretion, taking into account the respective additional federal, state, and local tax liability of the Members as a result of such increase and any related penalties and interest. The Company shall also make distributions ("Estimated Tax Distributions") for the payment of taxes at such times as any Member would be required to pay federal estimated taxes in an amount not in excess of the Company's good faith estimate of the Tax Amount for the period to which such estimated taxes relate. Notwithstanding anything to the contrary herein, distributions under this Section 4.1(a)(iv) shall be made in proportion to the Members' Percentage Interests. (v) Thereafter, at such times and in such amounts as the Manager may determine, to the Members holding Common Interests in proportion to their Percentage Interests. (b) Late Distributions. (i) If the Company fails to make any distribution required to be made pursuant to Section 4.1(a)(i) on or before the applicable Guaranteed Payment Date, then the Guaranteed Payment Amount payable with respect to that Guaranteed Payment Date shall be increased at a rate per year equal to the Preferred A Rate for the number of days from the applicable Guaranteed Payment Date to the date on which the required distribution is actually made. (ii) If the Company fails to make any distribution required to be made pursuant to Section 4.1(a)(ii) on or before the applicable Preferred A Distribution Date, then the amount to be distributed with respect to that Preferred A Distribution Date shall be increased at a rate per year equal to the Preferred A Rate for the number of days from the applicable Preferred A Distribution Date to the date on which the required distribution is actually made. (iii) If the Company fails to make any distribution required to be made pursuant to Section 4.1(a)(iii) on or before the applicable Preferred B Distribution Date, then the amount to be distributed with respect to that Preferred B Distribution Date shall be increased at a rate per year -19- equal to the Preferred B Rate for the number of days from the applicable Preferred B Distribution Date to the date on which the required distribution is actually made; provided, however, that this Section 4.1(b)(iii) shall apply only to distributions required to be made on Preferred B Distribution Dates occurring on or after the Preferred B PIK Termination Date. (c) Borrowings for Guaranteed Payments. To the extent the Company does not ---------------------------------- have sufficient cash to make the distribution required to be made pursuant to Section 4.1(a)(i) then the Manager may, but shall not be obligated to, cause the Company to borrow funds in order to make such distributions in a full and timely manner. (d) Treatment of Guaranteed Payments. The distributions provided for in -------------------------------- Section 4.1(a)(i) are required to be made without regard to the income of the Company and shall be treated as guaranteed payments as described in Code Section 707(c). No Member shall take a position inconsistent with such treatment. (e) Determination of Tax Amount. For purposes of Section 4.1(a)(iv), the --------------------------- "Tax Amount" of a Member holding a Common Interest means, the sum of such Member's tax liabilities for all previous Fiscal Years, determined in accordance with, and subject to, the following: (i) The tax liability of a Member holding a Common Interest for any Fiscal Year shall be the greater of such Member's Regular Tax Liability or its AMT Liability for such Fiscal Year. (ii) The "Regular Tax Liability" of a Member holding a Common Interest for any Fiscal Year shall be determined separately for ordinary income and each character of capital gain income to which separate federal income tax rates may apply, and for each such type of income shall be computed as the product of (A) the excess of (1) the aggregate amount of taxable income (if any) allocated to such Member with respect to its Common Interest in such Fiscal Year over (2) the aggregate amount of taxable losses (if any) allocated to such Member with respect to its Common Interest for all prior Fiscal Years since the beginning of the Company and not previously taken into account for purposes of computing such Member's Tax Amount, and (B) the highest marginal combined federal, state, and local tax rate (taking into count the provisions of Code Section 68) imposed on an individual resident in New York City for income of such type. (iii) The "AMT Liability" of a Member holding a Common Interest for any Fiscal Year shall be computed as the product of (A) the aggregate amount of alternative minimum taxable income (if any) allocated to such Member with respect to its Common Interest in such Fiscal Year (less any alternative minimum tax losses allocated to such Member with respect to its Common Interest for all prior Fiscal Years since the beginning of the Company and not previously taken into account for purposes of computing such Member's Tax Amount) and (B) the highest marginal combined federal, state, and local tax rate imposed on the alternative minimum taxable income of an individual resident in New York City (taking into account the lack of deductibility for state and local taxes under the federal alternative minimum tax). -20- (iv) For purposes of determining a Member's Regular Tax Liability or AMT Liability, any Member who receives a Common Interest in a transfer with respect to which an election under Code Section 754 has not been made (or is not in effect) shall be deemed to have been allocated any taxable losses or income allocated to the transferor of such Common Interest. For purposes of determining a Member's April Distribution, any Member who receives a Common Interest in a transfer with respect to which an election under Code Section 754 has not been made (or is not in effect) shall be deemed to have received any distributions made pursuant to Section 4.1(a)(iv) to the transferor of such Common Interest. (v) Notwithstanding anything to the contrary herein, for purposes of calculating a Member's Tax Amount under this Section 4.1(e), the taxable income or taxable loss (including alternative minimum taxable income and alternative minimum taxable loss) allocated to a Member shall exclude (and no April Distributions or Estimated Tax Distributions shall be made with respect to) (A) gain allocated to any Member with respect to the sale, exchange, or other actual or deemed disposition of any assets contributed to the Company by any Member, (B) gross income allocated to the holder of the Preferred A Interest with respect to distributions made under Section 4.1(a)(i), (C) gross income allocated to the holder of the Preferred A Interest under Section 5.2(h) and (D) gross income allocated to the holder of the Preferred B Interest under Section 5.2(i). (f) Delaying Distributions. If (i) any default (other than a notification ---------------------- or delivery default) shall have occurred and be continuing under any of the Loan Documents, or if Insight in good faith determines that such a default under any of the Loan Documents is reasonably likely to occur, and (ii) Insight determines in good faith that, as a result of such existing or anticipated default, it would be in the best interests of the Company for the Company not to make any distribution required pursuant to Section 4.1(a)(i), Section 4.1(a)(ii), or Section 4.1(a)(iii), and (iii) Insight notifies the Principals in writing that it has made such determination, then Insight may cause the Company not to make such distribution until such time as Insight shall have determined that it is no longer in the best interests of the Company for the Company not to make such distribution. To the extent, but only for so long as, Insight is authorized by this Section 4.1(f) to cause the Company not to make such distribution, then neither Insight nor the Company shall have any liability to the holder of the Preferred A Interest or the holder of the Preferred B Interest as a result of the Company's failure to make any distribution required pursuant to Section 4.1(a)(i), Section 4.1(a)(ii), or Section 4.1(a)(iii). The provisions of Section 4.1(b) shall apply to the Company's failure to make any distribution required pursuant to Section 4.1(a)(i), Section 4.1(a)(ii), or Section 4.1(a)(iii) notwithstanding Insight's rights under this Section 4.1(f) to cause the Company not to make any such distribution. 4.2 Withholding. ----------- All amounts withheld pursuant to the Code or any provision of any state or local tax law with respect to any payment or distribution to the Company or the Members shall be treated as amounts distributed to Members pursuant to Section 4 for all purposes of this Agreement. -21- 4.3 Redemption. ---------- (a) Redemption of Preferred B Interest. ---------------------------------- (i) Subject to Section 4.3(a)(iii), the Company shall redeem the Preferred B Interest in full if (A) the Discount Notes shall be payable in full (either upon reaching their stated maturity or upon their acceleration), (B) the holders of the Discount Notes shall have commenced the enforcement of any remedies available to them under any agreement under which shares of Central and the LLC Mirror Notes (as defined in the offering memorandum for the Discount Notes) are pledged as security for the Discount Notes, (C) at least ten days shall have elapsed since the maturity or acceleration of the Discount Notes, and (D) the holders of the Discount Notes, acting on their own behalf or through the trustee of the Discount Notes, shall have requested redemption of the Preferred B Interest in accordance with the provisions of any agreement under which shares of Central and the LLC Mirror Notes (as defined in the offering memorandum for the Discount Notes) are pledged as security for the Discount Notes. (ii) The Company may redeem the Preferred B Interest, in whole or in part, at any time at its option. (iii) The Company shall not redeem the Preferred B Interest if the Company is required to redeem the Preferred A Interest pursuant to Section 4.3(b)(i) and has not yet done so. (iv) If the Company redeems all or part of the Preferred B Interest pursuant to this Section 4.3(a), the redemption price shall equal the sum of (A) the amount that would be distributed to the holder of the Preferred B Interest with respect to the redeemed portion of the Preferred B Interest pursuant to Section 10.2(d)(iii)(C) upon dissolution and liquidation of the Company, assuming that the distribution pursuant to Section 10.2(d)(iii)(C) was made on the date of such redemption and that the proceeds of the liquidation of the Company were sufficient to permit the Company to make the full distribution provided for in Section 10.2(d)(iii)(C), plus (B) the amount of any premium required to be paid by the Borrowers to the holders of the Subordinated Debt in connection with the Borrowers' use of the proceeds of the redemption of the Preferred B Interest to repay or purchase the Subordinated Debt. (b) Redemption of Preferred A Interest. ---------------------------------- (i) The Company shall redeem the Preferred A Interest in full if (A) the Senior Notes shall be payable in full (either upon reaching their stated maturity or upon their acceleration), (B) the holders of the Senior Notes shall have commenced the enforcement of any remedies available to them under any agreement under which the Preferred A Interest is pledged as security for the Senior Notes, (C) at least ten days shall have elapsed since the maturity or acceleration of the Senior Notes, and (D) the holders of the Senior Notes, acting on their own behalf or through the trustee of the Senior Notes, shall have requested redemption of the Preferred A Interest in accordance with the provisions of any agreement under which the Preferred A Interest is pledged as security for the Senior Notes. -22- (ii) The Company may redeem the Preferred A Interest, in whole or in part, at any time at its option. (iii) If the Company redeems all or part of the Preferred A Interest pursuant to this Section 4.3(b), the redemption price shall equal the sum of (A) the amount that would be distributed to the holder of the Preferred A Interest with respect to the redeemed portion of the Preferred A Interest pursuant to Section 10.2(d)(iii)(A) and Section 10.2(d)(iii)(B) upon dissolution and liquidation of the Company, assuming that the distributions pursuant to Section 10.2(d)(iii)(A) and Section 10.2(d)(iii)(B) were made on the date of such redemption and that the proceeds of the liquidation of the Company were sufficient to permit the Company to make the full distributions provided for in Section 10.2(d)(iii)(A) and Section 10.2(d)(iii)(B), plus (B) the amount of any premium required to be paid by the Borrowers to the holders of the Senior Debt in connection with the Borrowers' use of the proceeds of the redemption of the Preferred A Interest to repay or purchase the Senior Debt. (c) Redemption of Common Interest. The Company may redeem the Common ----------------------------- Interest held by one or more Members, in whole or in part, at any time, with the consent of all of the Members and the Principals. If the Company redeems all or part of the Common Interest pursuant to this Section 4.3(c), the redemption price may be such amount, payable in cash or property, as the Members may approve. SECTION 5. ALLOCATIONS OF PROFITS AND LOSSES 5.1 Allocations of Net Profit and Net Loss. -------------------------------------- (a) Allocations of Net Profit. For purposes of maintaining Capital ------------------------- Accounts, except as otherwise provided in this Agreement, Net Profit for each taxable year (or portion thereof) shall be allocated to the Members as follows: (i) First, to the Members to reverse any allocations of Net Losses to the Members pursuant to Section 5.1(b)(iii) and Section 5.1(b)(ii) (in reverse order to the order in which such Net Losses were allocated to the Members) to the extent not previously reversed under this Section 5.1(a)(i); and (ii) Thereafter, to the Members holding Common Interests in proportion to their Percentage Interests. (b) Allocations of Net Loss. Net Loss for each taxable year (or portion ----------------------- thereof) shall be allocated to the Members as follows: (i) First, to the Members in proportion to their Percentage Interests; provided, however, that no allocation pursuant to this Section 5.1(b)(i) shall reduce a Member's Adjusted Capital Account balance below zero; -23- (ii) Second, to the Members in proportion to their positive Adjusted Capital Account balances until each Member's Adjusted Capital Account balance is at zero; and (iii) Thereafter, to all Members in proportion to their Percentage Interests. 5.2 Special Provisions Regarding Allocations of Income and Loss. ----------------------------------------------------------- The following special allocations for purposes of maintaining Capital Accounts shall be made in the following order: (a) Minimum Gain Chargeback. Except as otherwise provided in Treasury ----------------------- Regulations Section 1.704-2(f), notwithstanding any other provision of this Section 5, if there is a net decrease in Partnership Minimum Gain for any Fiscal Year, each Member shall be specially allocated items of Company income and gain for such Fiscal Year (and if necessary for succeeding Fiscal Years) in an amount equal to such Member's share of the net decrease in Partnership Minimum Gain, determined in accordance with Treasury Regulations Section 1.704-2(g). Allocations made pursuant to the preceding sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items of Company income and gain to be allocated pursuant to this Section 5.2(a) shall be determined in accordance with Treasury Regulations Section 1.704-2(f)(6) and Treasury Regulations Section 1.704-2(j)(2). The amount of Partnership Minimum Gain shall be determined in accordance with Treasury Regulations Section 1.704-2(d). This Section 5.2(a) is intended to comply with the minimum gain chargeback requirement in Treasury Regulations Section 1.704-2(f) and shall be interpreted consistently therewith. (b) Partner Minimum Gain Chargeback. Except as otherwise provided in ------------------------------- Treasury Regulations Section 1.704-2(i)(4), notwithstanding any other provision of this Section 5 except Section 5.2(a), if during any Fiscal Year there is a net decrease in Partner Nonrecourse Debt Minimum Gain, each Member that has a share of that Partner Nonrecourse Debt Minimum Gain (determined in accordance with Treasury Regulations Section 1.704-2(i)(5)) as of the beginning of such Fiscal Year shall be allocated items of Company income and gain for the Fiscal Year (and, if necessary, for succeeding Fiscal Years) equal to that Member's share of the net decrease in the Partner Nonrecourse Debt Minimum Gain (determined in accordance with Treasury Regulations Section 1.704-2(i)(4)). Allocations pursuant to the preceding sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items of Company income and gain to be allocated pursuant to this Section 5.2(b) shall be determined in accordance with Treasury Regulations Section 1.704-2(i)(4) and Treasury Regulations Section 1.704-2(j)(2). The amount of Partner Nonrecourse Debt Minimum Gain shall be determined in accordance with Treasury Regulations Section 1.704-2(i)(3). This Section 5.2(b) is intended to comply with the minimum gain chargeback requirement in Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted consistently therewith. (c) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal Year or ---------------------- other period shall be specially allocated among the Members in proportion to their Percentage Interests. -24- (d) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions for ------------------------------ any Fiscal Year or other period shall be specially allocated to the Member that bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable in accordance with Treasury Regulations Section 1.704-2(i). (e) Qualified Income Offset. If any Member unexpectedly receives any ----------------------- adjustments, allocations, or distributions described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704- 1(b)(2)(ii)(d)(6), items of Company income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the Adjusted Capital Account of such Member as quickly as possible; provided, however, that an allocation pursuant to this Section 5.2(e) shall be made if and only to the extent that such Member would have an Adjusted Capital Account after all other allocations provided for in this Section 5 have been tentatively made as if this Section 5.2(e) were not in this Agreement. (f) Curative Allocations. The allocations set forth in the foregoing -------------------- provisions of this Section 5.2 (the "Regulatory Allocations") are intended to comply with certain requirements of the Treasury Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss, or deduction pursuant to this Section 5.2. Therefore, notwithstanding any other provision of this Section 5 (other than the Regulatory Allocations), the Company shall make such offsetting special allocations of Company income, gain, loss, or deduction in whatever manner that the Manager determines is appropriate so that, after such offsetting allocations are made, each Member's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not in this Agreement. In exercising its discretion under this Section 5.2(f), the Manager shall take into account future Regulatory Allocations under Section 5.2(a) and Section 5.2(b) that, although not yet made, are likely to offset other Regulatory Allocations previously made under Section 5.2(c) and Section 5.2(d). (g) Recharacterization of Payments. If any payments or expenses deducted ------------------------------ for federal income tax purposes by a Member are recharacterized by a final determination of the Internal Revenue Service as nondeductible contributions to the Company, any corresponding items of loss or deduction available to the Company shall be allocated to such Member so that, to the extent possible, such Member has the same tax consequences as it would have had if such payments or expenses had been deductible by such Member. (h) Allocations with Respect to Preferred A Interest. There shall be ------------------------------------------------ allocated to the holder of the Preferred A Interest an amount of gross income of the Company for any taxable year equal to the cumulative distributions made with respect to the Preferred A Interest pursuant to Section 4.1(a)(ii) (including any late payments on such distributions pursuant to Section 4.1(b)(ii)) in such taxable year. -25- (i) Allocations with Respect to Preferred B Interest. There shall be ------------------------------------------------ allocated to the holder of the Preferred B Interest an amount of gross income of the Company for any taxable year equal to the sum of (A) cumulative distributions made with respect to the Preferred B Interest pursuant to Section 4.1(a)(iii) (including any late payments on such distributions pursuant to Section 4.1(b)(iii)) in such taxable year and (B) the cumulative amount of increases in the Preferred B Capital Amount pursuant to Section 4.1(a)(iii) occurring during such taxable year. (j) Allocations Upon Liquidation. Notwithstanding anything to the ---------------------------- contrary herein, upon a liquidation of the Company, allocations of Net Profit and Net Loss, and if necessary, of gross income and deductions, shall be made so that, after such allocations have been made, the Capital Accounts of the Members will equal as closely as possible the amounts to be distributed to the Members pursuant to Section 10.2(d)(iii), with distributions under Section 10.2(d)(iii)(E) made in proportion to each Member's Percentage Interests. 5.3 Section 754 Adjustments. ----------------------- To the extent any adjustment to the adjusted tax basis of any asset of the Company pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such gain or loss shall be specially allocated to the Members in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such section of the Treasury Regulations. 5.4 Allocations for Tax Purposes. ---------------------------- (a) Except as otherwise provided herein, for federal income tax purposes, (i) each item of income, gain, loss and deduction shall be allocated among the Members in the same manner as its correlative items of "book" income, gain, loss or deduction is allocated pursuant to Section 5.1, Section 5.2, and Section 5.3, and (ii) each tax credit shall be allocated to the Members in the same manner as the receipt or expenditure giving rise to such credit is allocated pursuant to Section 5.1, Section 5.2, and Section 5.3. (b) In accordance with Code Section 704(c) and the Treasury Regulations thereunder, income, gain, loss, and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its initial Gross Asset Value. The Company shall use the "traditional method" of making Code Section 704(c) allocations (as described in Treasury Regulations Section 1.704-3(b)). (c) If the Gross Asset Value of any asset of the Company is adjusted pursuant to paragraph (ii) of the definition of Gross Asset Value, subsequent allocations of income, gain, loss, and deduction with respect to such asset shall take account of any variation between the adjusted -26- basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Treasury Regulations thereunder. (d) Any elections or other decisions relating to allocations described in Section 5.4(b) and Section 5.4(c) shall be made by the Manager in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to Section 5.4(b) and Section 5.4(c) are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Member's Capital Account or share of Net Profit, Net Loss, other items, or distributions pursuant to any provision of this Agreement. 5.5 Allocations Following a Transfer of Membership Interest. ------------------------------------------------------- If a Membership Interest is transferred in accordance with Section 9 of this Agreement, Net Profit and Net Loss shall be allocated between the periods before and after the transfer by the interim closing of the Company books method set forth in Treasury Regulation Section 1.706-1(c)(2)(ii). As of the date of such transfer, the transferee shall succeed to the Capital Account of the transferor with respect to the transferred Membership Interest. This paragraph shall apply for purposes of computing a Member's Capital Account and for federal income tax purposes. SECTION 6. AUTHORITY OF THE MANAGER; OTHER MATTERS AFFECTING MANAGER 6.1 Authority of Manager. -------------------- Except as otherwise expressly provided in this Agreement, the business and operations of the Company shall be managed by the Manager. The Manager agrees that, except as otherwise expressly provided herein, the Manager acting alone shall not give any consent to any matter or take any other action as the Manager, including acting on behalf of or binding the Company with respect to any matter in respect of which approval by the Members is required by the provisions of this Agreement or the Act, unless such consent, matter, or other action shall first have been adopted or approved by the Members, or authority to consent to such matter or to take such other action shall have been expressly delegated to the Manager by the Members, in each case in accordance with the provisions of this Agreement or the Act as applicable. 6.2 Resignation as Manager. ---------------------- (a) If the Manager resigns, a majority of the outstanding Voting Interests shall select a new Manager. (b) Any change in the identity of the Manager shall be subject to and conditioned upon receipt of all necessary governmental approvals and other material third-party consents. -27- 6.3 Tax Matters Member. ------------------ (a) Insight is hereby designated as the Tax Matters Member of the Company, as provided in Treasury Regulations pursuant to Code Section 6231 and analogous provisions of state law. Each Member, by the execution of this Agreement, consents to such designation of the Tax Matters Member and agrees to execute, certify, acknowledge, deliver, swear to, file, and record at the appropriate public offices such documents as may be necessary or appropriate to evidence such consent. (b) Insight, as the Tax Matters Member, is authorized to represent the Company before taxing authorities and courts in tax matters affecting the Company and the Members in their capacity as Members and is entitled to take any actions on behalf of the Company in any such tax proceedings that the Tax Matters Member, in its reasonable business judgment, deems to be in the best interests of the Company and the Members, except that, without the written consent of Central and the Principals, the Tax Matters Member shall not extend the statute of limitations for assessment of tax deficiencies against the Members with respect to adjustments to the Company's federal, state, and local tax returns, agree to any deficiency or other adjustment of any kind that adversely affects Central or any of the Principals, make any material tax elections, or execute any agreements or other documents relating to or affecting any tax matters that are binding on the Company or Central or any of the Principals; provided, however, that intangible assets contributed to the Company by Central that have an initial Gross Asset Value in excess of their initial adjusted basis for federal income tax purposes shall be amortized over a 25-year period. (c) To the extent and in the manner provided by applicable law and Treasury Regulations, the Tax Matters Member shall furnish the name, address, profits interest, and taxpayer identification number of each Member and any Assignee to the Secretary of the Treasury or his delegate (the "Secretary"). (d) The Tax Matters Member shall notify each Member and each Principal of any audit that is brought to the attention of the Tax Matters Member by notice from the Internal Revenue Service, and shall forward to each Member and each Principal copies of any written notices, correspondence, reports, or other documents received by the Tax Matters Member in connection with such audit within ten Business Days following its notification by the Internal Revenue Service or its receipt, as the case may be. The Tax Matters Member shall provide each Member and each Principal with reasonable advance notice of, and shall afford each Member and each Principal the right to participate in, any administrative proceedings or other material discussions with the Internal Revenue Service, including any closing conference with the examiner and any appeals conference, relating to the Company. (e) The Tax Matters Member shall, at the Company's expense, cause all federal, state, local, and other tax returns and reports (including amended returns) required to be filed by the Company or any Subsidiary to be prepared and timely filed with the appropriate authorities. The Tax Matters Member shall cause all income or franchise tax returns or reports required to be filed by the Company or any Subsidiary to be sent to each Member and each Principal for review at least -28- five Business Days prior to filing, and the Tax Matters Member shall afford each Member and each Principal a reasonable opportunity to comment on any such return prior to filing. (f) Any Member that receives a notice of an administrative proceeding under Code Section 6223 relating to the Company shall promptly notify the Tax Matters Member of the treatment of any Company item on such Member's federal income tax return that is or may be inconsistent with the treatment of that item on the Company's return. (g) Any Member that enters into a settlement agreement with the Secretary with respect to any Company item shall notify the Tax Matters Member of such agreement and its terms within thirty days after its date, and the Tax Matters Member shall notify each other Member and each Principal of the settlement agreement within thirty days of such notification. 6.4 Reimbursement of Expenses. ------------------------- (a) The Company shall reimburse the Manager for all direct, out-of-pocket expenses incurred by or on behalf of the Manager that directly relate to its management of the business and operations of the Company, including any such expenses incurred in connection with the management of the Shareholders pursuant to the management agreements between the Shareholders and Insight; provided, however, that the Manager shall not be entitled to reimbursement from the Company for corporate overhead (including employee bonuses and health, welfare, retirement, and other employee benefits and overhead expenses of its corporate office management, development, internal accounting, and finance management personnel). (b) The Company shall reimburse the Borrowers for all direct, out-of-pocket expenses incurred by or on behalf of the Borrowers in complying with the terms of the Loan Documents (excluding any payment of principal or interest under the Senior Debt or the Subordinated Debt). The Company shall pay, or shall reimburse the Borrowers for, any amounts required to be paid by any Borrower as a result of any indemnification or reimbursement obligation arising under any of the Loan Documents or otherwise arising in connection with the offer or sale of any of the Senior Debt or the Subordinated Debt. Notwithstanding the foregoing, no Borrower shall be entitled to reimbursement from the Company for costs and expenses incurred in connection with maintaining the legal existence of any Borrower, preparing and filing tax returns and reports on behalf of the Borrower, or any other similar recurring expenses. 6.5 Compensation. ------------ On each Management Return Payment Date, commencing on the first Management Return Payment Date after the date hereof, the Company shall pay to the Manager the Management Return; provided, however, that such payments shall only be made if all required distributions have been made pursuant to Sections 4.1(a)(i), 4.1(a)(ii), 4.1(a)(iii) and 4.1(a)(iv). If the Company fails to make any payment required to be made pursuant to this Section 6.5 on or before the applicable Management Return Payment Date, then the amount to be distributed with respect to that -29- Management Return Payment Date shall bear interest at the Preferred A Rate from that Management Return Payment Date to the date that the required payment is actually made. SECTION 7. STATUS OF MEMBERS 7.1 No Management and Control. ------------------------- Except as expressly provided in this Agreement, no Member (other than the Manager) shall take part in or interfere in any manner with the control, conduct, or operation of the Company or have any right or authority to act for or bind the Company or to vote on matters relating to the Company. 7.2 Limited Liability. ----------------- No Member shall be bound by or personally liable for the expenses, liabilities, or obligations of the Company. In no event shall any Member be required to make up a deficiency in its Capital Account upon the dissolution and termination of the Company. 7.3 Return of Distributions of Capital. ---------------------------------- A Member may, under certain circumstances, be required by law to return to the Company, for the benefit of the Company's creditors, amounts previously distributed. No Member shall be obligated by this Agreement to pay those distributions to or for the account of the Company or any creditor of the Company. However, if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, a Member must return or pay over any part of those distributions, the obligation shall be that of such Member alone and not of the other Member. Any payment returned to the Company by a Member or made directly by a Member to a creditor of the Company shall be deemed a Capital Contribution by such Member. 7.4 Specific Limitations. -------------------- No Member shall have the right or power to (a) resign as a Member (except in the case of a Transfer of all of a Member's Membership Interest that is permitted by this Agreement, where the Assignee of such Member's Membership Interest has been admitted as a substitute Member in accordance with Section 9.3), (b) reduce its Capital Contribution except as a result of the dissolution of the Company or as otherwise provided by law, or (c) demand or receive property other than cash in return for its Capital Contribution. Except as otherwise set forth in this Agreement or in any agreement permitted to be entered into under this Agreement with respect to the purchase, redemption, retirement, or other acquisition of Membership Interests, no Member shall have priority over the other Member either as to the return of its Capital Contribution or as to Net Profit, Net Loss, or distributions. Other than upon the termination and dissolution of the Company as provided by this Agreement, and except as provided in Section 4.3, there has been no time agreed upon when the Capital Contribution of any Member will be returned. -30- 7.5 Issuance of Membership Interests. -------------------------------- Subject to the consent of a majority of the Voting Interests, the Manager may issue additional Membership Interests to any Person and may admit to the Company as additional Members the Persons acquiring such Membership Interests, if such Persons were not previously admitted as Members. The Persons acquiring such Membership Interests shall have the rights and be subject to the obligations attributable to such Membership Interests in the form issued to them. A Person admitted as a new Member shall only be entitled to distributions and allocations of Net Profit and Net Loss attributable to the period beginning on the effective date of its admission to the Company, and the Company shall attribute Net Profit and Net Loss to the period before the effective date of the admission of a new Member and to the period beginning on the effective date of the admission of a new Member by the closing of the books method. SECTION 8. MANAGEMENT OF THE COMPANY 8.1 to 8.5 [RESERVED] 8.6 Permitted Transactions. ---------------------- (a) Other Businesses. Nothing in this Agreement shall limit the ability of ---------------- any Member, any partner, Affiliate, or agent of any Member, to engage in or possess an interest in other business ventures of any nature or description, independently or with others, whether currently existing or hereafter created and whether or not competitive with or advanced by the business of the Company. Neither the Company nor the other Members shall have any rights in or to the income or profits derived therefrom, nor shall any Member have any obligation to the other Member with respect to any such enterprise or related transaction. The foregoing provisions shall not impair or otherwise affect any limitation to which any Member is or may be subject with respect to his business activities under any other agreement between the Company and such Member. (b) Dealings with the Company. The Company may, in the discretion of the ------------------------- Manager, contract with any Person (including any Member or any Person that is an Affiliate of any Member or in which any Member may be interested) for the performance of any services that may reasonably be required to carry on the business of the Company, and any such Person dealing with the Company, whether as an independent contractor, agent, employee, or otherwise, may receive from others or from the Company profits, compensation, commissions, or other income incident to such dealings. 8.7 Other Management Matters. ------------------------ (a) Central and the Shareholders as Affiliates of Insight. The parties ----------------------------------------------------- agree that each Shareholder shall be an Affiliate of Insight for purposes of this Agreement so long as the management agreement between Insight and such Shareholder remains in effect and that Central shall be an Affiliate of Insight for purposes of this Agreement so long the management agreements between Insight and Shareholders holding a majority of the outstanding shares of Central remain in -31- effect. Notwithstanding the foregoing or any other provision of this Agreement, Insight shall not be in violation of any provision of this Agreement restricting any action by its Affiliates with respect to any action taken by Central or any Shareholder to the extent that such action was caused to be taken by one or more of the Principals exercising authority reserved to the Principals under the management agreements between Insight and the Shareholders, and Insight shall not be in violation of any provision of this Agreement requiring any action by its Affiliates with respect to any action not taken by Central or any Shareholder to the extent that such action was prevented from being taken by one or more of the Principals exercising authority reserved to the Principals under the management agreements between Insight and the Shareholders. SECTION 9. ASSIGNMENT, TRANSFER, OR SALE OF INTERESTS IN THE COMPANY 9.1 Limitations on Transfers. ------------------------ (a) Except as provided in Section 9.1(b), no Member may sell, assign, transfer, or otherwise dispose of, or pledge, hypothecate, or otherwise encumber all or any part of its Membership Interest (any such action, a "Transfer"), whether voluntarily, involuntarily, or by operation of law, unless approved by a majority of the Voting Interests. Notwithstanding the approval of the other Members to any Transfer by a Member, the rights of any Assignee shall be subject at all times to the limitations set forth in Section 9.2. (b) The restrictions of Section 9.1(a) shall not apply and no consent of the other Members shall be required for: (i) a redemption of the Preferred A Interest or the Preferred B Interest pursuant to Section 4.3; and (ii) a Transfer pursuant to Section 9.7. 9.2 Assignee. -------- If the provisions of this Section 9 have been complied with, an Assignee shall be entitled to receive distributions of cash or other property, and allocations of Net Profit and Net Loss and of items of income, deduction, gain, loss, or credit, from the Company attributable to the assigned Membership Interests from and after the effective date of the assignment, and shall have the right to receive a copy of the financial statements required herein to be provided the Members, but an Assignee shall have no other rights of a Member herein, such as rights to any other information, an accounting, inspection of books or records, or voting as a Member on matters required by law, unless and until such Assignee is admitted as a substitute Member pursuant to the provisions of Section 9.3. The Company and the Manager shall be entitled to treat the assignor as the absolute owner of the Membership Interests in all respects, and shall incur no liability for distributions, allocations of Net Profit or Net Loss, or transmittal of reports and notices required to be given to Members that are made in good faith to the assignor until the effective date of the assignment, or, in the case of the -32- transmittal of reports (other than the financial statements referred to above) or notices, until the Assignee is so admitted as a substitute Member. The effective date of an assignment shall be the first day of the calendar month following the month in which the Manager has received an executed instrument of assignment in compliance with this Section 9 or the first day of a later month if specified in the executed instrument of assignment. The Assignee shall be deemed an Assignee on the effective date, and shall be only entitled to distributions and allocations of Net Profit and Net Loss attributable to the period beginning on the effective date of assignment. The Company shall attribute Net Profit and Net Loss to the period before the effective date of assignment and to the period beginning on the effective date of assignment by the interim closing of the Company books method set forth in Treasury Regulation Section 1.706-1(c)(2)(ii). Each Assignee will inherit the balance of the Capital Account, as of the effective date of assignment, of the assignor with respect to the Membership Interests assigned. 9.3 Substitute Members. ------------------ An Assignee may not become a substitute Member unless all of the following conditions are first satisfied: (a) a duly executed and acknowledged written instrument of assignment shall have been filed with the Company, specifying the Membership Interests being assigned and setting forth the intention of the assignor that the Assignee succeed to the assignor's interest as a substitute Member; (b) the assignor and Assignee shall have executed and acknowledged any other instruments that the non-assigning Members deem necessary or desirable for substitution, including the written acceptance and adoption by the Assignee of the provisions of this Agreement and the assumption by the Assignee of all obligations of the assignor under this Agreement (including, in the case of a Transfer by Insight, the obligations of Insight under Section 3.5); (c) the assignment to the Assignee shall have complied with the other provisions of this Section 9. 9.4 Other Consents and Requirements. ------------------------------- Any Transfer must be in compliance with all requirements imposed by any state securities administrator having jurisdiction over the Transfer and the United States Securities and Exchange Commission and must not cause the Company or any Subsidiary to be in violation of any cable television franchise, any provision of the Communications Act of 1934, as amended, or any other law subsequently enacted, or any rule, regulation, or policy of the Federal Communications Commission promulgated thereunder restricting the ownership and control of communications properties (including cable television systems, television broadcast stations, radio broadcast stations, telephone companies, and newspapers), including those relating to multiple ownership, cross-ownership and cross-interest, as those terms are commonly understood in the communications industry. -33- 9.5 Assignment Not In Compliance. ---------------------------- Any Transfer in contravention of any of the provisions of this Section 9 (whether voluntarily, involuntarily or by operation of law) shall be void and of no effect, and shall neither bind nor be recognized by the Company. 9.6 [RESERVED] 9.7 Pledge and Assignment of Interest. --------------------------------- Central may pledge its Membership Interest only for the purposes of securing the Senior Debt, the Subordinated Debt, and any other obligations and liabilities arising under the Loan Documents. Insight may pledge its Membership Interest without limitation. Notwithstanding any provision of this Agreement to the contrary, any Person to which Central or Insight pledges its Membership Interest pursuant to this Section 9.7 (each, a "Secured Party") may exercise all rights and remedies incident to the pledge of such Membership Interest, which may include authority for the Secured Party (without dissolving the Company unless dissolution is required by law): (a) to cause the pledged Membership Interest to be assigned in whole or in part on one or more occasions to one or more Persons (which may include the Secured Party); (b) to cause any assignee of the pledged Membership Interest to be admitted as a Member having the interest so assigned; (c) to cause the holder of the pledged Membership Interest to resign as a Member once all of its Membership Interest has been assigned; and (d) to cause one or more amended Certificates of Formation to be filed with respect to the Company. 9.8 Continuing Rights and Privileges. -------------------------------- Central shall continue to be a Member of the Company so long as it continues to hold the Preferred A Interest or the Preferred B Interest and shall have the rights and privileges specified in this Agreement as pertaining to the Preferred A Interest or the Preferred B Interest or specified in this Agreement as rights and privileges of Central. SECTION 10. DISSOLUTION AND TERMINATION OF THE COMPANY 10.1 Events of Dissolution. --------------------- The Company shall be dissolved upon the happening of any of the following events: (a) December 31, 2058; -34- (b) upon the affirmative vote of holders of a majority of the outstanding Voting Interests; (c) upon the sale of all or substantially all of the assets of the Company in a manner permitted by this Agreement; 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. 10.2 Liquidation. ----------- (a) Upon dissolution of the Company for any reason, the Company shall immediately commence to wind up its affairs. A reasonable period of time shall be allowed for the orderly termination of the Company business, discharge of its liabilities, and distribution or liquidation of the remaining assets so as to enable the Company to minimize the normal losses attendant to the liquidation process. (b) Liquidation of the assets of the Company shall be managed on behalf of the Company by the "Liquidator," which shall be Insight or a liquidating trustee selected by Insight. The Liquidator shall be responsible for soliciting offers to purchase the entirety of the Company's assets (including equity interests in other Persons) or portions or clusters of assets of the Company. (c) The Liquidator shall cause a full accounting of the assets and liabilities of the Company to be taken and a statement thereof to be furnished to each Member and each Principal within thirty days after the distribution of all of the assets of the Company. (d) The property and assets of the Company and the proceeds from the liquidation thereof shall be applied in the following order of priority: (i) first, to payment of the debts and liabilities of the Company, in the order of priority provided by law (including any loans by any Member to the Company) and payment of the expenses of liquidation; (ii) second, to setting up of such reserves as the Liquidator may deem reasonably necessary for any contingent or unforeseen liabilities or obligations of the Company or any obligation or liability not then due and payable; provided, however, that any such reserve shall be paid over by the Liquidator into a Company account or a liquidating trust account established for such purpose, to be held in such account for the purpose of disbursing such reserves in payment of such liabilities, and, at the expiration of such holdback period as the Liquidator shall deem advisable, to distribute the balance thereafter remaining in the manner hereinafter provided; and (iii) finally, remaining proceeds shall be distributed to the Members or paid to the Manager as follows: -35- (A) First, if the Preferred A Interest is then outstanding, to the holder of the Preferred A Interest in an amount equal to the sum of (x) the amount of any distributions that were required to be made pursuant to Section 4.1(a)(i) but were not made (including any increase to such amount pursuant to Section 4.1(b)(i)), plus (y) a pro rata portion of the Guaranteed Payment Amount, based on the ratio of the number of days between the immediately preceding Guaranteed Payment Date and the date on which the distribution is made pursuant to this Section 10.2(d)(iii)(A) to the number of days between the immediately preceding Guaranteed Payment Date and the next following Guaranteed Payment Date, computed on the basis of a 360-day year of twelve 30-day months; (B) Second, if the Preferred A Interest is then outstanding, to the holder of the Preferred A Interest in an amount equal to the sum of (x) the Preferred A Capital Amount, plus (y) the amount of any distributions that were required to be made pursuant to Section 4.1(a)(ii) but were not made (including any increase to such amount pursuant to Section 4.1(b)(ii)), plus (z) the amount by which the Preferred A Preference Amount exceeds the amount described in clause (y) of Section 10.2(d)(iii)(A); (C) Third, if the Preferred B Interest is then outstanding, to the holder of the Preferred B Interest in an amount equal to the sum of (x) the Preferred B Capital Amount, plus (y) the amount of any distributions that were required to be made pursuant to Section 4.1(a)(iii) but were not made (including any increase to such amount pursuant to Section 4.1(b)(iii)), plus (z) the Preferred B Preference Amount; (D) Fourth, to the Manager in an amount equal to the sum of (x) the amount of any distributions that were required to be made pursuant to Section 6.5 but were not made (including any increase to such amount pursuant to Section 6.5), plus (y) the Management Return; (E) Thereafter, pro rata to the Members in proportion to their remaining positive Capital Account balances, after reducing the Members' Capital Account balances to take into account distributions pursuant to the foregoing paragraphs of this Section 10.2(d)(iii). The distributions pursuant to this Section 10.2(d)(iii) shall, to the extent possible, be made prior to the later of the end of the Fiscal Year in which the dissolution occurs or the ninetieth day after the date of dissolution, or such other time period which may be permitted under Treasury Regulations Section 1.704-1(b)(2)(ii)(b). 10.3 Distribution in Kind. -------------------- The Company shall not distribute any non-cash asset to any Member without the consent of each Member, except that, upon liquidation of the Company, the Company may distribute identical assets (such as shares of stock or other securities) to the Members pro rata pursuant to Section 10.2(d)(iii)(E). The amount distributed and charged to the Capital Account of each Member receiving any non-cash asset shall be the fair market value of such asset, as agreed to by the Members (net of any liability secured by such asset that such Member assumes or takes subject to). -36- Gain or loss on the disposition of any asset distributed in kind to one or more Members shall be determined as if such asset were sold for its fair market value, as agreed to by the Members, and such gain or loss shall then be allocated pursuant to Section 5. 10.4 No Action for Dissolution. ------------------------- The Members acknowledge that irreparable damage would be done to the goodwill and reputation of the Company if any Member should bring an action in court to dissolve the Company under circumstances where dissolution is not required by Section 10.1. This Agreement has been drawn carefully to provide fair treatment of all parties and equitable payment in liquidation of the Membership Interests of both Members. Accordingly, except where liquidation and dissolution are required by Section 10.1, each Member hereby waives and renounces its right to initiate legal action to seek dissolution or to seek the appointment of a receiver or trustee to liquidate the Company or to seek partition of any assets of the Company. 10.5 No Further Claim. ---------------- Upon dissolution, each Member shall look solely to the assets of the Company for the return of its investment, and if the property of the Company remaining after payment or discharge of the debts and liabilities of the Company, including debts and liabilities owed to one or more of the Members, is insufficient to return the aggregate capital contributions of a Member, no Member shall have any recourse against the other Members. SECTION 11. INDEMNIFICATION 11.1 General. ------- The Company shall indemnify, defend, and hold harmless each Member and its members, partners, officers, directors, shareholders, employees, and agents, the employees, officers, and agents of the Company, the Principals and the Manager (all indemnified persons being referred to as "Indemnified Persons" for purposes of this Section 11.1), from any liability, loss, or damage incurred by the Indemnified Person by reason of any act performed or omitted to be performed by the Indemnified Person in connection with the business of the Company (including, in the case of Insight, any such act in connection with the management of the Shareholders pursuant to the management agreements between the Shareholders and Insight, or arising by reason of Insight's status as manager of the Shareholders), including costs and attorneys' fees (which attorneys' fees may be paid as incurred) and any amounts expended in the settlement of any claims of liability, loss, or damage; provided, however, that, if the liability, loss, damage, or claim arises out of any action or inaction of an Indemnified Person, indemnification under this Section 11.1 shall not be available if the action or inaction constituted fraud, gross negligence, breach of fiduciary duty (which shall not be construed to encompass mistakes in judgment or any breach of any Indemnified Person's duty of care that did not constitute gross negligence), willful misconduct, or a breach of this Agreement by the Indemnified Person; and provided, further, however, that indemnification under this Section 11.1 shall be recoverable only from the assets of the Company and not from any assets of the -37- Members. The Company may pay for insurance covering liability of the Indemnified Persons for negligence in operation of the Company's affairs. 11.2 Exculpation. ----------- No Indemnified Person shall be liable, in damages or otherwise, to the Company or to any Member for any loss that arises out of any act performed or omitted to be performed by it or him pursuant to the authority granted by this Agreement unless the conduct of the Indemnified Person constituted fraud, gross negligence, breach of fiduciary duty (which shall not be construed to encompass mistakes in judgment or any breach of any Indemnified Person's duty of care that did not constitute gross negligence), willful misconduct, or a breach of this Agreement by such Indemnified Person. 11.3 Persons Entitled to Indemnity. ----------------------------- Any Person who is within the definition of "Indemnified Person" at the time of any action or inaction in connection with the business of the Company shall be entitled to the benefits of Section 11.1 as an "Indemnified Person" with respect thereto, regardless of whether such Person continues to be within the definition of "Indemnified Person" at the time of his or its claim for indemnification or exculpation hereunder. SECTION 12. BOOKS, RECORDS, ACCOUNTING, AND REPORTS 12.1 Books and Records. ----------------- The Company shall maintain at its principal office all of the following: (a) A current list of the full name and last known business or residence address of each Member together with the Capital Contributions and Membership Interest of each Member; (b) A copy of the Certificate of Formation, this Agreement, and any and all amendments to either thereof, together with executed copies of any powers of attorney pursuant to which any certificate or amendment has been executed; (c) Copies of the Company's federal, state, and local income tax or information returns and reports, if any, for the six most recent taxable years; (d) The audited financial statements of the Company for the six most recent Fiscal Years; and (e) The Company's books and records for at least the current and past three Fiscal Years. -38- 12.2 Delivery to Member and Inspection. --------------------------------- (a) Upon the request of a Member or a Principal, the Company shall promptly deliver to the requesting Member or Principal, at the expense of the Company, a copy of the information required to be maintained by Section 12.1 except for Section 12.1(e). (b) Each Member and each Principal, or its duly authorized representative, has the right, upon reasonable request, to inspect and copy during normal business hours any of the Company records. 12.3 Annual Statements. ----------------- (a) The Company shall cause to be prepared for each Member and each Principal at least annually, at Company expense, audited financial statements of the Company and a consolidated audited financial statement for the Company and the Subsidiaries in accordance with generally accepted accounting principles, along with supplemental information for the Company and each Subsidiary, and accompanied by a report thereon containing the opinion of Ernst & Young LLP or other nationally recognized accounting firm chosen by the Manager. The financial statements will include a balance sheet, statement of income or loss, statement of cash flows, and statement of Members' equity. The supplemental information will consist of a consolidating balance sheet and a consolidating statement of operations and Members' equity for the preceding Fiscal Year. The Company shall distribute the financial statements or portions thereof to each Member as follows: (i) the Company shall distribute to each Member and each Principal a statement setting forth the net income or loss of the Company for each Fiscal Year within forty-five days after the close of such Fiscal Year; (ii) the Company shall distribute to each Member and each Principal the balance sheet, statement of income or loss, statement of cash flows, and statement of Members' equity to be included in the financial statements for each Fiscal Year within forty-five days after the close of such Fiscal Year; (iii) the Company shall distribute to each Member and each Principal the complete audited financial statements for each Fiscal Year as soon as practicable after the close of such Fiscal Year and, in any event, by March 15 of the year following the close of such Fiscal Year. (b) The Company shall have prepared at least annually, at Company expense, Company information necessary for the preparation of each Member's federal and state income tax returns. The Company shall send the information described in this paragraph to each Member and each Principal within ninety days after the end of each Fiscal Year and shall use commercially reasonable efforts to send such information to each Member and each Principal within seventy-five days after the end of each Fiscal Year. -39- (c) The Company shall also cause to be distributed to each Member and each Principal, within ten days after delivery to the Company, any audited financial statements that are prepared with respect to any Subsidiary the financial statements of which are not consolidated with the financial statements of the Company. (d) The Company, shall distribute to each Member and each Principal, promptly after they become available, copies of the Company's federal, state, and local income tax or information returns for each taxable year. 12.4 Quarterly Financial Statements. ------------------------------ At the close of each of the first three quarters of any Fiscal Year, the Company shall cause to be distributed to each Member and each Principal a quarterly report covering each calendar quarter of the operations of the Company and the Subsidiaries, consisting of unaudited financial statements (comprising a balance sheet, a statement of income or loss, and a statement of cash flows), and a statement of other pertinent information regarding the Company and the Subsidiaries and their activities. The Company shall cause copies of the statements and other pertinent information (including selected financial data of the Company that complies with the requirements of APB Opinion No. 18 and Rule 4-08(g) of Regulation S-X under the Securities Act and any other applicable rules pursuant to Regulation S-X under the Securities Act) to be distributed to each Member and each Principal within thirty days after the close of the calendar quarter to which the statements relate. The Company shall distribute to each Member and each Principal a statement setting forth the net income or loss of the Company for each calendar quarter within thirty days after the close of such calendar quarter. The Company shall also cause to be distributed to each Member and each Principal, within ten days after delivery to the Company, any quarterly report that is prepared with respect to any Subsidiary the operating results of which are not included in the quarterly report of the Company. 12.5 Monthly Statements. ------------------ The Company shall cause to be distributed to each Member and each Principal a monthly report covering each calendar month of the operations of the Company and each Subsidiary, consisting of unaudited statements of income and loss for the Company and each Subsidiary. The Company shall cause copies of the statements to be distributed to each Member and each Principal within thirty days after the close of the calendar month covered by such report. The Company shall also cause to be distributed to each Member and each Principal, within ten days after delivery to the Company, any monthly report that is prepared with respect to any Subsidiary the operating results of which are not included in the monthly report of the Company. 12.6 Other Information. ----------------- The Company shall provide to each Member and each Principal any other information and reports relating to any cable television systems or other businesses owned by, and the financial condition of, the Company, each Subsidiary, and any other Person in which the Company owns, -40- directly or indirectly, an equity interest, that such Member or Principal may reasonably request, including, in the case of Central, any information that Central is required to distribute to holders of the Senior Debt or the Subordinated Debt. The Company shall distribute to each Member and each Principal, promptly after the receipt thereof by the Company, any financial or other information with respect to any Person in which the Company owns, directly or indirectly, an equity interest, but which is not a Subsidiary. 12.7 Tax Matters. ----------- To the extent permitted by law, the Company shall be treated as a partnership for federal and state income tax and franchise tax purposes. This Section 12.7 shall not prohibit any Member or any Affiliate of any Member from taking any action that is not prohibited by Section 2.13. 12.8 Other Filings. ------------- The Company, at Company expense, shall also prepare and timely file, with appropriate federal and state regulatory and administrative bodies, all reports required to be filed by the Company with those entities under then current applicable laws, rules, and regulations. The reports shall be prepared on the accounting or reporting basis required by the regulatory bodies. Upon written request, the Manager shall provide each Member and each Principal with a copy of any of such reports, without expense to the requesting Member or Principal. 12.9 Non-Disclosure. -------------- Any Member or Principal to which non-public information is furnished pursuant to this Agreement agrees to keep such information confidential and not to disclose such information, in any manner whatsoever, in whole or in part, and to use the degree of care that it uses with respect to its own confidential information to prevent disclosure of such information by its agents, representatives, or employees, in any manner whatsoever, in whole or in part, except that: (a) each Member and Principal shall be permitted to disclose such information to those of its agents, representatives, and employees who need to be familiar with such information in connection with such Member or Principal's investment in the Company, (b) each Member and Principal shall be permitted to disclose such information to its Affiliates, (c) Central shall be permitted to disclose such information to its lenders and to the other Borrowers, and each Borrower shall be permitted to disclose such information to its lenders; (d) the Principals may use such information, as appropriate, in the preparation of their personal financial statements and other similar documents, which may then be disclosed by the Principals as they deem appropriate; -41- (e) each Member shall be permitted to disclose information to the extent required by law, including federal or state securities laws or regulations, or by the rules and regulations of any stock exchange or association on which securities of such Member or any of its Affiliates are traded, so long as such Member shall have first afforded the Company with a reasonable opportunity to contest the necessity of disclosing such information, (f) each Member and Principal shall be permitted to disclose information to the extent necessary for the enforcement of any right or the performance of any obligation of such Member and Principal (including obligations of a Member in its capacity as Manager) arising under this Agreement, (g) each Member and Principal shall be permitted to disclose information that is or becomes generally available to the public other than as a result of a disclosure by such Member or Principal, its agents, representatives, or employees, and (h) each Member and Principal shall be permitted to disclose information that becomes available to such Member or Principal on a nonconfidential basis from a source (other than the Company, a Member, or their respective agents, representatives, and employees) that such Member or Principal believes is not prohibited from disclosing such information to such Member or Principal by a legal, contractual, or fiduciary obligation to the Company or any Member. SECTION 13. AMENDMENTS AND WAIVERS 13.1 Amendments to Operating Agreement. --------------------------------- (a) This Agreement may only be modified or amended with the consent of all the holders of the Common Interests, except that any amendment which would alter or change the powers, preferences, rights or obligations of Central or the Principals with respect to their interests in the Company so as to affect them adversely shall require the consent of all the Members and the Principals at any time that any Preferred A Interest or Preferred B Interest is outstanding and the Principals own, directly or indirectly, any interest in Central or the Shareholders. (b) The Company shall prepare and file any amendment to the Certificate of Formation that may be required to be filed under the Act as a consequence of any amendment to this Agreement. 13.2 Waivers. ------- The observance or performance of any term or provision of this Agreement may be waived (either generally or in a particular instance, and either retroactively or prospectively) by the party entitled to the benefits of such term or provision, but no provision of this Agreement may be waived except by a written instrument specifically waiving such provision and executed by the party to be charged with such waiver, and no provision of this Agreement may be waived by Central without the prior written consent of the Principals in a written instrument specifically consenting to such -42- waiver. No delay on the part of any Member in exercising any right, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any waiver on the part of any Member of any right, power, or privilege under this Agreement operate as a waiver of any other right, power, or privilege under this Agreement, nor shall any single or partial exercise of any right, power, or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power, or privilege under this Agreement. SECTION 14. STATUS OF PRINCIPALS 14.1 Principals Not Members. ---------------------- The Principals are not members of the Company for purposes of the Act and shall have none of the rights of a member of a limited liability company under the Act, except to the extent that the Principals are afforded such rights under the express provisions of this Agreement. 14.2 Provisions for the Benefit of Principals. ---------------------------------------- The parties acknowledge that the Principals have a significant economic interest in the Company through their ownership of the Shareholders and are relying on the provisions of this Agreement to protect and preserve such interest. Accordingly, each provision of this Agreement is intended to be for the benefit of, and shall be enforceable by, the Principals. 14.3 Assignment or Rights. -------------------- None of the rights of any Principal under this Agreement may be assigned or otherwise transferred except, following the death of a Principal, pursuant to the laws of descent and distribution. 14.4 Termination of Rights and Obligations. ------------------------------------- Notwithstanding any provision of this Agreement to the contrary, all rights and obligations of the Principals under this Agreement, except for those arising under Section 12.9, shall terminate at such time as the Principals cease to own, directly or indirectly, any interest in the Company. 14.5 Actions by Principals. --------------------- Any action to be taken by the Principals under this Agreement (including exercising any right, granting any consent or approval, making any election, or giving any notice) shall be taken by all of the Principals collectively, with the decision to take or to refrain from taking any such action being made by the Principals in such manner as they may agree upon among themselves. The Principals shall from time to time jointly designate one or more agents to execute on their behalf any instrument necessary to evidence any action taken collectively by the Principals under this Agreement. The Company and each Member shall be entitled to rely upon any instrument delivered to it under this Agreement and purporting to be (a) the joint designation by the Principals of any such agent or (b) an instrument executed by such agent to evidence any action taken collectively by the -43- Principals under this Agreement, and may assume that any Person signing such instrument has been duly authorized to do so. 14.6 Limited Recourse. ---------------- Each party agrees that no Principal shall have any personal liability whatsoever under this Agreement, and any damages suffered by any party as a result of any failure of a Principal to perform his obligations under this Agreement, to the extent such party would be entitled to remedy therefor but for this Section 14.6, shall be satisfied, if at all, from the assets of Central. SECTION 15. MISCELLANEOUS 15.1 Captions. -------- All article, section, or paragraph captions contained in this Agreement are for convenience only and shall not be deemed part of this Agreement. 15.2 Pronouns; Singular and Plural Form. ---------------------------------- All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, and neuter as the identity of the Person or Persons referred to may require, and all words shall include the singular or plural as the context or the identity of Persons may require. The words "include," "includes," and "including" are not limiting. 15.3 Further Action. -------------- Each Member agrees to execute, with acknowledgment or affidavit, if required, any documents and writings in furtherance of this Agreement, including (a) amendments of this Agreement adopted pursuant to this Agreement, (b) any amendments, certificates, and other documents that the Company deems necessary or appropriate to qualify or continue the Company as a limited liability company in all jurisdictions in which the Company conducts or plans to conduct business or owns or plans to own property, and (c) all agreements, certificates, tax statements, tax returns, and other documents that may be required of the Company or its Members under applicable law. 15.4 Entire Agreement. ---------------- This Agreement contains the entire understanding among the parties and supersedes any prior understandings and agreements among them regarding the subject matter of this Agreement. 15.5 Agreement Binding. ----------------- This Agreement shall be binding upon the successors and assigns of the parties. -44- 15.6 Equitable Remedies. ------------------ The rights and remedies of the parties under this Agreement are not mutually exclusive. Each of the parties confirms that damages at law may not always be an adequate remedy for a breach or threatened breach of this Agreement and agrees that, in the event of a breach or threatened breach of any provision of this Agreement, the respective rights and obligations under this Agreement shall be enforceable by specific performance, injunction, or other equitable remedy. 15.7 Notices. ------- All notices, demands, and requests required or permitted to be given under the provisions of this Agreement shall be in writing and shall be deemed to have been duly delivered and received (a) on the date of personal delivery, or (b) on the date of receipt (as shown on the return receipt) if mailed by registered or certified mail, postage prepaid and return receipt requested, or if sent by Federal Express or similar courier service, with all charges prepaid, in each case addressed to the Member or Principal at the address set forth on Schedule I or at the last address furnished by the Member or Principal to the other parties by notice pursuant to this Section 15.7. Nothing in this Section 15.7 shall preclude the delivery of notices by appropriate means other than those described above, including telex or facsimile. 15.8 Severability. ------------ If any provision or part of any provision of this Agreement shall be invalid or unenforceable in any respect, such provision or part of any provision shall be ineffective to the extent of such invalidity or unenforceability only, without in any way affecting the remaining parts of such provision or the remaining provision of this Agreement. 15.9 Counterparts. ------------ This Agreement may be signed in counterparts with the same effect as if the signature on each counterpart were upon the same instrument. 15.10 Governing Law. ------------- This Agreement shall be governed, construed, and enforced in accordance with the laws of the State of Delaware (without regard to the choice of law provisions thereof). 15.11 No Third-Party Beneficiaries. ---------------------------- This Agreement is not intended to, and shall not be construed to, create any right enforceable by any Person that is not a party to this Agreement, including any creditor of the Company or of any of the Members or Principals. -45- IN WITNESS WHEREOF, the parties have executed this Agreement to be effective as of the date first written above. MEMBERS: COAXIAL COMMUNICATIONS OF CENTRAL OHIO, INC. By:_________________________ Name: Title: INSIGHT HOLDINGS OF OHIO, LLC By: Insight Communications Company, L.P., its member By: Insight Communications Company, Inc., its general partner By:_________________________ Name: Title: PRINCIPALS: -------------------------------- Barry Silverstein -------------------------------- Dennis McGillicuddy -------------------------------- D. Stevens McVoy -46- MANAGER: INSIGHT COMMUNICATIONS COMPANY, L.P. By: Insight Communications Company, Inc., its general partner By:_________________________ Name: Title: -47- SCHEDULE I TO OPERATING AGREEMENT ADDRESSES OF THE PARTIES Insight Holdings of Ohio, LLC c/o Insight Communications, Inc. 810 Seventh Avenue New York, New York 10019 Coaxial Communications of Central Ohio, Inc. c/o Coaxial Communications 5111 Ocean Boulevard, Suite C Sarasota, Florida 34242 Barry Silverstein c/o Coaxial Communications 5111 Ocean Boulevard, Suite C Sarasota, Florida 34242 Dennis McGillicuddy c/o Coaxial Communications 5111 Ocean Boulevard, Suite C Sarasota, Florida 34242 D. Stevens McVoy c/o Coaxial Communications 5111 Ocean Boulevard, Suite C Sarasota, Florida 34242 -48- SCHEDULE II TO OPERATING AGREEMENT [RESERVED] -49- SCHEDULE III TO OPERATING AGREEMENT TERMS RELATING TO PREFERRED INTERESTS "Guaranteed Payment Amount" means $2,991,791.38. "Guaranteed Payment Date" means each February 15 and August 15 of each year. "Management Return Payment Date" means each February 15 and August 15 of each year. "Preferred A Distribution Date" means each February 15 and August 15 of each year. "Preferred A Rate" means ten percent per year; provided, however, that the Preferred A Rate shall be increased by the amount of any increase in the interest rate payable with respect to the Senior Notes pursuant to Section 4 of the Senior Notes Registration Rights Agreement, dated as of August 21, 1998. "Preferred B Distribution Date" means each February 15 and August 15 of each year. "Preferred B PIK Termination Date" means August 15, 2003. "Preferred B Rate" means twelve and seven-eighths percent per year; provided, however, that the Preferred B Rate shall be increased by the amount of any increase in the interest rate payable with respect to the Discount Notes pursuant to Section 4 of the Discount Notes Registration Rights Agreement, dated as of August 21, 1998. -50- EX-10.1 4 0004.txt CABLE FACILITIES LEASE AGREEMENT EXHIBIT 10.1 C O N F I D E N T I A L CABLE FACILITIES LEASE AGREEMENT AMONG AT&T BROADBAND, LLC AND INSIGHT COMMUNICATIONS COMPANY, INC. AND CERTAIN OF ITS AFFILIATES Dated: July 17, 2000 Cable Facilities Lease Agreement This Cable Facilities Lease Agreement ("Agreement") is made as of July 17, --------- 2000 (the "Effective Date"), by and among Insight Communications Company, Inc. -------------- ("INSIGHT"), the INSIGHT Affiliates (as defined below), and AT&T Broadband, LLC ------- ("AT&T"). ---- Recitals A. The INSIGHT Affiliates own and operate the cable television systems (each a "Cable System" and, collectively, the "Cable Systems") serving the ------------ ------------- markets identified on Exhibit A to this Agreement (each a "Designated Market" --------- ----------------- and, collectively, the "Designated Markets"). ------------------ B. AT&T desires to provide all distance telephone services, as described in this Agreement, to Residential Customers (as defined below) in the Designated Markets utilizing certain capacity of the Cable Systems, and the INSIGHT Affiliates desire to grant to AT&T the right to use certain capacity on the Cable Systems for such purpose, and are willing to upgrade and maintain the Cable Systems in connection therewith, subject to the terms and conditions contained in this Agreement. C. The scope of this Agreement is the provision by AT&T of Communications Services to Residential Customers in the Designated Markets utilizing certain capacity of the Cable Systems. Agreements In consideration of the foregoing and the mutual promises set forth below, the parties agree as follows: 1. Definitions; Construction. - -- ------------------------- 1.1 Definitions. The following terms used in this Agreement shall have --- ----------- the following meanings: "Acceptance Process Flow Chart" is set forth on Exhibit B to this Agreement ----------------------------- --------- and depicts, among other things, the process by which the Cable Systems shall be upgraded, powered and tested in order to provide Communications Services in the Designated Markets as contemplated by this Agreement. The Acceptance Process Flow Chart may be amended from time to time by AT&T, consistent with good engineering practices then in effect, to reflect changes generally implemented with respect to the AT&T Cable Systems. Any such amendment shall take effect upon 90 days prior notice to INSIGHT, but only to the extent that it would not materially increase the cost to the INSIGHT Affiliates of complying with their obligations under this Agreement, unless otherwise agreed to by INSIGHT. 1 "Advanced Higher Speed Communication Services" means Communications -------------------------------------------- Services that differ materially from the voice, fax, dial-up modem and other Communications Services which the parties intend to offer pursuant to this Agreement as of the Effective Date, which are deployed at line speeds greater than 64 kbps, but not exceeding 128 kbps. "Affiliate" means, with respect to any Person, any other Person --------- Controlling, Controlled by or under common Control with such Person, provided, however, that for purposes of this Agreement, INSIGHT and the INSIGHT Affiliates, on the one hand, and AT&T, on the other hand, shall not be deemed to be Affiliates of one another. "Agreement for Billing and Collection Services" means the Agreement for --------------------------------------------- Billing and Collection Services of even date herewith by and between AT&T and INSIGHT and the INSIGHT Affiliates. "Alternative Service Provider" means any Local Loop provider in a ---------------------------- Designated Market other than INSIGHT, whether such facilities consist of a broadband (e.g., fiber or hybrid fiber-coaxial) network, a fixed or mobile wireless communications network, or a twisted pair network, including any ILEC, third party CLECs or, with respect to a wireless network, an internal division or Affiliate of AT&T or any third party. "AT&T Cable Systems" means any cable television systems operated by AT&T, ------------------ or any of its Affiliates, over which Communications Services are provided during the term of this Agreement. "AT&T Customer Information" means all information relating to ------------------------- Communications Services provided to a Residential Customer, including usage, features, Lines purchased and payment history. "BTI" means a broadband telecommunications interface unit that provides all --- necessary signal processing for the provision of voice grade telephony services using an IP packet technology, and also serves as the demarcation between the HFC Network and the Customer's premises wiring. "Business Day" means any day other than a day on which commercial banks in ------------ New York, New York are required or authorized by any Legal Requirement to be closed. "Cable System Contracts" means all leases, pole line or joint line ---------------------- agreements, underground conduit agreements, crossing agreements, construction permits, MDU service and access agreements, and all other Contracts (a) relating to a Cable System and (b) to which INSIGHT is a party. "ccs" means centi call seconds, as such term is commonly understood in the --- telecommunications industry. 2 "CFT" means Certified For Telephony. --- "CFT Network" means a Communications Services Network, or a discrete ----------- segment thereof (i.e., the HDT Site and one or more nodes served by the HDT Site), as applicable, that has passed all of the CFT Tests. "CFT Tests" means the tests and procedures identified in the Acceptance --------- Process Flow Chart and described in Exhibit B to this Agreement. The CFT Tests --------- may be amended from time to time by AT&T, consistent with good engineering practices then in effect, to reflect changes generally implemented with respect to the AT&T Cable Systems. Any such amendment shall take effect upon 90 days prior notice to INSIGHT, but only to the extent that it would not materially increase the cost to the INSIGHT Affiliates of complying with their obligations under this Agreement, unless otherwise agreed to by INSIGHT. "CLEC" means a competitive local exchange carrier. ---- "Commercial Launch Date" means the date on which Communications Services ---------------------- are first provided to a paying Residential Customer pursuant to the terms of this Agreement. "Communications Services" means the provision (other than pursuant to a ----------------------- business services tariff) of local or any distance voice telephone services or other applications enabled by dial tone access and comparable to the voice telephone services and other applications enabled by dial tone access generally available from ILECs over basic residential voice grade lines, at or below the Designated Line Speed. "Communications Services Network" means a Cable System, or subset thereof, ------------------------------- which has been upgraded in order to provide Communications Services pursuant to this Agreement, and consists of at least one HDT and the HFC Network and related Telephony Equipment associated with such HDT(s). "Contract" means any written contract, mortgage, deed of trust, bond, -------- indenture, lease, license, note, certificate, option, warrant, right, or other instrument, document, obligation, or agreement, and any oral obligation, right or agreement, but shall not include any Franchise. "Contract Quarter" means each of the four consecutive full three-month ---------------- periods during a Contract Year. "Contract Year" means the 12-month period commencing on the Commercial ------------- Launch Date and expiring on the first anniversary thereof, and each succeeding 12-month period thereafter during the term of this Agreement. 3 "Control" means the possession, direct or indirect, of the power to direct ------- or cause the direction of the management and policies of an entity, whether through the ownership of voting securities, by Contract or otherwise. "Core Cable Services" means INSIGHT's video (analog and digital) services, ------------------- high speed Internet offerings and other products and services provided to customers using the Cable Systems, including commercial (i.e., non-residential) data and voice transmission, but shall not include Communications Services provisioned at any line speed. "Customer Premises Equipment" means one or more NIUs or BTIs and any other --------------------------- equipment to be installed at the customer's premises in order to enable the provision of Communications Services to such premises. "Designated Line Speed" means the Initial Designated Line Speed, unless and --------------------- until increased pursuant to Section 2.1.3. "DMOQs" means the direct measures of quality set forth on Exhibit C to this ----- --------- Agreement, which specify quality of service measurements and required performance levels for the delivery of Communications Services with respect to (a) the CFT Networks (the "INSIGHT DMOQs"), on the one hand, and (b) the ------------- Telephony Interconnection Equipment and AT&T switching equipment, on the other hand (the "AT&T DMOQs"), in each case as modified from time to time in ---------- accordance with Section 2.5.2. "Excepted MSO" means *To be filed separately with the Commission* ------------ "Excluded MDU" means any MDU that (a) consists of 180 or more dwelling ------------ units within a single building and (b) is not capable of receiving Communications Services as contemplated by this Agreement because of limitations within the HFC Network serving the MDU or the inability as a result of space limitations to collocate any necessary Nisus or other Telephony Equipment at the MDU. "Features" means telephony features which are marketed and sold to -------- Residential Customers together with Lines as part of the Communications Services, including but not limited to call waiting, voice mail and enhanced caller ID. "FCC" means the Federal Communications Commission. --- "Franchise Area" means each geographical area within the Designated Markets -------------- in which INSIGHT is authorized by the applicable local Governmental Authority or otherwise to install and operate a Cable System. 4 "Franchises" means all franchises, licenses, authorizations, ordinances and ---------- permits issued or granted by a Governmental Authority with respect to the Cable Systems. "GAAP" means generally accepted accounting principles as from time to time ---- in effect in the United States of America, including the statements and interpretations of the Financial Accounting Standards Board, applied on a consistent basis. "Governmental Authority" means the United States of America, any state, ---------------------- commonwealth, territory, or possession thereof and any court, tribunal, department, commission, board, bureau, agency, authority or instrumentality of any of the same. "Grade of Service" means the probability that a telephone call attempted ---------------- will receive a busy signal, expressed as a decimal fraction. "HDT" means host digital terminal, which connects the telephony network, --- local digital switch and central office transport equipment with the HFC Network. As used in this Agreement, HDT includes the associated battery plant and modem cards. "HDT Site" means each headend or hub site facility owned or leased by -------- INSIGHT or the INSIGHT Affiliates at which one or more HDTs will be installed pursuant to the terms of this Agreement. The address of each HDT Site for each Designated Market, to the extent known as of the Effective Date, is set forth on Exhibit A to this Agreement. - --------- "HFC Network" means the broadband infrastructure of a Cable System. ----------- "High Speed Communications Services" means Communications Services ---------------------------------- delivered at speeds above 128 kbps. "ILEC" means the applicable incumbent local exchange carrier, as it may be ---- determined from time to time by the applicable federal or state regulatory body pursuant to Section 254 of the Federal Communications Act. "Implementation Schedule and Specifications" means the timelines and ------------------------------------------ specifications set forth on Exhibit D to this Agreement for, among other things, --------- (a) upgrading the Cable Systems, and (b) developing, testing and integrating all monitoring, provisioning, billing, accounting, financial and other systems and interfaces necessary or desirable to deliver the Communications Services. "Initial Designated Line Speed" means 64 kbps. ----------------------------- "INSIGHT Affiliates" means each of Insight Communications Company, L.P., ------------------ Insight Communications of Central Ohio, LLC, Insight Communications of Indiana, LLC and Insight Kentucky Partners II, L.P. The rights and obligations of the INSIGHT Affiliates shall be allocated among the INSIGHT Affiliates appropriately in accordance 5 with the benefits received by the respective Cable Systems owned by them under this Agreement. "Legal Requirement" means any law, rule, ordinance, code, statute, ----------------- regulation, order, writ, injunction, judgment or decree of any Governmental Authority, including the Franchises. "Lien" means any security agreement, financing statement filed with any ---- Governmental Authority, conditional sale or other title retention agreement, any lease, consignment or bailment given for purposes of security, any right of first refusal, any lien, mortgage, indenture, pledge, option, encumbrance, adverse interest, constructive trust or other trust, claim, attachment, exception to or defect in title or other ownership interest (including reservations, rights of entry, possibilities of reverter, encroachments, easements, rights-of-way, restrictive covenants, leases and licenses) of any kind, which otherwise constitutes an interest in or claim against property, whether arising pursuant to any Legal Requirement or otherwise. "Line" means each transmission path provisioned consistent with the ---- requirements of this Agreement with a unique telephone number that supports voice grade Communications Services. "Local Loop" means the transmission path (wireline or wireless) from the ---------- customer's premises to the carrier's point of presence. "Marketing and Sales Representation Agreement" means the Marketing and -------------------------------------------- Sales Representation Agreement of even date herewith by and between AT&T and INSIGHT and the INSIGHT Affiliates. "Maximum Capacity" means, with respect to each CFT Network, sufficient ---------------- bandwidth to enable AT&T to provide Communications Services at the Designated Line Speed and meeting the Required Throughput Levels, for an average of two Lines per Residential Household Passed, based on an assumed penetration rate of *To be filed separately with the Commission* of the Residential Households Passed by the CFT Network. "MDU" means a commonly owned or managed residential building or buildings --- consisting of four or more dwelling units, including apartment and condominium complexes. "Network Element Validation Guidelines" means the guidelines and inspection ------------------------------------- process set forth on Exhibit E to this Agreement. The Network Element --------- Validation Guidelines may be amended from time to time by AT&T, consistent with good engineering practices then in effect, to reflect standards generally implemented with respect to the AT&T Cable Systems. Any such amendment shall take effect upon 90 days prior notice to INSIGHT, but only to the extent that it would not materially 6 increase the cost to the INSIGHT Affiliates of complying with their obligations under this Agreement, unless otherwise agreed to by INSIGHT. "Network Powering Equipment" means the power generators and other equipment -------------------------- distributed through the HFC Network to provide both the Cable System elements and Communications Services Network elements, such as NIUs, with direct power. "NIU" means the network interface unit that provides necessary signal --- processing for the provision of voice grade Communications Services using a circuit switched access technology, and that also serves as the demarcation between the HFC Network and the customer's premises wiring. "Person" means any individual, Governmental Authority, corporation, limited ------ liability company, general or limited partnership, joint venture, trust, association or unincorporated entity of any kind. "PUC" means a state public utility commission or public service commission. --- "Required Throughput Levels" means (a) an offered load averaging up to 7 -------------------------- ccs per Line and (b) a Grade of Service of better than P.005 between the HDT and the NIU or BTI. "Residential Customer" means any resident of a SDU or MDU who purchases and -------------------- receives over a CFT Network Communications Services. "Residential Households Passed" means (a) any SDU that is capable of ----------------------------- receiving cable television service by using no more than 150 feet of drop cable from the HFC Network; and (b) each residential dwelling unit within an MDU (i) which is capable of receiving cable television service by using no more than 150 feet of drop cable from the HFC Network, (ii) to which INSIGHT has the right of access and the right to provide Communications Services to the occupants thereof (whether pursuant to Contract, Legal Requirement or otherwise), and (iii) which is not an Excluded MDU. "SDU" means any residential building consisting of three or fewer dwelling --- units. "Telephony Equipment" means the HDTs, the Customer Premises Equipment and ------------------- all other equipment utilized by INSIGHT (whether leased or owned) to support AT&T's provision of Communications Services pursuant to this Agreement. "Upside Target Revenue" means *To be filed separately with the Commission* --------------------- of the projected gross revenues from Residential Customers from the sale of Lines and Features in each calendar year (or portion thereof) during the term of this Agreement. The methodology for determining the Upside Target Revenue for each calendar year is set forth on Exhibit F. --------- 7 1.2 List of Additional Definitions. The following is a list of ------------------------------ additional terms used in this Agreement and a reference to the Section in which such term is defined: Term Section ---- ------- Adverse Regulatory Action 7.6 Approved Vendors List 3.2 AT&T Preamble AT&T Equipment Vendors 3.2.1 Authorizations 2.6 Base Rate of Return 2.1.2 Cable System(s) Recitals Capacity Forecasts 2.1.2 Carrier Authorizations 4.1 Catastrophic Failure 8.2.2 Certification Grace Period 8.1.1 CFT Network Deadline 8.1.1 CFT Test Results 2.3.2 Claims 14.1 Damages 14.1 Designated Expense Items 5.4.2 Designated Market(s) Recitals Designated Services 7.3.1 Effective Date Preamble Expense Increase Notice 5.4.2 Force Majeure Event 9.1 Higher Speed Communications Services 2.1.3 Inaccessible MDU 3.1.3 Independent Auditor 5.7.1 Initial Forecasted Capacity 2.1.1 Initial Term 11.1 INSIGHT Marketing Forecasts 2.1.2 Insight Midwest Partnership Agreement 11.2 Installation and Maintenance Procedures 3.1.4 Line Payment 5.1 Maximum Initial Capacity 2.1.2 MSO 5.5 Notice 17.1 Point of Interface 3.3.1 Program Managers 7.1.1 Proprietary Information 15.1 Readiness Notice 2.3.1 Related Parties 14.1 Revenue Sharing Payments 5.2 Revenue Shortfall Notice 5.4.1 8 RHP Shortfall 8.1.1 Rollout Schedule 8.1.1 Service Rights 3.1.3 Shortfall Measurement Date 8.1.1 Specified Revenue 5.2 Split-up Termination 11.2 Telephony Interconnection Equipment 3.3 1.3 Construction. Unless otherwise expressly provided in this Agreement, --- ------------ (a) accounting terms used in this Agreement shall have the meaning ascribed to them under GAAP; (b) words used in this Agreement, regardless of the gender used, shall be deemed and construed to include any other gender, masculine, feminine, or neuter, as the context requires; (c) the word "including" is not limiting, and the word "or" is not exclusive; (d) the capitalized term "Section" refers to sections of this Agreement; (e) references to a particular Section include all subsections thereof, (f) references to a particular statute or regulation include all amendments thereto, rules and regulations thereunder and any successor statute, rule or regulation, or published clarifications or interpretations with respect thereto, in each case as from time to time in effect; (g) references to a Person include such Person's successors and assigns to the extent not prohibited by this Agreement; (h) references to a "day" or number of "days" (without the explicit qualification "Business") shall be interpreted as a reference to a calendar day or number of calendar days; (i) as the context requires, INSIGHT and the INSIGHT Affiliates collectively shall constitute a "party" to this Agreement, with AT&T constituting the other "party" to this Agreement; (j) "Liberty Media Group" shall mean Liberty Media Corporation, any of its direct or indirect current or future subsidiaries or Affiliates, any person in which it or they have or acquire any direct or indirect equity investment and any other Person directly or indirectly controlled by any of the foregoing; and (k) notwithstanding anything in this Agreement or in any other documents between or among AT&T and INSIGHT or the INSIGHT Affiliates pertaining to this transaction (A) no member of the Liberty Media Group shall be deemed to be controlled by (or an Affiliate of) AT&T, (B) no determination that is to be made with reference to AT&T or any of its Affiliates shall include any member of the Liberty Media Group, and (C) none of AT&T or any of its Affiliates or Liberty Media Group or any of its Affiliates shall be required to propose, negotiate, commit to or effect the sale, divestiture or disposition of, or any limitation or restriction with respect to, any property, business, assets, licenses, franchises or other rights of any member of the Liberty Media Group. 2. Lease of Capacity; Upgrade, Certification and Maintenance. - -- --------------------------------------------------------- 2.1 Lease of Capacity. Subject to the terms, conditions and limitations --- ----------------- the forth in this Agreement, each of the INSIGHT Affiliates hereby leases to AT&T for the term of this Agreement (as it may be extended or renewed), on each CFT Network owned by such INSIGHT Affiliate, as applicable, sufficient capacity to enable AT&T to 9 provide Communications Services to Residential Customers, as contemplated by this Agreement, or as otherwise agreed to by the parties, up to the Maximum Capacity. 2.1.1 Initial Capacity Requirement. Notwithstanding Section 2.1, during ----- ---------------------------- the first and second Contract Years, the INSIGHT Affiliates shall provide to AT&T, on each CFT Network, sufficient capacity to enable AT&T to provide Communications Services at the Designated Line Speed and meeting the Required Throughput Levels for an average of two Lines per projected Residential Customer, based on an assumed penetration rate of *To be filed separately with the Commission* of the estimated Residential Households Passed by the CFT Network in the first Contract Year and *To be filed separately with the Commission* of the estimated Residential Households Passed by the CFT Network in the second Contract Year (the "Initial Forecasted Capacity"). The estimated --------------------------- number of Residential Households Passed by each CFT Network for the first and second Contract Years are set forth on Exhibit A to this Agreement. --------- 2.1.2 Capacity Forecasts; Increases in Capacity. INSIGHT shall provide ----- ----------------------------------------- quarterly marketing forecasts reflecting anticipated demand for each Designated Market over the ensuing two Contract Quarters (the "INSIGHT Marketing ----------------- Forecasts"). Throughout the term of this Agreement, AT&T shall provide capacity forecasts to INSIGHT on a periodic basis regarding its anticipated capacity requirements with respect to each CFT Network (each, a "Capacity Forecast"). ----------------- AT&T shall develop such Capacity Forecasts in good faith and shall utilize the data provided in the INSIGHT Marketing Forecasts, as well as other relevant data and forecasting tools. The applicable INSIGHT Affiliate, at its sole cost and expense, shall use commercially reasonable efforts to allocate and/or expand the capacity of each such CFT Network consistent with each such Capacity Forecast within 90 days after receipt of notice from AT&T, but in no event more than 180 days after receipt of notice, subject to the following: (a) during the first and second Contract Years (and notwithstanding Section 2.1.1), the applicable INSIGHT Affiliate, at its sole cost and expense, shall allocate and/or expand the capacity of such CFT Network to meet such forecasted capacity requirements, up to a maximum capacity that permits the provision of Communications Services at the Designated Line Speed and meeting the Required Throughput Levels for an average of two Lines per projected Residential Customer, based on an assumed penetration rate of up to *To be filed separately with the Commission* of the estimated Residential Households Passed by such CFT Network (the "Maximum ------- Initial Capacity"); and (b) after the second Contract Year and during the - ---------------- remainder of the term of this Agreement, the applicable INSIGHT Affiliate, at its sole cost and expense, shall allocate and/or expand the capacity of such CFT Network to meet the forecasted capacity requirements, up to the Maximum Capacity. *To be filed separately with the Commission* 2.1.3 Increase in Designated Line Speed. If and when Communications ----- --------------------------------- Services that do not differ materially from the voice, fax, dial-up modem and other Communications Services which Residential Customers will use 10 pursuant to this Agreement as of the Commercial Launch Date (a) are commercially available over any ILEC or CLEC network in the Designated Markets at line speeds greater than 64 kbps but not exceeding 128 kbps, utilizing a single voice grade line available at standard residential rates ("Higher Speed Communications --------------------------- Services"), and (b) such Higher Speed Communications Services can be provided - -------- within the same megahertz spectrum that is allocated to voice grade Lines under this Agreement, the Designated Line Speed shall be increased to permit such Higher Speed Communication Services to be provided over the CFT Networks. INSIGHT and the INSIGHT Affiliates shall not limit or otherwise restrict Residential Customers from using commercially available equipment to obtain and utilize such Higher Speed Communications Services over the CFT Networks. To the extent that AT&T desires to launch any Advanced Higher Speed Communications Services utilizing the CFT Networks, the parties shall negotiate in good faith with respect to the terms and conditions of offering such Advanced Higher Speed Communications Services. 2.2 Upgrade; Transport and Switching. --- -------------------------------- 2.2.1 Upgrade Obligations of INSIGHT. Consistent with the schedule set ----- ------------------------------ forth in the Implementation Schedule and Specifications for the rollout of Communications Services, each of the INSIGHT Affiliates, at its sole cost and expense, shall upgrade its Cable Systems as necessary to pass the CFT Tests, to comply with the Network Element Validation Guidelines, and to comply with the INSIGHT DMOQs. INSIGHT shall give notice to AT&T when INSIGHT determines that an HDT Site is ready for inspection by AT&T to confirm compliance with the Network Element Validation Guidelines, and shall provide AT&T or its designees with access to such HDT Site during normal business hours and upon reasonable advance notice to INSIGHT. 2.2.2 Transport and Switching Obligations of AT&T. Consistent with the ----- ------------------------------------------- schedule set forth in the Implementation Schedule and Specifications for the rollout of Communications Services, AT&T shall, at its sole cost and expense, purchase, upgrade and install transport and switching facilities and take such other action as may be necessary in order to comply with the AT&T DMOQs. 2.3 CFT Tests. --- --------- 2.3.1 Readiness Notice. INSIGHT shall give written notice to AT&T's ----- ---------------- Program Manager at least 45 days in advance of the date on which INSIGHT reasonably believes that a Communications Services Network, or any discrete segment thereof, will be ready to be submitted to the CFT Tests. INSIGHT shall give a further written notice to AT&T's Program Manager (a "Readiness Notice") ---------------- when INSIGHT determines that a Communications Services Network, or any discrete segment thereof, is actually ready to be submitted to the CFT Tests. Thereafter, upon at least two Business Days notice from AT&T to INSIGHT's Program Manager, the applicable INSIGHT Affiliate shall make the Communications Services Network (or segment thereof) available to AT&T or its 11 designees for the performance of the CFT Tests. INSIGHT and the INSIGHT Affiliates shall comply with this Section 2.3.1 with respect to each discrete segment (i.e., node) of a Communications Services Network. 2.3.2 Testing. AT&T shall cause each CFT Test to be conducted within ----- ------- 15 days of receipt of the applicable Readiness Notice. INSIGHT and the INSIGHT Affiliates shall comply with all reasonable requests made by AT&T to enable AT&T or its designees to perform the CFT Tests, and INSIGHT may have representatives present at each CFT Test. Within 15 days following the completion of each CFT Test, AT&T shall deliver to INSIGHT's Program Manager a written report reflecting the results thereof ("CFT Test Results"). If the tested segment does ---------------- not pass all of the CFT Tests, then the applicable INSIGHT Affiliate, if the failure relates primarily to the Communications Services Network, shall use commercially reasonable efforts promptly to correct any deficiencies and to submit the segment to AT&T for additional CFT Tests, in each case consistent with the rollout schedule for such segment set forth in the Implementation Schedule and Specifications. 2.3.3 Revised CFT Tests. The parties acknowledge that the CFT Tests may ----- ----------------- be revised from time to time by AT&T to reflect the standards implemented generally with respect to the AT&T Cable Systems, as necessary to reflect any modification to the DMOQs pursuant to Section 2.5.2 and consistent with good engineering practices then in effect. Unless otherwise agreed to by INSIGHT, any such modifications shall be effective (a) upon 90 days prior written notice to INSIGHT, and (b) only to the extent that the modifications do not materially increase the cost to the INSIGHT Affiliates of upgrading or submitting for CFT Testing the Cable Systems pursuant to Section 2.2.1. 2.4 Operational Systems Development and Testing. INSIGHT, the INSIGHT --- ------------------------------------------- Affiliates and AT&T shall work cooperatively in accordance with the Implementation Schedule and Specifications to complete their individual and collective work assignments in a timely manner in order that AT&T may provide Communications Services as contemplated by this Agreement in accordance with the rollout schedule set forth in the Implementation Schedule and Specifications. In furtherance of the foregoing, AT&T, the INSIGHT Affiliates and INSIGHT shall develop, test and integrate all monitoring, provisioning, billing, accounting, financial and other systems described in the Implementation Schedule and Specifications in accordance with the timelines, procedures and specifications set forth in the Implementation Schedule and Specifications, the Marketing and Sales Representation Agreement and/or the Agreement for Billing and Collection Services. 2.5 Quality of Service; Maintenance of the Cable Systems. --- ---------------------------------------------------- 2.5.1 DMOQs. During the term of this Agreement and for any transition ----- ----- period following the term of this Agreement (a) INSIGHT and the INSIGHT Affiliates shall cause all CFT Networks to comply with the INSIGHT DMOQs, whether 12 through the regular maintenance of such CFT Networks or through installation, repair and restoration activities with respect to such CFT Networks, and (b) AT&T shall comply with the AT&T DMOQs. Compliance by INSIGHT and the INSIGHT Affiliates and by AT&T with their respective DMOQs shall be determined with respect to each Designated Market or CFT Network, as set forth in Exhibit C. --------- 2.5.2 Modification of DMOQs. AT&T shall modify the INSIGHT DMOQs from ----- --------------------- time to time, consistent with good engineering practices then in effect, to reflect any more or less stringent standards implemented with respect to at least 80% of the AT&T Cable Systems; provided, however, that AT&T shall not modify any INSIGHT DMOQs to the extent that (a) AT&T reasonably believes in good faith that the majority of such AT&T Cable Systems employing any different standard are not materially comparable to the CFT Networks with regard to design, size, actual penetration levels, class of service offered, rates of Alternative Service Providers, or type of market served, or (b) such modification would materially increase the cost to INSIGHT or the INSIGHT Affiliates of complying with the INSIGHT DMOQs, unless otherwise agreed to by INSIGHT. Subject to the foregoing limitations, any modification of the INSIGHT DMOQs shall not take effect until 90 days after AT&T delivers notice of such changes to INSIGHT. During the term of this Agreement, AT&T shall promptly deliver notice to INSIGHT describing any direct measures of quality that become applicable to at least 80% of the AT&T Cable Systems that are more or less stringent than the INSIGHT or AT&T DMOQs. Notwithstanding the foregoing, the INSIGHT DMOQs shall in no event be more stringent than the direct measures of quality implemented with respect to any arrangement between AT&T and any other MSO for the provision of materially the same services as the Communications Services. 2.5.3 Remediation; Failure to Meet DMOQs. ----- ---------------------------------- (a) AT&T, INSIGHT and the INSIGHT Affiliates shall use commercially reasonable efforts to remediate promptly any failure to meet their respective DMOQs, including the preparation, delivery and implementation of action plans. (b) The remedies provided in Section 8.2 shall be the sole and exclusive remedies of the non-breaching party with respect to any failure of a party to comply with an applicable DMOQ pursuant to this Agreement. 2.6 Compliance With Legal Requirements. INSIGHT and the INSIGHT --- ---------------------------------- Affiliates shall use commercially reasonable efforts to maintain in full force and effect each material Franchise and material Cable System Contract (all of which are hereinafter collectively called the "Authorizations"). INSIGHT shall -------------- provide immediate notice to AT&T if INSIGHT obtains knowledge of (a) any material claim of default or non-compliance by INSIGHT or any INSIGHT Affiliate with any Authorization, or (b) the commencement of any legal proceeding by any Governmental Authority with respect to any Authorization that if adversely determined would have a material adverse effect 13 on an INSIGHT Affiliate and its ability to continue to lease capacity to AT&T, including any proceeding to revoke any Authorization. INSIGHT and the INSIGHT Affiliates shall operate the Cable Systems and CFT Networks in all material respects in accordance with the terms of the Authorizations and all other Legal Requirements. 3. Provision of Service; Purchase and Installation of Equipment; - -- ------------------------------------------------------------ Collocation. - ----------- 3.1 Provision of Service; Purchase and Installation of Customer Premises --- -------------------------------------------------------------------- Equipment. - --------- 3.1.1 Provision of Service. During the term of this Agreement, each ----- -------------------- INSIGHT Affiliate shall have an obligation to extend and/or upgrade the HFC Network of each CFT Network as necessary in order to permit AT&T to provide Communications Services to, and the INSIGHT Affiliates to install Customer Premises Equipment at, each SDU in a Franchise Area which orders Communications Services from AT&T or from INSIGHT or an INSIGHT Affiliate, acting in its capacity as AT&T's marketing representative. Notwithstanding the foregoing, no INSIGHT Affiliate shall have an obligation pursuant to this Section 3.1.1 to extend and/or upgrade its HFC Network (a) beyond the build out requirements set forth in the applicable Franchise, or if the applicable Franchise is silent, below a density of 40 residential dwelling units per mile, or (b) in any Franchise Area, or portion thereof, where another Person has constructed and activated cable television facilities. 3.1.2 Excluded MDUs. The provisions of this Agreement shall not apply ----- ------------- to any Excluded MDU to which any INSIGHT Affiliate has the right of access or the right to provide Communications Services to the occupants thereof, unless AT&T and INSIGHT shall agree on the terms for providing service to such Excluded MDU, including the compensation that AT&T will pay to INSIGHT or the INSIGHT Affiliates for the installation services required for AT&T to provide Communications Services to such Excluded MDU. If, after good faith negotiations over a 60-day period, AT&T and INSIGHT are unable to agree upon such terms, then (notwithstanding Section 7.3) AT&T and INSIGHT and the INSIGHT Affiliates shall have the right to provide Communications Services to the residents of such Excluded MDU (in the case of AT&T, using an Alternative Service Provider) and without further obligation to the other. 3.1.3 Inaccessible MDUs. With respect to any MDU to which INSIGHT or an ----- ----------------- INSIGHT Affiliate does not have the right of access or the right to provide Communications Services to residents thereof (an "Inaccessible MDU"), AT&T may ---------------- give notice to INSIGHT of its intention to permit AT&T to provide Communications Services to such Inaccessible MDU through use of its own facilities or the use of an Alternative Service Provider. INSIGHT shall have a period of 30 days from receipt of any such notice in which to notify AT&T of its intention to obtain the right of access and the right to provide Communications Services to such Inaccessible MDU ("Service Rights"), and upon receipt of such notification, AT&T -------------- shall provide 14 reasonable assistance, at INSIGHT's request and expense, with respect to INSIGHT's efforts to obtain such right of access and the right to provide Communications Services. If INSIGHT or an INSIGHT Affiliate obtains such Service Rights within 180 days of receipt of AT&T's notice, and provides reasonable written evidence thereof to AT&T, then (a) with respect to an Excluded MDU, the provisions of Section 3.1.2 shall apply, and (b) with respect to a MDU which is not an Excluded MDU, the dwelling units of such MDU shall be Residential Households Passed and shall be subject to all applicable terms of this Agreement. If INSIGHT or an INSIGHT Affiliate does not obtain such Service Rights within such 180-day period, then (notwithstanding Section 7.3) AT&T and INSIGHT and the INSIGHT Affiliates may proceed to provide Communications Services to such Inaccessible MDU without further obligation to the other. 3.1.4 Purchase and Installation of Telephony Equipment. INSIGHT and the ----- ------------------------------------------------ INSIGHT Affiliates shall, at their sole cost and expense, purchase or lease and maintain all Telephony Equipment necessary to interconnect each CFT Network with AT&T's Point of Interface at the applicable HDT Site, including an adequate supply of Customer Premises Equipment as necessary to comply with the DMOQs relating to installation services and the general installation, maintenance and support procedures are set forth in Exhibit G to this Agreement (the --------- "Installation and Maintenance Procedures"). INSIGHT, the INSIGHT Affiliates or - ---------------------------------------- their respective subcontractors or agents, shall install and test all Telephony Equipment and shall provide maintenance and all other installation services, including the repair or replacement of defective Telephony Equipment and the systems testing for initiation of Communications Services in a good and workmanlike manner and otherwise in accordance with the applicable Installation and Maintenance Procedures. 3.2 Equipment Specifications. All Telephony Equipment to be purchased by --- ------------------------ INSIGHT and the INSIGHT Affiliates shall be purchased from the list of approved vendors set forth on Exhibit H to this Agreement, which AT&T may revise and --------- update from time to time ("Approved Vendors List"). AT&T shall not remove --------------------- vendors from the Approved Vendors List without good cause and advance notice to INSIGHT of at least 60 days. INSIGHT and the INSIGHT Affiliates may request the right to purchase Telephony Equipment and services from vendors not on the Approved Vendors List by giving notice to AT&T. AT&T shall evaluate such request in good faith and shall approve the request if AT&T reasonably determines that use of such requested Telephony Equipment or vendor will support provision of Communications Services in accordance with the DMOQs. 3.2.1 Purchase of Equipment from AT&T Vendors. To the extent permitted ----- --------------------------------------- under its equipment purchase agreements with third party vendors ("AT&T ---- Equipment Vendors"), AT&T shall permit INSIGHT and the INSIGHT Affiliates to - ----------------- purchase the Telephony Equipment from the AT&T Equipment Vendors on the same terms and conditions available to AT&T. If not so permitted AT&T shall use commercially reasonable efforts to obtain such permission from its vendors. 15 3.2.2 Prices of Certain Equipment. AT&T warrants that INSIGHT and the ----- --------------------------- INSIGHT Affiliates will be able to purchase the Telephony Equipment listed on Exhibit I to this Agreement from one or more vendors on the Approved Vendors - --------- List at an average price which is equal to or below the price reflected on Exhibit I for the referenced period. *To be filed separately with the - --------- Commission* 3.3 Telephony Interconnection Equipment. AT&T shall, at its sole cost and --- ----------------------------------- expense, purchase or lease and maintain all equipment necessary to interconnect AT&T's transport facilities and switches with the Point of Interface for each HDT Site ("Telephony Interconnection Equipment"). ----------------------------------- 3.3.1 Installation of HDTs. Each INSIGHT Affiliate shall establish a ----- -------------------- point of interface to each HDT Site ("Point of Interface") and shall install ------------------ and house the HDTs at the HDT Site in proximity to the Point of Interface. INSIGHT represents and warrants that each HDT Site has (or will have in a timeframe that is consistent with the rollout schedules set forth in the Implementation Schedule and Specifications) sufficient physical space and the necessary operating environment to permit the installation and operation of the number of HDTs necessary for the Maximum Capacity of each CFT Network. To the extent the parties mutually agree to exceed the Maximum Capacity with respect to any CFT Network, the applicable INSIGHT Affiliate shall use commercially reasonable efforts to install and house such additional HDTs at the affected HDT Site within the timeframe agreed upon by the parties. 3.3.2 HDT Capacity. Based on the INSIGHT Marketing Forecasts, AT&T shall ----- ------------ notify INSIGHT to the extent that AT&T reasonably determines that the capacity of an HDT should be expanded through the installation of additional modem cards or by taking such other capacity management steps relating to the HDT, and the applicable INSIGHT Affiliate shall promptly install new modem cards and/or take such other capacity management steps as reasonably directed by AT&T. INSIGHT or the INSIGHT Affiliates shall purchase or lease and maintain any such additional modem cards. 3.3.3 Collocation. INSIGHT or the applicable INSIGHT Affiliate shall ----- ----------- collocate at each HDT Site all Telephony Interconnection Equipment that must reasonably be physically located at such HDT Site at no additional charge to AT&T. INSIGHT and the INSIGHT Affiliates shall provide AT&T with reasonable access to the Telephony Interconnection Equipment for installation and maintenance purposes. 4. AT&T Obligations. - -- ---------------- 4.1 Certifications. AT&T, or its designated Affiliates, shall use --- -------------- commercially reasonable efforts to obtain and maintain in full force and effect all necessary licenses, authorizations, approvals, permits, tariffs (or in lieu thereof, appropriate agreements reflecting its commercial relationship with Residential Customers) and certifications from all Governmental Authorities necessary to operate as a CLEC in each Franchise 16 Area in which there is a CFT Network ("Carrier Authorizations"), including all ---------------------- necessary certificates of authority from the respective PUCs with jurisdiction over the Franchise Areas. AT&T shall obtain and maintain in full force and effect all licenses, authorizations, approvals, permits, tariffs (or in lieu thereof, appropriate agreements reflecting its commercial relationship with Residential Customers) and certifications from all Governmental Authorities necessary to operate as an interexchange service provider in each Franchise Area in which there is a CFT Network. AT&T shall be solely responsible for the payment of all regulatory fees and assessments imposed on AT&T and arising from its compliance with this Section 4.1, and shall not pass on to INSIGHT any such fee or assessment. 4.2 Carrier Legal Requirements. AT&T, or its designated Affiliates, --- -------------------------- shall use commercially reasonable efforts to comply with all Legal Requirements for the offering of Communications Services to Residential Customers of CFT Networks and for operation as a Carrier in each Franchise Area in which there is a CFT Network, including obtaining and maintaining carrier certifications, filing and updating tariffs or customer contracts (where required) for all Communications Services offered, and complying with all PUC and FCC Legal Requirements (including offering a la carte local exchange service in compliance with equal access regulations). 4.3 Interconnection Agreements. AT&T, or its designated Affiliates, shall --- -------------------------- use commercially reasonable efforts to enter into interconnection and related agreements with the ILECs and other CLECs servicing the Franchise Areas in which there is a CFT Network as necessary to enable, among other things, the completion of calls originating with Residential Customers and terminating at a point that requires transmission over the Local Loop of an ILEC or a third party CLEC (and the termination of calls originating on the networks of other LECs), consistent with signaling protocols, and addressing local phone number portability issues, emergency 911 service issues, and all other required services in accordance with applicable Legal Requirements. AT&T, or its designated Affiliates, shall use commercially reasonable efforts to manage all other aspects of its provision of Communications Services, including acquisition of sufficient numbering resources to permit timely service to Residential Customers and adequate inter-carrier arrangements for access to signaling and other industry or carrier-specific databases. 4.4 Other Required Equipment and Services. At no cost to INSIGHT, AT&T --- ------------------------------------- shall provide or procure from a third party all equipment and services, other than those required to be provided by INSIGHT or the INSIGHT Affiliates under this Agreement, the Marketing and Sales Representation Agreement and the Agreement for Billing and Collection Services, in order to offer Communications Services to Residential Customers in the Franchise Areas, including switching or related IP functionality, backhaul facilities from the designated Point of Interface to AT&T's long distance network and facilities. 17 4.5 No Promotion of Aggregation of Lines. AT&T and its Affiliates shall --- ------------------------------------ not actively promote, directly or indirectly, the aggregation of Lines by a Residential Customer to support applications at speeds greater than the Designated Line Speed. 5. Compensation to INSIGHT. - -- ----------------------- 5.1 Monthly Payments. In consideration for all capital and operating --- ---------------- costs incurred by INSIGHT and the INSIGHT Affiliates pursuant to this Agreement, the maintenance services required to keep the CFT Networks in compliance with the DMOQs, and all other costs and expenses related to the construction, maintenance, repair and replacement of the CFT Networks, AT&T shall pay to INSIGHT an amount equal to *To be filed separately with the Commission* per month per Line (the "Line Payment") for each of the first four Lines provided to ------------ a Residential Customer (with no payment pursuant to this Section 5.1 for any Line over four Lines provided to a Residential Customer). 5.1.1 Payment Made Monthly. AT&T shall pay the Line Payment to INSIGHT ----- -------------------- monthly in arrears within 30 days after receipt of an invoice from INSIGHT. INSIGHT shall calculate the Line Payment based on the number of Lines provided to Residential Customers during such month, which shall be determined by taking the average of the number of Lines provided to Residential Customers as of the first day and as of the last day of the month, but in no event counting any Line over the first four Lines provided to a Residential Customer. INSIGHT shall remit an invoice or invoices for the Line Payment to AT&T within 15 days of the end of each calendar month. 5.2 Revenue Sharing Payments. If in any calendar year the collected --- ------------------------ revenue by AT&T (or by INSIGHT if AT&T sells or assigns to INSIGHT the accounts receivables resulting from AT&T's provision of the Communications Services) from the provision of Lines (including revenue from the fifth and additional Lines provided to any Residential Customer) and Features under this Agreement (the "Specified Revenue") exceeds the Upside Target for such calendar year (or if - ------------------ less than a full calendar year, exceeds a prorated Upside Target), then AT&T shall pay to INSIGHT (the "Revenue Sharing Payment") *To be filed separately ----------------------- with the Commission* of the amount by which the Specified Revenue exceeds such Upside Target. AT&T shall make the Revenue Sharing Payment, if any, to INSIGHT within 45 days of the end of each calendar year. 5.3 Compensation for Installation Services. Subject to Section 5.3.2, --- -------------------------------------- AT&T shall pay to INSIGHT a one-time installation fee of *To be filed separately with the Commission* for each Residential Customer installation completed by INSIGHT or the INSIGHT Affiliates (or any subcontractor approved by AT&T and listed on the Approved Vendors List, which approval shall not be unreasonably withheld) at a particular location in accordance with the requirements of Section 3.1.4, for the first four Lines provisioned to each such Residential Customer. Notwithstanding the foregoing, AT&T shall reimburse INSIGHT for (a) the actual cost of a second NIU or 18 BTI installed for any Residential Customer who obtains more than four Lines, and (b) the actual incremental labor costs to INSIGHT or the INSIGHT Affiliates in connection with a subsequent service call to a Residential Customer's premises for the purpose of deploying and installing a second NIU or BTI subsequent to the initial installation at the premises, but not to exceed an additional *To be filed separately with the Commission* in labor costs. INSIGHT shall invoice AT&T within 15 days of the end of every calendar month for installations completed during such month, and AT&T shall pay such invoice within 30 days of the receipt. Except as provided in this Section 5.3, AT&T shall have no payment obligation with respect to installation, maintenance or de-installation services provided to a Residential Customer after the initial installation for such Residential Customer. 5.3.1 Inside Wiring Charges. The payments to INSIGHT for installation ----- --------------------- services pursuant to this Section 5.3 shall not include compensation to INSIGHT and the INSIGHT Affiliates for any required inside wiring, changes to inside wiring or other non-standard installation requirements for a Residential Customer's premises in order to enable such Residential Customer to receive Communications Services. AT&T shall not be responsible for any such inside wiring costs or any other costs incurred by INSIGHT or the INSIGHT Affiliates in connection with non-standard installations. AT&T shall either (a) invoice the Residential Customer for all costs related thereto, as determined by INSIGHT, which amount shall appear on the Residential Customer's monthly bill for Communication Services, and shall remit to INSIGHT any payment made by the Residential Customer with respect thereto within 30 days of the end of the calendar month in which such payment is received, or (b) include such costs in the electronic billing feed provided to INSIGHT with respect to any bundled billing to be performed by INSIGHT. 5.3.2 Churn. AT&T shall have no obligation to make any installation ----- ----- payment owed to INSIGHT pursuant to this Section 5.3 with respect to any resident of a dwelling unit of a SDU or MDU to the extent AT&T has paid an installation fee to INSIGHT with respect to such dwelling unit and such resident has requested the discontinuation of Communications Services provided hereunder during the previous six-month period. 5.4 *To be filed separately with the Commission* --- 5.5 Taxes and Fees. INSIGHT or the applicable INSIGHT Affiliate shall --- -------------- pay, on or prior to the date when due, (a) any sales tax, property tax, transfer tax, use tax, gross receipts tax, excise tax, business and occupation tax, or other similar federal, state and local tax or charge imposed by any Governmental Authority upon INSIGHT, the INSIGHT Affiliates or their respective facilities in connection with any payments made by AT&T to INSIGHT or the 19 INSIGHT Affiliates pursuant to this Agreement, as a result of their respective activities under this Agreement, or imposed upon or with respect to any Cable System infrastructure; (b) all Franchise fees imposed upon INSIGHT or the INSIGHT Affiliates by any franchising Governmental Authority as a result of this Agreement or any revenues generated from the provision of Communications Services or other services provided under this Agreement; (c) all pole and conduit fees ("Pole Fees"); (d) all other right-of-way or easement fees paid to any Person; and (e) all revenue share and similar payments to MDU owners and managers, in each case attributable to or resulting from the provision of Communications Services pursuant to this Agreement. INSIGHT and the INSIGHT Affiliates may, to the extent permitted under applicable Legal Requirements, pass through any such taxes, fees or charges to Residential Customers. Notwithstanding the foregoing, AT&T shall reimburse INSIGHT and the INSIGHT Affiliates for the amount, if any, of Pole Fees imposed upon INSIGHT or the INSIGHT Affiliates to the extent (i) such Pole Fees are directly attributable to the provision of Communications Services pursuant to this Agreement, (ii) INSIGHT or the INSIGHT Affiliate would not be assessed such incremental Pole Fees related to its provision of high speed data services or any other services other than its provision of Communications Services pursuant to this Agreement, and (iii) INSIGHT and the INSIGHT Affiliates cannot pursuant to applicable Legal Requirements pass such Pole Fees through to Residential Customers. AT&T shall reimburse INSIGHT and the INSIGHT Affiliates for other right-of-way or easement fees attributable to the provision of Communications Services only to the extent AT&T has agreed in advance to do so. INSIGHT acknowledges that AT&T believes that applicable Legal Requirements preclude any state or local Governmental Authority from assessing or collecting a Franchise fee or similar tax or fee (a "Local Franchise Fee", which shall not include any lawful business or ------------------- occupations tax authorized by the applicable state Governmental Authority), with respect to the provision of Communications Services over a Cable System. INSIGHT and the INSIGHT Affiliates shall not agree or accede to the imposition of any Local Franchise Fee relating to AT&T's or INSIGHT's or the INSIGHT Affiliates' activities under this Agreement, or pay any such Local Franchise Fee, without first notifying and consulting with AT&T. AT&T shall pay, on or prior to the date when due, any taxes or fees imposed upon AT&T by any Governmental Authority, and shall reimburse INSIGHT for any taxes or fees imposed upon INSIGHT or the INSIGHT Affiliates by a state Governmental Authority in its capacity as the regulatory body for telephone services, but only to the extent that (x) such taxes or fees are directly attributable to the provision of Communications Services pursuant to this Agreement, (y) INSIGHT or the INSIGHT Affiliate would not be assessed such taxes or fees related to its provision of high speed data services or any other services other than its provision of Communications Services pursuant to this Agreement, and (z) INSIGHT and the INSIGHT Affiliates cannot pursuant to applicable Legal Requirements pass such taxes or fees through to Residential Customers. 5.6 *To be filed separately with the Commission* --- 5.7 General Payment Provisions. --- -------------------------- 5.7.1 Payment in Immediately Available Funds. All amounts payable ----- -------------------------------------- by a party to the other party under this Agreement shall be paid in immediately available 20 funds by wire transfer to an account designated by such other party in writing from time to time. 5.7.2 Interest. All amounts due from either party to the other ----- -------- party under this Agreement that are not paid when due shall bear interest, payable on demand, from and including the date such amounts are due up to but excluding the date of payment at an interest rate equal to the lesser of 1.0% per month or the maximum lawful rate permitted by applicable Legal Requirement. 5.7.3 Estimates and True-ups. The parties acknowledge that certain ----- ---------------------- of the calculations and payments to be made pursuant to this Agreement may be based on estimated financial and other data. The parties shall make any such estimates in good faith and shall expeditiously determine the actual amounts owed, and pay all amounts owing, under this Agreement as soon as reasonably possible after the date of the estimated payment. Any payment disputes shall be determined by an Independent Auditor in accordance with the procedures set forth in Section 5.8. 5.8 Audit Rights. Upon not less than five Business Days' prior written --- ------------ notice, each party shall have the right to examine, at its sole cost and expense and during normal business hours, the books and records of the other party that are reasonably necessary to verify such party's compliance with its obligations under this Agreement. In no event may a party exercise its rights pursuant to this Section 5.8 more often than once in any calendar year, or examine the books and records of the other party relating to any period more than once. Furthermore, the parties agree that any examination of the books and records of the other party pursuant to this Section 5.8 shall be limited to the current and immediately preceding calendar years. 5.8.1 Audit Procedure. If any discrepancy is found during an ----- --------------- examination made pursuant to Section 5.8 that leads the party conducting such examination to believe in good faith that the amount owed by the other party is greater or lesser than the amount that was paid by such party, then the parties shall act in good faith to attempt to resolve the payment dispute within 45 days (or such longer period as may be agreed upon) of completion of such examination. If the payment dispute is not resolved within such time period, the matter shall be escalated to and considered by a team from each party consisting of an executive-level manager for each party who has the authority to settle the dispute but who has not been involved in the day-to-day management of this Agreement. If such dispute has not been settled by the parties within an additional 30 days (or such longer period as may be agreed upon), the payment dispute shall be finally settled by an audit conducted by a nationally recognized firm of certified public accountants ("Independent Auditor") that is ------------------- mutually agreed upon by the parties hereto. All adjustments, if any, due as a result of the audit by an Independent Auditor shall be paid by the party owing such amount within 30 days of the conclusion of such audit. If the party who is the subject of the audit is determined to owe an additional amount, the fees and expenses incurred by the party who conducted the examination pursuant to Section 5.8 and the fees of any Independent 21 Auditor shall be borne by such party, except where the adjustment is less than 5% of the total payment amount owed (including the additional amount paid based on the results of such audit), in which case the fees and expenses (including the fees of any Independent Auditor) shall be borne by the party conducting the examination. 5.8.2 Information Disclosed During Audit. Any books and records of ----- ---------------------------------- a party that are examined by the other party pursuant to Section 5.8 shall constitute Proprietary Information under this Agreement, notwithstanding the lack of restrictive notices or other express communications to the effect that the information in such books or records is proprietary. Any Independent Auditors engaged pursuant to Subsection 5.8.1 shall be required to execute a confidentiality agreement prior to the commencement of any audit, which agreement shall contain confidentiality provisions at least as protective as those in this Agreement. 6. Representations and Warranties. - -- ------------------------------ 6.1 Representations and Warranties of INSIGHT. INSIGHT represents and --- ----------------------------------------- warrants to AT&T as follows: 6.1.1 Organization and Qualification of INSIGHT and INSIGHT ----- ----------------------------------------------------- Affiliates. INSIGHT and each INSIGHT Affiliate is duly organized, validly exist - ---------- ing, and in good standing under the laws of the state of its organization, and has all requisite power and authority to own and operate the Cable Systems that it owns and operates. INSIGHT and each INSIGHT Affiliate is duly qualified to do business as a foreign corporation, limited liability company or limited partnership and is in good standing in all jurisdictions in which the ownership of its Cable Systems or the nature of its activities in connection with such Cable Systems makes such qualification necessary. 6.1.2 Authority. INSIGHT and each INSIGHT Affiliate has all ----- --------- requisite power and authority to execute, deliver, and perform this Agreement and to consummate the transactions contemplated hereby. The execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby on the part of INSIGHT and each INSIGHT Affiliate have been duly and validly authorized by all necessary action on the part of INSIGHT and each INSIGHT Affiliate. This Agreement has been duly and validly executed and delivered by INSIGHT, and is the valid and binding obligation of INSIGHT and each INSIGHT Affiliate, enforceable against INSIGHT and each INSIGHT Affiliate in accordance with its terms. 6.1.3 No Conflict; Consents. The execution, delivery, and ----- --------------------- performance by INSIGHT and each INSIGHT Affiliate of this Agreement and the transactions contemplated hereby do not and will not: (a) conflict with or violate any provision of the organization and governing documents of such entity; (b) violate any provision of any Legal Requirements applicable to it; (c) conflict with, violate, result in a breach of, constitute a default under (without regard to requirements of notice, lapse of time, or elections of other Persons, or any combination thereof), accelerate, or permit 22 the acceleration of the performance required by, any Contract or Lien to which INSIGHT or any INSIGHT Affiliate is a party or by which INSIGHT or any INSIGHT Affiliate or the assets or properties owned or leased by any of them are bound or affected; (d) result in the creation or imposition of any Lien against or upon any of the Cable Systems; or (e) to the knowledge of INSIGHT, require any consent, approval or authorization of, or filing of any certificate, notice, application, report, or other document with, any Governmental Authority or other Person. 6.1.4 Cable System Assets; Title. With respect to each Cable System, ----- --------------------------- the INSIGHT Affiliate which owns such Cable System has good and valid title to (or, if leased, valid leasehold interests in) all of the assets and properties, real and personal, tangible and intangible, used by or useful to it in its operation of, or otherwise relating to, the Cable System, free and clear of all Liens, except ad valorem taxes not yet due and payable. 6.1.5 Compliance with Legal Requirements. INSIGHT and each INSIGHT ----- ---------------------------------- Affiliate is in compliance in all material respects with all Legal Requirements applicable to the Cable Systems and their operation, including the rules and regulations of the FCC. 6.1.6 Non-Infringement. To the knowledge of INSIGHT, and except as ----- ---------------- set forth on Schedule 6.1.6 to this Agreement, the operation of the Cable -------------- Systems as currently conducted does not infringe upon, or otherwise violate, the rights of any person or entity in any copyright, trade name, trademark right, service mark, service name, trade name, patent, patent right, license, trade secret or franchise, and there is not pending or, to INSIGHT's knowledge, threatened any action with respect to any such infringement or breach. 6.1.7 Authorizations. INSIGHT has made available (or shall make ----- -------------- available to AT&T upon request) to AT&T true and correct copies of each Franchise and MDU service or access agreement relating to the Cable Systems. Each of the Authorizations is valid, in full force and effect, and enforceable in all material respects in accordance with its terms against the parties thereto, and INSIGHT has fulfilled when due, or has taken all action necessary to enable it to fulfill when due, all of its material obligations thereunder. There has not occurred any material default (without regard to lapse of time, the giving of notice, the election of any Person other than INSIGHT or any INSIGHT Affiliate, or any combination thereof) by INSIGHT or any INSIGHT Affiliate under any of the Authorizations, and neither INSIGHT nor any INSIGHT Affiliate is in arrears in the performance or satisfaction of its obligations under any of the Authorizations, and no waiver or indulgence has been granted by any of the parties thereto, in each case which would have a material adverse effect on any CFT Network. With respect to each Franchise, neither INSIGHT nor any INSIGHT Affiliate has knowledge of any fact, circumstance or event that could lead to the non-renewal of such Franchise upon the expiration of its current term. With respect to each Franchise that expires within 30 months of the Effective Date, the INSIGHT franchisee has timely filed 23 a request for renewal under Section 626 of Title VI of the Communications Act of 1934 with the proper Governmental Authority. 6.1.8 Litigation. There are no pending legal or governmental ----- ---------- actions, suits, proceedings or investigations to which INSIGHT or any INSIGHT Affiliate is a party or to which any property of INSIGHT or an INSIGHT Affiliate is subject that could have a material adverse effect on the ability of INSIGHT or any INSIGHT Affiliate to perform its obligations under this Agreement and, to the best of INSIGHT's knowledge, no such actions or proceedings are threatened or contemplated by any Governmental Authority or any other Person. There are no outstanding judgments, injunctions, orders, writs or decrees of any arbitrator, court or Governmental Authority binding on INSIGHT or any INSIGHT Affiliate or their respective assets or properties that could have a material adverse effect on the ability of INSIGHT or any INSIGHT Affiliate to perform its obligations under this Agreement. 6.2 AT&T's Representations and Warranties. AT&T represents and warrants --- ------------------------------------- to INSIGHT as follows: 6.2.1 Organization and Qualification of AT&T. AT&T is a limited ----- -------------------------------------- liability company, duly organized, validly existing, and in good standing under the laws of the State of Delaware, and has all requisite power and authority to own and lease the properties and assets to be provided by AT&T hereunder in connection with the Communications Services and to conduct its activities related to provision of the Communications Services. AT&T is duly qualified to do business and is in good standing in all jurisdictions in which ownership of its properties and the nature of its activities related to provision of the Communications Services makes such qualification necessary. 6.2.2 Authority. AT&T has all requisite power and authority to ----- --------- execute, deliver, and perform this Agreement and to consummate the transactions contemplated hereby. The execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby on the part of AT&T have been duly and validly authorized by all necessary action on the part of AT&T. This Agreement has been duly and validly executed and delivered by AT&T, and is the valid and binding obligation of AT&T, enforceable against AT&T in accordance with its terms. 6.2.3 No Conflict; Consents. The execution, delivery, and ----- --------------------- performance by AT&T of this Agreement and the transactions contemplated hereby do not and will not: (a) conflict with or violate any provision of the limited liability company agreement or other charter documents of AT&T; (b) violate any provision of any Legal Requirements applicable to AT&T; (c) conflict with, violate, result in a breach of, constitute a default under (without regard to requirements of notice, lapse of time, or elections of other Persons, or any combination thereof), accelerate, or permit the acceleration of the performance required by, any Contract to which AT&T is a party 24 or by which AT&T or the assets or properties owned or leased by AT&T are bound or affected; or (d) require any consent, approval or authorization of, or filing of any certificate, notice, application, report, or other document with, any Governmental Authority or other Person other than the certification of AT&T as a CLEC by the respective PUCs or other Governmental Authorities having jurisdiction over offering Communications Services in the Designated Markets. 6.2.4 Litigation. There are no pending legal or governmental ----- ---------- actions, suits proceedings or investigations to which AT&T is a party or to which any property of AT&T is subject that could have a material adverse effect on the financial condition of AT&T or the ability of AT&T to perform its obligations under this Agreement and, to the best of AT&T's knowledge, no such actions or proceedings are threatened or contemplated by any Governmental Authority or any other Person. There are no outstanding judgments, injunctions, orders, writs or decrees of any arbitrator, court or Governmental Authority binding on AT&T or its assets or properties that could have a material adverse effect on the financial condition of AT&T or the ability of AT&T to perform its obligations under this Agreement. 6.2.5 AT&T Cable Systems. As of the Effective Date, the CFT Tests, ----- ------------------ DMOQs, Network Element Validation Guidelines and Upgrade Testing Procedures are no more stringent than those generally implemented by AT&T with respect to the AT&T Cable Systems. 7. Additional Covenants. - -- -------------------- 7.1 Program Managers; Technical Cooperation. --- --------------------------------------- 7.1.1 Program Managers. INSIGHT and the INSIGHT Affiliates shall ----- ---------------- collectively appoint, and AT&T shall appoint, a full-time program manager (each, a "Program Manager") to manage the implementation of the transactions --------------- contemplated by this Agreement and to act as the primary point of contact between the parties on all operational issues, including the development of business and as set forth in the Implementation Schedule and Specifications. The initial Program Managers are specified on Exhibit J to this Agreement. --------- Except to the extent otherwise notified, each Program Manager shall be authorized to act on behalf of the party that appointed the Program Manager in all matters pertaining to this Agreement. The Program Managers shall meet frequently (including by teleconference), but not less than weekly, to review the status of the Implementation Schedule and Specifications, compliance by INSIGHT and the INSIGHT Affiliates with the INSIGHT DMOQs and compliance by AT&T with the AT&T DMOQs, and other pertinent information regarding performance by the parties of their respective obligations hereunder. Either party may name a replacement Program Manager by notifying the other of such replacement. 7.1.2 Technical Cooperation. INSIGHT, the INSIGHT Affiliates and ----- --------------------- AT&T shall consult and cooperate with each other with regard to all technical matters 25 relating to network architecture, interconnection and related matters. INSIGHT and AT&T shall each designate a technical engineering representative to be the primary point of contact under this Agreement with regard to all technical matters. 7.2 Trade Names and Trademarks Except as set forth in the Marketing and --- -------------------------- Sales Representation Agreement, neither party shall (a) use the trade names or trademarks of the other party, (b) represent in any manner that it has any rights in or to any of the other party's trade names or trademarks, (c) register or attempt to register any trade names or trademarks of the other party, or (d) do or cause to be done any act or thing impairing the distinctiveness of the trade names or trademarks of the other party. 7.3 *To be filed separately with the Commission* --- 7.4 Procedures for Pursuing High Speed Communications Services. --- ---------------------------------------------------------- 7.4.1 Procedures to Amend Agreement. At any time during the term of ----- ----------------------------- this Agreement, AT&T may propose to provide a High Speed Communications Service in a Designated Market by providing to INSIGHT a detailed business proposal (which shall include a competitive impact analysis) for such proposed High Speed Communications Service. Within 30 days of the receipt of any such proposal, AT&T and INSIGHT shall enter into good faith negotiations to extend the provisions of this Agreement to the proposed High Speed Communications Service, including any terms necessary to minimize the technical and economic impact of the deployment of such High Speed Communications Service on INSIGHT, the INSIGHT Affiliates and the Core Cable Services. The parties shall enter into an amendment to this Agreement setting forth the terms and conditions applicable to any deployment of the proposed High Speed Communications Service in accordance with this Section 7.4.1. 7.4.2 Failure to Reach Agreement. If AT&T and INSIGHT are unable to ----- -------------------------- reach agreement on the terms of providing any proposed High Speed Communications Service within 180 days of delivery of AT&T's proposal with respect thereto, then AT&T shall be entitled to pursue the High Speed Communications Service within the Designated Market with any Alternative Service Providers; provided that the terms and conditions offered to such Alternative Service Providers with respect to such opportunity shall not, in any event, be more favorable, taken as a whole, to the Alternative Service Providers than the terms and conditions with respect to such opportunity offered to INSIGHT and the INSIGHT Affiliates; and provided, further, that in no event shall AT&T deploy any proposed High Speed Communications Service during the term of this Agreement in a manner that has a negative financial impact on INSIGHT, the INSIGHT Affiliates or the Core Cable Services. 7.5 Extension of Agreement to non-Residential Customers. Upon the --- --------------------------------------------------- request of either party, INSIGHT and AT&T shall enter into good faith negotiations to extend the provisions of this Agreement to any potential customers in the Franchise Areas who do not reside in a SDU or MDU, upon mutually agreeable terms and conditions. Upon 26 reaching agreement, if any, with respect to the provision of Communications Services to any such customers, the parties shall enter into an amendment to this Agreement setting forth the terms and conditions applicable thereto. 7.6 Certain Regulatory Matters. AT&T and INSIGHT shall provide written --- ------------------------- notice promptly to the other upon obtaining knowledge of any proceedings or actions by any Governmental Authority to adopt any regulatory ordinance, or amend the terms of any Franchise, in order to attempt to regulate the provision of Communications Services utilizing the Cable Systems in the Franchise Areas (an "Adverse Regulatory Action"). INSIGHT shall consult in good faith with AT&T -------------------------- with respect to the proposed adoption and/or implementation of any Adverse Regulatory Action. 8. Remedies for Certain Defaults. - -- ----------------------------- 8.1 Late Certification. --- ------------------ 8.1.1 INSIGHT Default. ----- --------------- (A) Liquidated Damages. Because of the importance of the Cable Systems --- ------------------ qualifying as CFT Networks in order to meet the rollout schedule set forth in the Implementation Schedule and Specifications (the "Rollout Schedule"), if the ---------------- aggregate number of Residential Households Passed by CFT Networks as of the last day of a Contract Quarter (the "Shortfall Measurement Date") is less than the -------------------------- aggregate number of Residential Households Passed set forth in the Rollout Schedule for the preceding Contract Quarter (the "RHP Shortfall"), and such RHP ------------- Shortfall is primarily attributable to INSIGHT's or the INSIGHT Affiliates' breach of any material obligation under this Agreement, which breach is not attributable to a Force Majeure Event, and AT&T shall not then be in breach of any material obligation under this Agreement, then INSIGHT and the INSIGHT Affiliates shall pay to AT&T, within 30 days following such Shortfall Measurement Date, as liquidated damages, an amount equal to *To be filed separately with the Commission* multiplied by the RHP Shortfall. By way of example only, and assuming that the RHP Shortfalls cited in this example are primarily attributable to INSIGHT's and the INSIGHT Affiliates' breach of a material obligation under this Agreement, if the Rollout Schedule reflects 100,000 Residential Households Passed in the first Contract Quarter, and the actual number of Residential Households Passed by CFT Networks on the last day of the second Contract Quarter is zero, then the RHP Shortfall for such Contract Quarter is 100,000, and INSIGHT and the INSIGHT Affiliates shall pay to AT&T, within 30 days of the last day of such second Contract Quarter, the amount of *To be filed separately with the Commission* (B) Termination Right with Respect a Designated Market. If, with respect --- -------------------------------------------------- to any Designated Market, the RHP Shortfall for each of two consecutive Shortfall Measurement Dates is greater than *To be filed separately with the Commission* of the number of Residential Households Passed set forth in the Rollout Schedule for such Designated Market for the Contract Quarter preceding such Shortfall 27 Measurement Dates, and such failure is primarily attributable to INSIGHT's or the INSIGHT Affiliates' breach of any material obligation under this Agreement, which breach is not attributable to a Force Majeure Event, and AT&T shall not then be in breach of any material obligation under this Agreement, then AT&T may, upon written notice given to INSIGHT at any time during the 30 days following such second Shortfall Measurement Date, (i) terminate this Agreement with respect to the entire Designated Market, or (ii) terminate this Agreement with respect to such portions of the Designated Market that are not, as of the date of termination, passed by CFT Networks. If AT&T elects either remedy, then INSIGHT and the INSIGHT Affiliates shall reimburse AT&T for all direct costs incurred by AT&T in connection with the performance of its obligations under this Agreement with respect to the Designated Market, or portion thereof, as to which this Agreement is terminated. (C) Termination of Agreement. If, with respect to two or more Designated --- ------------------------ Markets, the aggregate RHP Shortfall for each of two consecutive Shortfall Measurement Dates is greater than *To be filed separately with the Commission* of the number of Residential Households Passed set forth in the Rollout Schedule for such Designated Markets for the Contract Quarter preceding such Shortfall Measurement Dates, and such failure is primarily attributable to INSIGHT's or the INSIGHT Affiliates' breach of any material obligation under this Agreement, which breach is not attributable to a Force Majeure Event, and AT&T shall not then be in breach of any material obligation under this Agreement, then AT&T may, upon written notice given to INSIGHT at any time during the 30 days following such second Shortfall Measurement Date, terminate this Agreement in its entirety, and INSIGHT and the INSIGHT Affiliates shall reimburse AT&T for all direct costs incurred by AT&T in connection with the performance of its obligations under this Agreement. 8.1.2 AT&T Default. ----- ------------ (A) Liquidated Damages. Because of the importance of the Cable Systems --- ------------------ becoming Communications Systems Networks and qualifying as CFT Networks in order to meet the Rollout Schedule, if there is an RHP Shortfall as of the last day of a Shortfall Measurement Date, and such RHP Shortfall is primarily attributable to AT&T's breach of any material obligation under this Agreement, which breach is not attributable to a Force Majeure Event, and INSIGHT and the INSIGHT Affiliates shall not then be in breach of any material obligation under this Agreement, then AT&T shall pay to INSIGHT, within 30 days following such Shortfall Measurement Date, as liquidated damages, an amount equal to *To be filed separately with the Commission* multiplied by the RHP Shortfall. (B) Termination Right with Respect a Designated Market. If, with respect --- -------------------------------------------------- to any Designated Market, the RHP Shortfall for each of two consecutive Shortfall Measurement Dates is greater than *To be filed separately with the Commission* of the number of Residential Households Passed set forth in the Rollout Schedule for such Designated Market for the Contract Quarter preceding such Shortfall 28 Measurement Dates, and such failure is primarily attributable to AT&T's breach of any material obligation under this Agreement, which breach is not attributable to a Force Majeure Event, and INSIGHT and the INSIGHT Affiliates shall not then be in breach of any material obligation under this Agreement, then INSIGHT may, upon written notice given to AT&T at any time during the 30 days following such second Shortfall Measurement Date, (i) terminate this Agreement with respect to the entire Designated Market, or (ii) terminate this Agreement with respect to such portions of the Designated Market that are not, as of the date of termination, passed by CFT Networks. If INSIGHT elects either remedy, then AT&T shall reimburse INSIGHT for all direct costs incurred by INSIGHT and the INSIGHT Affiliates in connection with the performance of its obligations under this Agreement with respect to the Designated Market, or portion thereof, as to which this Agreement is terminated. (C) Termination of Agreement. If, with respect to two or more Designated --- ------------------------ Markets, the aggregate RHP Shortfall for each of two consecutive Shortfall Measurement Dates is greater than *To be filed separately with the Commission* of the number of Residential Households Passed set forth in the Rollout Schedule for such Designated Markets for the Contract Quarter preceding such Shortfall Measurement Dates, and such failure is primarily attributable to the breach of AT&T of any material obligation under this Agreement, which breach is not attributable to a Force Majeure Event, and INSIGHT and the INSIGHT Affiliates shall not then be in breach of any material obligation under this Agreement, then INSIGHT may, upon written notice given to AT&T at any time during the 30 days following such second Shortfall Measurement Date, terminate this Agreement in its entirety, and AT&T shall reimburse INSIGHT and the INSIGHT Affiliates for all direct costs incurred by INSIGHT and the INSIGHT Affiliates in connection with the performance of their respective obligations under this Agreement. 8.1.3 Uncertainty of Amount and Reasonable Estimation of Damages. ----- ---------------------------------------------------------- The parties acknowledge that it is impractical and extremely difficult to determine the actual damages or lost revenues that may be suffered by a party because of the delay in the Cable Systems becoming Communications Services Networks and qualifying as CFT Networks. Accordingly, the amounts payable as "liquidated damages" under Section 8.1.1 and 8.1.2 of this Agreement are (a) liquidated damages, and not a penalty, (b) reasonable and not disproportionate to the presumed damages to AT&T and INSIGHT, as the case may be, from a failure by the other party to comply with the applicable provisions of this Agreement, and (c) if elected, shall be the exclusive remedy of the non-breaching party for such breach. The party at fault shall make all payments of liquidated damages due under this Section 8.1 within 30 days after receipt of notice from the other party requesting payment. 8.2 Failure to Meet DMOQs. --- --------------------- 8.2.1 Isolated Failures. The remedies of a party for the failure by ----- ----------------- the other party to comply with its respective DMOQs shall be as set forth on Exhibit C or, if - --------- 29 no remedy is specified with respect to a DMOQ, as follows: for any failure by AT&T, INSIGHT or the INSIGHT Affiliates to meet a DMOQ with respect to a CFT Network, the failing party shall reimburse the other party for all direct losses incurred by the other in connection with such failure (e.g., the amount of any credits granted to Residential Customers). 8.2.2 Catastrophic Failure. If a party fails to meet the DMOQs ----- -------------------- relating to Network Availability or Grade of Service with respect to a Designated Market or HDT Site, as applicable, for two consecutive Contract Quarters, the other party may give written notice within 15 days after such second Contract Quarter of its intention to terminate this Agreement with respect to such Designated Market (in the case of the Network Availability DMOQ) or HDT Site (in the case of the Grade of Service DMOQ) if such DMOQ is not met for the third consecutive Contract Quarter (a "Catastrophic Failure"). Upon the -------------------- occurrence of a Catastrophic Failure by a party, the other party may, but shall not be obligated to, terminate this Agreement with respect to the applicable Designated Market or HDT Site upon 90 days' advance written notice, given any time during the Contract Quarter following the Catastrophic Failure. 8.2.3 Grace Period. The provisions of Sections 8.2.1 and 8.2.2 ----- ------------ shall not apply, with respect to any Designated Market or HDT Site within a Designated Market, for a period of 180 days following the date on which Communications Services are first provided to a paying Residential Customer in such Designated Market. 9. Force Majeure. - -- ------------- 9.1 Performance Excused. If the performance of this Agreement is delayed --- ------------------- or prevented by reason of acts of God or of the public enemy; earthquakes; fires; floods or other catastrophes; epidemics or quarantines; freight embargoes; war; civil strife; insurrection; riot; materials shortages; labor stoppages; or any Adverse Regulatory Action (other than the assessment of taxes or fees on the revenues generated or paid pursuant to this Agreement) that materially impacts or delays INSIGHT's or AT&T's ability to perform its obligations under this Agreement (each, a "Force Majeure Event"), then the party ------------------- whose performance is delayed or prevented shall promptly notify the other party of the event and shall be excused from performance to the extent delayed or prevented (and the other party shall be excused from any corresponding performance for the same period); provided, however, that the party whose performance is delayed or prevented shall take reasonable steps to avoid or remove such causes of nonperformance and shall continue to perform whenever and to the extent reasonably possible, and provided further that any time for performance set forth in this Agreement shall be extended for a period equal to the period of such delay. 9.2 Termination Right. If it appears that a time for delivery or --- ----------------- performance scheduled pursuant to this Agreement will be extended for more than three months on account of a Force Majeure Event with respect to a party, the other party shall have the 30 right to terminate this Agreement upon written notice to the party affected by the Force Majeure Event. 10. Common Carrier Proceedings. - --- -------------------------- 10.1 Imposition of Common Carrier Obligations. If (a) any Legal ---- ---------------------------------------- Requirement imposes, or any Governmental Authority or third party institutes proceedings to impose, public utility or common carrier status on INSIGHT or an INSIGHT Affiliate as a result of INSIGHT's, the INSIGHT Affiliates' or AT&T's performance of this Agreement, or (b) any action is brought by any Person challenging the continued validity or seeking to adversely modify, suspend or revoke INSIGHT's or an INSIGHT Affiliates' operating authority for its services or Cable Systems as a result of its or AT&T's performance of this Agreement, then INSIGHT shall give AT&T written notice promptly upon learning of such proceedings or actions and shall use commercially reasonable efforts to defend against and contest such proceedings or action. In recognition of AT&T's interests and experience in addressing such issues as a result of its telecommunications and other businesses, INSIGHT shall consult in good faith with AT&T with respect to the foregoing and shall permit AT&T, at its sole cost and expense, to participate in any proceedings; AT&T agrees, however, that any determination INSIGHT makes with respect to handling these proceedings is solely within INSIGHT's discretion. 10.2 Termination Option. If, notwithstanding INSIGHT's commercially ---- ------------------ reasonable efforts, INSIGHT reasonably determines that such proceedings or actions are likely to result in a material adverse effect on the business or financial condition of INSIGHT or the INSIGHT Affiliates, then INSIGHT may, without further liability to AT&T, terminate this Agreement solely with respect to the particular CFT Network affected by such proceedings or actions, such termination to be effective on 180 days' written notice; provided, however, that INSIGHT shall not terminate this Agreement with respect to the Cable System (or portion thereof) unless (a) such termination (together with other actions to be taken by INSIGHT) is reasonably necessary to fully relieve such Cable System (or portion thereof) from, or substantially eliminate the effects of, public utility, telecommunications service provider and common carrier status (or comparable obligations under a consent decree or Franchise amendment), and (b) INSIGHT or the INSIGHT Affiliates do not thereafter use such Cable System with any other Person to replicate or provide services substantially similar to the Communications Services for the remainder of the Initial Term. 10.3 Alternative Arrangement; Reinstatement. Notwithstanding the ---- -------------------------------------- foregoing provisions of this Section 10, if this Agreement is terminated with respect to any CFT Network by INSIGHT pursuant to this Section, (a) the parties shall use commercially reasonable efforts to negotiate an alternative arrangement that is reasonable in the independent judgment of both parties pursuant to which AT&T will be able to continue to conduct its business formerly conducted using the Cable System so that the parties will, to the extent practicable, continue to enjoy the benefits intended to be provided by this Agreement with respect to such Cable System, and (b) INSIGHT and the applicable 31 INSIGHT Affiliate shall fully reinstate AT&T's rights under this Agreement with respect to such Cable System, when and to the extent that may be done without the occurrence of a material adverse effect on the business or financial or operating condition of INSIGHT or such INSIGHT Affiliate and without subjecting INSIGHT or such INSIGHT Affiliate to public utility, telecommunications service provider or common carrier status. 11. Term and Termination. - --- -------------------- 11.1 Term. The initial term of this Agreement shall commence upon the ---- ---- Effective Date and shall continue until October 1, 2011 (the "Initial Term"). ------------ Upon notice given by either INSIGHT or AT&T (the "Initiating Party") to the ---------------- other at least 18 months prior to the expiration of the Initial Term, this Agreement shall automatically renew, on the same terms and conditions, for an additional five-year term unless such other party provides the Initiating Party with written notice to the contrary at least 12 months prior to the expiration of the Initial Term. 11.2 Termination of Agreement. Notwithstanding the foregoing, this ---- ------------------------ Agreement shall terminate upon the closing of the optional termination and split-up of the Partnership's assets (the "Split-up Termination"), described in Article 9 of the Limited Partnership Agreement of Insight Midwest, L.P., dated as of October 1, 1999 (the "Insight Midwest Partnership Agreement"). In addition, this Agreement may be terminated upon any of the following events, effective upon written notice from the terminating party: 11.2.1 Termination by Either Party. Either party may terminate this ------ --------------------------- Agreement: (a) If the other party applies for or consents to the appointment of a trustee or receiver for any substantial part of its properties; any bankruptcy, reorganization, debt arrangement, dissolution or liquidation proceeding is commenced or consented to by the other party; or any application for appointment of a receiver or a trustee, or any proceeding for bankruptcy, reorganization, debt management or liquidation is filed for or commenced against the other party, and is not withdrawn or dismissed within 60 days thereafter. (b) If the other party ceases to function as a going concern. (c) If the other party fails to perform in a material respect any of the material provisions of this Agreement (other than provisions for which a specific remedy is provided for in this Agreement) and does not cure such failure within a period of 60 days after receipt of notice from the other party reasonably specifying such failure and stating such party's intention to terminate this Agreement if such failure is not cured (or if such failure cannot reasonably be cured within such 60-day period, such 32 party has not undertaken all commercially reasonable efforts to cure such failure within such 60-day period and does not cure such failure within a period of 90 days). (d) If, on or before the date which is 60 days from the Effective Date, the Insight Midwest Partnership Agreement has not been amended to provide for the Split-up Termination. 11.2.2 Termination by INSIGHT. INSIGHT may terminate this Agreement: ------ ---------------------- (a) If INSIGHT has terminated the Marketing and Sales Representation Agreement or Agreement for Billing and Collection Services, pursuant to their respective terms, because of AT&T's material breach thereof and failure to cure within any applicable cure period. (b) On or before August 8, 2000, if this Agreement and the transactions contemplated hereby are not approved by the Board of Directors of INSIGHT. (c) As otherwise set forth in this Agreement. 11.2.3 Termination by AT&T. AT&T may terminate this Agreement: ------ ------------------- (a) If AT&T has terminated the Marketing and Sales Representation Agreement or Agreement for Billing and Collection Services, pursuant to their respective terms, because of INSIGHT's material breach thereof and failure to cure within any applicable cure period. (b) With respect to any Franchise Area, upon any termination of the applicable Franchise or other necessary Authorization. (c) As otherwise set forth in this Agreement. 11.3 Orderly Transition. Upon the expiration or termination of this ---- ------------------ Agreement, in whole or with respect to any Designated Market, HDT Site or CFT Network, the parties shall cooperate in good faith to effect an orderly transition of the Communications Services provided over the CFT Network(s) for a reasonable period of time and in compliance with all applicable Legal Requirements. As applicable, the parties shall use commercially reasonable efforts to develop and implement a plan for the orderly transition of Residential Customers as soon as commercially practicable. The parties shall cooperate with each other in effecting such transition plan and shall take all reasonable actions requested by the other party in connection therewith. 11.3.1 Expiration or Early Termination by INSIGHT. Without ------ ------------------------------------------ limiting the generality of the foregoing, upon the expiration of this Agreement, or upon the earlier termination of this Agreement by INSIGHT, INSIGHT and the INSIGHT 33 Affiliates shall, notwithstanding such expiration or termination and, to the extent permitted by applicable Legal Requirements: (a) continue to make available to AT&T any portions of the CFT Networks reasonably required by AT&T to transition Residential Customers to an Alternative Service Provider, at the rates specified herein, for a period up to six months after the effective date of the expiration or termination; (b) assist AT&T, at AT&T's sole cost and expense, with all other reasonable requests in connection with the transition of Residential Customers from the Communications Services provided pursuant to this Agreement to alternative Communications Services; and (c) not, for the lesser of (i) the period required to transition Residential Customers to an Alternative Service Provider or (ii) six months from the effective date of the expiration or termination, directly or indirectly provide, or directly market, any Communications Services to any Residential Customer, except as contemplated herein. *To be filed separately with the Commission* 11.3.2 Early Termination by AT&T. Without limiting the generality ------ ------------------------- of the foregoing, upon the termination of this Agreement by AT&T, in whole or in part, prior to its expiration, INSIGHT and the INSIGHT Affiliates shall, notwithstanding such termination and, to the extent permitted by applicable Legal Requirements: (a) continue to make available to AT&T any portions of the CFT Networks reasonably required by AT&T to transition Residential Customers to an Alternative Service Provider, at the rates specified herein, for a period up to one year after the effective date of termination; (b) negotiate agreements with AT&T, which are reasonable in the independent judgment of both parties, pursuant to which INSIGHT and the INSIGHT Affiliates will provide capacity on the CFT Networks to AT&T in order for it to provide the Communications Services in the Designated Markets; (c) assist AT&T, at AT&T's sole cost and expense, in obtaining any Authorizations necessary for AT&T to continue to provide the Communications Services in the Designated Markets; (d) assist AT&T, at AT&T's sole cost and expense, with all other reasonable requests in connection with the transition of Residential Customers from the Communications Services provided pursuant to this Agreement to alternative Communications Services; and (e) not, for the lesser of (i) the period required to transition Residential Customers to an Alternative Service Provider or 18 months from the effective date of termination, directly or indirectly provide, or directly market, any Communications Services to any Residential Customer, except as contemplated herein. 12. Limitation of Liability. - --- ----------------------- EXCEPT FOR DAMAGES RESULTING FROM A PARTY'S BREACH OF ITS CONFIDENTIALITY OBLIGATIONS UNDER SECTION 15 OF THIS AGREEMENT AND EXCEPT FOR THE LIQUIDATED DAMAGES CONTEMPLATED UNDER SECTION 8, NO PARTY SHALL BE LIABLE TO ANY OTHER PARTY FOR ANY AMOUNTS REPRESENTING ITS LOSS OF PROFITS, LOSS OF BUSINESS, INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES (EVEN IF PREVIOUSLY APPRISED OF THE POSSIBILITY THEREOF) ARISING FROM THE PERFORMANCE OR NONPERFORMANCE OF THIS AGREEMENT OR ANY ACTS 34 OR OMISSIONS ASSOCIATED THEREWITH, WHETHER THE BASIS OF THE LIABILITY IS BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY), OR ANY OTHER LEGAL THEORY. 13. Insurance. - ---- -------- 13.1 Required Coverage. INSIGHT and the INSIGHT Affiliates shall at all ---- ----------------- times during the term of this Agreement, at its sole expense, maintain the insurance coverage listed below with insurance carriers that (a) are reasonably satisfactory to AT&T, (b) have a reasonably acceptable Standard & Poor's Financial Rating, and (c) have an A.M. Best rating of at least A-: 13.1.1 Worker's Compensation and Employer's Liability Policy. ------ ----------------------------------------------------- Statutory Worker's Compensation insurance covering INSIGHT's employees and agents with Employer's Liability in amounts not less than: Part I Workers Compensation "Statutory" ------ Part II Employer's Liability $2,000,000 combined single limit ------- 13.1.2 Commercial General Liability Policy. Primary Commercial ------ ----------------------------------- General Liability Insurance covering all of INSIGHT's operations. Such coverage shall include Premises and Operations, Broad Form Contractual Liability (covering liability under this Agreement), Independent Contractors, Products- Completed Operations, Personal Injury, and Broad Form Property Damage, with the following minimum limits: General Aggregate $6,000,000 Each Occurrence $2,000,000 Products-Completed Operations $2,000,000 Fire Damage (any one fire) $1,000,000 Medical Expense (any one person) $ 10,000
13.1.3 Business Automobile Liability Policy. Business Automobile ------ ------------------------------------ Liability Insurance with "Any Auto" Coverage with the following minimum limits: Each Accident $1,000,000 combined single limit 13.1.4 Property Insurance Policy. Property Insurance with "All ------ ------------------------- Risk" coverage while such property is under construction, being maintained, in transit or operation, with limits of no less than the replacement cost value of such property at the time of the loss. 13.1.5 Insurance Required by Authorizations. Insurance required ------ ------------------------------------ under the Authorizations. 35 13.1.6 Umbrella or Excess Liability Policy. The insurance limits ------ ----------------------------------- required in this Agreement may be obtained through any combination of primary and excess or umbrella liability insurance. Any excess or umbrella liability policies shall provide coverage in the same manner as the Employer's Liability Policy, Commercial General Liability Policy and Business Automobile Liability Policy and shall not contain any additional exclusions or limitations of such policies. 13.2 Certificate of Insurance. Immediately upon the execution of this ---- ------------------------ Agreement, INSIGHT shall deliver to AT&T Certificates of Insurance (along with copies of any endorsements specifically applicable to such other party) evidencing that INSIGHT has obtained the insurance required by this Article 13. The Certificates of Insurance shall: (a) Be in a form reasonably acceptable to AT&T. (b) Designate AT&T as the "Additional Insured," with respect to liability insurance, and as "Loss Payee," with respect to property insurance, as AT&T's interests may appear. (c) Confirm that all insurance policies are primary coverage to AT&T and that any coverage maintained by AT&T is non-contributory. (d) Confirm that all insurance policies provide for 30 days prior written notice to AT&T, at the address for AT&T set forth in Section 17.1 of this Agreement, of any cancellation, modification or non-renewal. 13.3 General. ---- ------- (a) The cost of any deductible amounts or self-insured retention contained in any of the insurance policies pursuant to a contract, whether approved or not approved by AT&T, are to be borne by INSIGHT without any increase or adjustment to the applicable contract amount. (b) INSIGHT shall forward all insurance requirements set forth in this Agreement to its insurance carrier to ensure that the required coverage is provided. 13.4 Maintenance of Coverage. INSIGHT shall not at any time after the ---- ----------------------- expiration or termination of this Agreement take any action to retroactively eliminate any insurance coverage that was in effect during the term of this Agreement or accept a buy-out of the insurance liability. 14. Indemnification. - --- --------------- 14.1 Indemnification by AT&T. Subject to Section 12, AT&T shall ---- ----------------------- indemnify and hold harmless INSIGHT, its Affiliates, and all officers, directors, employees, stockholders, partners and agents (collectively, "Related ------- Parties") of INSIGHT and its - ------- 36 Affiliates, from and against any and all costs, damages, losses, liabilities, joint or several, expenses of any nature (including reasonable attorneys', accountants' and experts' fees and disbursements), judgments, fines, settlements and other amounts (collectively, "Damages") arising from or relating to: ------- (a) Any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative (collectively "Claims") arising from or relating to the installation, maintenance or operation of the Telephony Interconnection Equipment or other AT&T equipment, except to the extent such Damages are caused or contributed to by INSIGHT or the INSIGHT Affiliates; (b) Any Claims of any Person for personal injury or property damage resulting from the gross negligence or willful misconduct of AT&T; (c) Any Claims of any Person caused by, relating to, or arising out of AT&T's relationships with its employees, agents, and consultants in the course of its performance under this Agreement; and (d) Any Claims of any Person (other than INSIGHT, the INSIGHT Affiliates and their respective Affiliates) relating to or arising out of the breach by AT&T of any of its obligations under this Agreement. 14.2 Indemnification by INSIGHT . Subject to Section 12, INSIGHT and the ---- -------------------------- INSIGHT Affiliates shall indemnify and hold harmless AT&T, its Affiliates, and the Related Parties of AT&T and its Affiliates from and against any and all Damages arising from or relating to: (a) Any Claims of any Person arising from or related to the installation, maintenance or operation of the Telephony Equipment and INSIGHT's and the INSIGHT Affiliates' equipment relating to the HFC Network and the Cable Systems, except to the extent such Damages are caused or contributed to by AT&T; (b) Any Claims of any Person relating to INSIGHT's or the INSIGHT Affiliates' provision of services other than Communications Services; (c) Any Claims of any Person for personal injury or property damage resulting from the gross negligence or willful misconduct of INSIGHT or the INSIGHT Affiliates; (d) Any Claims of any Person caused by, relating to, or arising out of INSIGHT's or the INSIGHT Affiliates' relationships with its employees, agents, and consultants in the course of its performance under this Agreement; and 37 (e) Any Claims of any Person (other than AT&T and its Affiliates) relating to or arising out of the breach by INSIGHT or the INSIGHT Affiliates of any of their obligations under this Agreement. 14.3 Procedures. Any Person asserting a right to indemnification under ---- ---------- this Article 14 shall so notify the indemnifying party promptly in writing, provided that the failure to give such notice shall not result in the loss of indemnification rights unless the indemnifying party is materially prejudiced by such failure. If the facts giving rise to such indemnification involve any actual or threatened Claim by or against a third party, the indemnifying party shall be entitled to control the defense or prosecution of such Claim in the name of the indemnified person. The indemnifying party shall notify the indemnified person in writing of its intention to do so within 20 days of the receipt of such notice by the indemnified person. The indemnified person shall have the right, however, to participate in such proceeding through counsel of its own choosing, which participation shall be at its sole expense. Whether or not the indemnifying party chooses to defend or prosecute such Claim, each indemnified person and INSIGHT or AT&T, whichever is not the indemnifying party, shall, to the extent requested by the indemnifying party and at the indemnifying party's expense, cooperate in the prosecution or defense of such Claim and shall furnish such records, information and testimony and attend such conferences, discovery proceedings, hearings, trials and appeals as may reasonably be requested in connection therewith. 14.4 Settlement. The indemnifying party shall have the right to settle ---- ---------- any Claim for which it is responsible hereunder; provided, that, the indemnifying party shall not settle any Claim unless the indemnified person consents in writing to such settlement, which consent shall not be unreasonably withheld and which consent shall not be withheld in connection with any such settlement that provides for a general release of the indemnified party and is for money damages to be paid by the indemnifying party only, that does not (a) admit the fault of the indemnified person, or (b) impose injunctive or other equitable relief on the indemnified person. 14.5 Expenses of Defense. Any reasonable expenses incurred by any ---- ------------------- indemnified person pursuant to this Article 14 in defending any Claim (or the threat thereof), other than a Claim brought by the indemnifying party, if incurred prior to the assumption by the indemnifying party of the defense thereof, shall be borne and paid by the indemnifying party, in advance of the final disposition of such Claim (or the threat thereof) upon receipt of an undertaking by or on behalf of the indemnified person to repay to the indemnifying party the amount of such expenses if it shall ultimately be determined that such indemnified person is not entitled to the indemnification provided for under this Article 14. 15. Confidentiality. - --- --------------- 15.1 Proprietary Information. INSIGHT and the INSIGHT Affiliates, on the ---- ----------------------- one hand, and AT&T, on the other hand, agree that any information or data (including 38 information or data received by the disclosing party from a third party and as to which the disclosing party has confidentiality obligations) (a) fixed in a tangible medium and furnished by one to the other under this Agreement and marked as the confidential or proprietary information of the disclosing party, including information relating to the Communications Services; (b) otherwise provided or disclosed and stated to be confidential or proprietary at the time the information is provided or in a writing which is provided within 30 days thereafter which generally describes such information; or (c) relating to the terms and conditions of this Agreement is, in each case, the confidential or proprietary information of the disclosing party (collectively, the "Proprietary ----------- Information"), and shall not be used for any purpose other than the purposes of - ----------- this Agreement, or any other agreement related to the transactions contemplated herein, or disclosed to anyone other than to the recipient's employees or agents or consultants rendering services related to the subject matter of this Agreement who need to use the Proprietary Information for the purposes of this Agreement. Notwithstanding the foregoing, all AT&T Customer Information shall be deemed the Proprietary Information of AT&T, whether disclosed by AT&T to INSIGHT or otherwise acquired by INSIGHT. 15.2 Exceptions Required by Legal Requirement. Notwithstanding the ---- ---------------------------------------- provisions of Section 15.1, a party receiving Proprietary Information may disclose such Proprietary Information if required by a Legal Requirement, provided that the disclosing party has (a) given reasonable notice to the other party in advance of such disclosure and seeks confidential treatment of such information from the entity to which the disclosure is made and, (b) received a written opinion of its counsel that such disclosure is required. 15.3 Other Exceptions. The restrictions and obligations in Section 15.1 ---- ---------------- shall not apply with respect to any Proprietary Information that the receiving party can demonstrate: (a) is or becomes generally available to the public through any means other than a breach by the receiving party of its obligations under this Agreement; (b) is disclosed to the receiving party without an obligation of confidentiality by a third party who has the right to make such disclosure; (c) is developed independently by the receiving party; (d) was in possession of the receiving party without obligations of confidentiality prior to receipt under this Agreement; or (e) is required to be disclosed to enforce rights under this Agreement. *To be filed separately with the Commission* 15.4 Remedies. Each of the parties acknowledges and agrees that the other ---- -------- would be irreparably harmed if any of the Proprietary Information of the disclosing party were to be disclosed to third parties, or if any use were to be made of such Proprietary Information other than that specified in this Agreement, and further agrees that the disclosing party shall have the right to seek and obtain injunctive relief upon any violation or threatened violation of the terms of this Agreement, in addition to all other rights and remedies available at law or in equity. 39 15.5 Return of Proprietary Information. Upon the termination, ---- --------------------------------- cancellation or expiration of this Agreement for any reason or upon the reasonable request of the disclosing party, all Proprietary Information, together with any copies that may be authorized herein, shall be returned to the disclosing party or, if requested by the disclosing party, certified destroyed by the receiving party. 15.6 Media Releases. Except for informational releases intended solely ---- -------------- for INSIGHT's, the INSIGHT Affiliates' or AT&T's internal distribution and except for disclosures required by Legal Requirement beyond the reasonable control of the party making such disclosure, all media releases, public announcements or public disclosures by INSIGHT, the INSIGHT Affiliates or AT&T, or by their respective Affiliates, relating to this Agreement shall be coordinated and approved by the parties prior to such release. Such approvals shall not be unreasonably withheld or delayed. 16. Assignment; Sale or Transfer of Cable Systems; Addition of Cable Systems. - --- ------------------------------------------------------------------------ 16.1 Assignment; Sale or Transfer of Cable Systems. Neither party shall ---- --------------------------------------------- assign, transfer, delegate, sublease, sublicense or in any other manner dispose of or extend to any other Person, any of its rights, privileges or obligations under this Agreement without the prior written consent of the other party, and any attempt to make any such assignment, transfer, delegation, sublease, sublicense or disposition without consent shall be null and void; provided, however, that (a) either party may, without the consent of the other party, assign, transfer or delegate all of such rights, privileges and obligations to any Affiliate of such party or any successor entity in the event of such party's sale of all or substantially all of its assets or stock, merger, consolidation, reorganization or other business combination; and (b) in the event of a transaction pursuant to which INSIGHT sells or otherwise transfers one or more, but not all, of the Cable Systems in a transaction not constituting the sale of all or substantially all of its assets, AT&T's consent shall not be required provided that INSIGHT assigns all of its rights, and such buyer or transferee assumes all of INSIGHT's obligations, under this Agreement with respect to such Cable System(s), subject to AT&T's right to terminate the Agreement with respect to such Cable System(s) as set forth in the following sentence. AT&T may elect to terminate this Agreement with respect to any Cable System(s) sold or transferred to any acquirer if (i) one or more Governmental Authorities whose consent is necessary to assign a Franchise to the acquirer fails to grant its consent on the grounds that such acquirer does not have the financial or technical ability to perform INSIGHT's obligations under the Franchise; or (ii) such acquirer is one of the three largest (in terms of revenues) providers of Communications Services in the Designated Market in which the Cable System(s) is located. Upon INSIGHT's submission to AT&T of the name of the proposed buyer or transferee, AT&T shall have 30 days in which to notify INSIGHT whether it intends to terminate this Agreement with respect to the Cable System(s) to be sold or transferred pursuant to clause (ii) of the preceding sentence. In the event that AT&T exercises its right herein to terminate this Agreement with respect to any Cable System(s) prior to the closing of 40 the sale of such Cable System, then INSIGHT shall cause the acquirer of the Cable System, as part of such sale or transfer, to assume the obligation to provide the transitional services described in Section 11.3.2 with respect to such Cable System(s). 16.2 Addition of Cable Systems. If INSIGHT or the INSIGHT Affiliates ---- ------------------------- acquires cable systems other than the Cable Systems, INSIGHT may propose to include such acquired cable systems under this Agreement and, upon AT&T's written approval, which shall not be unreasonably withheld, and subject to any additional terms applicable to such acquired systems to be negotiated by the parties in good faith, such additional cable systems shall constitute "Cable Systems" under this Agreement. The parties shall amend the Exhibits to this Agreement as appropriate to reflect the addition of any such acquired cable systems. In addition, the definition of "INSIGHT Affiliates" shall be amended to include the entity which owns the acquired cable systems upon execution by such entity of a counterpart signature page to this Agreement. 17. Miscellaneous. - --- ------------- 17.1 Notices. Any notice, request, approval, authorization, consent or ---- ------- other communication required or permitted to be given or made pursuant to this Agreement (each, a "Notice") shall be in writing and shall be deemed given on ------ the earliest of (a) actual receipt, irrespective of the method of delivery, (b) on the delivery day following dispatch if sent by express mail (or similar next- day air courier service), (c) upon electronic confirmation of receipt, if sent by facsimile transmission, or (d) on the third day after mailing by registered or certified United States mail, return receipt requested, postage prepaid and addressed as follows: To AT&T: AT&T Broadband, LLC 32 Avenues of America New York, NY 10013-2412 Attn: Executive Vice President - Cable Affiliates And Commercial Services Telephone: (212) 387-4900 Facsimile: (212) 387-4908 With a copy to: AT&T Broadband, LLC 9197 South Peoria Street Englewood, CO 80112-5833 Attn: Chief Counsel Telephone: (720) 875-4800 Facsimile: (720) 875-5950 To INSIGHT: Insight Communications Company, Inc. 810 7th Avenue New York, NY 10019 Attn: Vice President - Telephone 41 Telephone: (917) 286-2300 Facsimile: (917) 286-2301 With a copy to: Insight Communications Company, Inc. 810 7th Avenue New York, NY 10019 Attn: General Counsel Telephone: (917) 286-2300 Facsimile: (917) 286-2301 or to such substitute addresses and persons as either party may designate to the other from time to time by written notice in accordance with this Section. 17.2 Relationship of the Parties. The relationship of INSIGHT and the ---- --------------------------- INSIGHT Affiliates, and their respective successors in interest, on the one hand, and AT&T and its successors in interest, on the other hand, is that of independent contractors, and not one of joint venture or partnership. Neither INSIGHT or the INSIGHT Affiliates, on the one hand, nor AT&T, on the other hand, shall have any authority to create or assume, in the name or on behalf of the other party, any obligation, express or implied, nor to act or purport to act as the agent or the legally empowered representative of the other party for any purpose whatsoever. 17.3 Binding Effect. This Agreement shall be binding on and inure to the ---- -------------- benefit of the parties and their respective successors and permitted assigns. 17.4 Severability. If any provision of this Agreement is declared or ---- ------------ found to be illegal, unenforceable, or void by a court of law, the parties shall negotiate in good faith to agree upon a substitute provision that is legal and enforceable and is as nearly as possible consistent with the intentions underlying the original provision. If the remainder of this Agreement is not materially affected by such declaration or finding and is capable of substantial performance, then the remainder shall be enforced to the extent permitted by applicable Legal Requirements. 17.5 Waivers. No delay or omission by either party to exercise any right ---- ------- or power impair any such right or power or be construed to be a waiver thereof. A waiver by any party of any of the covenants, conditions, or contracts to be performed by the other or any breach thereof shall not be construed to be a waiver of any succeeding breach thereof or of any other covenant, condition, or contract herein contained. No change, waiver, or discharge hereof shall be valid unless in writing and signed by an authorized representative of the party against which such change, waiver, or discharge is sought to be enforced. 17.6 Remedies. Except as expressly provided otherwise in this ---- -------- Agreement, in addition to any remedies provided in this Agreement, the parties shall have all remedies provided at law or in equity. The rights and remedies provided in this Agreement or 42 otherwise under any Legal Requirement shall be cumulative and the exercise of any particular right or remedy shall not preclude the exercise of any other rights or remedies in addition to, or as an alternative of, such right or remedy, except as expressly provided otherwise in this Agreement. 17.7 No Third-Party Beneficiaries. Nothing in this Agreement, expressed ---- ---------------------------- or implied, is intended or shall be construed to confer upon any entity, other than INSIGHT, the INSIGHT Affiliates and AT&T, and their respective successors and permitted assigns, any remedy or claim by reason of this Agreement, and any such remedies or claims shall be for the exclusive benefit of INSIGHT, the INSIGHT Affiliates and AT&T. 17.8 Arbitration and Governing Legal Requirement. Except as set forth ---- ------------------------------------------- in Section 5.8, and any dispute or disagreement related to the effect of a change in any Legal Requirement affecting the regulatory rights and obligations of the parties for which exclusive jurisdiction resides in a regulatory body, any dispute or disagreement arising between INSIGHT or the INSIGHT Affiliates and AT&T relating to or arising out of the interpretation or performance of this Agreement shall be resolved in the following manner: A party may provide the other with notice of a dispute which has arisen in connection with this Agreement. Such dispute shall first be considered by the Program Managers designated in this Agreement. If such dispute has not been settled to the satisfaction of the parties within 10 days (or such longer period as may be agreed upon) from the date that either party provided notice of the dispute, the matter shall be escalated to and considered by a team from each party consisting of the designated Program Managers for such party and an officer of such party who has the authority to settle the dispute but who has not been involved in the day-to-day management of this Agreement. If such dispute has not been settled to the satisfaction of the parties within 20 days (or such longer period as may be agreed upon) from the date that either party provided notice of the dispute, the dispute shall be finally settled by arbitration under the rules then obtaining of the American Arbitration Association by one arbitrator appointed in accordance with such rules, the arbitrator also apportioning the costs of arbitration (including reasonable attorneys fees). The arbitration shall be held in New York, New York, and the arbitrator shall decide the issues presented applying the substantive Legal Requirements of the State of New York, without regard to the conflicts of laws principles of such State. The award of the arbitrator shall be in writing, shall be final and binding upon the parties, shall not be appealed from or contested in any court and may, in appropriate circumstances, include injunctive relief. No party shall, in connection with any proceedings held pursuant to this Section, be required to furnish any bond. Should either party fail to appear or be represented at the arbitration proceedings after due notice in accordance with the rules, then the arbitrator may nevertheless render a decision in the absence of such party and such decision shall have the same force and effect as if the absent party had been present, whether or not it shall be adverse to the interests of such party. Any award rendered hereunder may be entered for enforcement, if necessary, in any court of competent jurisdiction, and the 43 party against whom enforcement is sought shall bear the expenses, including attorneys' fees, of enforcement. Notwithstanding the foregoing, the parties may cancel or terminate this Agreement in accordance with its terms and conditions without being required to follow the procedures set forth in this Section. 17.9 Expenses. Except as specifically provided in this Agreement, each ---- -------- of the parties shall pay its own costs and expenses associated with the negotiation, execution and performance of this Agreement. 17.10 Survival. The rights and obligations of the parties set forth in ----- -------- this Agreement shall survive the expiration or termination of this Agreement for any reason for the period of the transition contemplated by Section 11.3. In addition, the rights and obligations of the parties set forth in Sections 12, 14, 15 and 17 shall survive the expiration or termination of this Agreement indefinitely. 17.11 Exhibits. All references herein to Exhibits are to the Exhibits ----- -------- attached hereto, which shall be incorporated in and constitute a part of this Agreement by such reference. If there is any conflict between the terms of this Agreement and the terms of any Exhibit, the terms of this Agreement shall control. 17.12 Entire Agreement. This Agreement, including any Exhibits and ----- ---------------- documents referred to in this Agreement or attached hereto, the Marketing and Sales Representation Agreement, and the Agreement for Billing and Collection Services, constitute the entire and exclusive statement of the parties' agreement with respect to the subject matter hereof and supersede any and all oral or written representations, understandings, or agreements relating thereto, including the Term Sheet executed by the parties on March 16, 2000. This Agreement may be modified, supplemented or changed only by an agreement in writing which makes specific reference to this Agreement and which is signed by both parties. 17.13 Governing Law. This Agreement shall be interpreted, construed, and ----- ------------- governed by the laws, other than choice of law rules, of the State of New York, and the parties hereby submit to in personam jurisdiction in such State. 17.14 Captions. The captions and headings contained herein are for ----- -------- purposes of convenience only and are not a part of this Agreement. 17.15 Construction. This Agreement and the Exhibits hereto have been ----- ------------ drafted jointly by the parties and in the event of any ambiguities in the language hereof, there shall be no inference drawn in favor of or against either party. 17.16 Counterparts. This Agreement may be executed in any number of ----- ------------ counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 44 [Signature Pages Follows] 45 The parties have executed this Agreement as of the Effective Date. INSIGHT: AT&T: INSIGHT COMMUNICATIONS AT&T BROADBAND, LLC COMPANY, INC. By: ________________________ By: ________________________ Name: ______________________ Name: ______________________ Title: _____________________ Title: _____________________ INSIGHT AFFILIATES: INSIGHT COMMUNICATIONS COMPANY, L.P. By: Insight Communications Company, Inc. Its General Partner By: __________________________ Name: ________________________ Title: _______________________ INSIGHT COMMUNICATIONS OF CENTRAL OHIO, LLC By: Insight Holdings of Ohio, LLC, Member By: Insight Communications Company, L.P., Member By: Insight Communications Company, Inc., Its General Partner By: ___________________________ Name: _________________________ Title: ________________________ 46 INSIGHT COMMUNICATIONS OF INDIANA, LLC By: ___________________________ Member By: __________________________ Name: ________________________ Title: _______________________ INSIGHT KENTUCKY PARTNERS II., L.P. By: __________________________ Its General Partner By: __________________________ Name: ________________________ Title: _______________________ 47 EX-27 5 0005.txt FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE REGISTRANT COMPANY CONSOLIDATED BALANCE SHEET (UNAUDITED) FOR JUNE 30, 2000 AND CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. INSIGHT COMMUNICATIONS COMPANY, INC. 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 72,425 40,446 10,640 751 0 145,941 848,724 163,295 1,963,785 97,561 200,000 0 0 594 567,252 1,963,785 210,521 210,521 73,522 220,963 (97) 0 49,712 40,869 17,196 23,673 0 0 0 23,673 0.40 0.40
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