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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K



|þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007

COMMISSION FILE NUMBER: 000-32647

KNOLOGY, INC.

(Exact
name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 58-2424258                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|KNOLOGY, INC. 1241 O.G. SKINNER DRIVE WEST POINT, GEORGIA      |  | 31833                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number, including area code: (706) 645-8553

Securities registered pursuant to Section 12(b) of the Act:



|                              |  |                                     
|----------------------------- |  | ------------------------------------
|Title of Each Class           |  | Name of Exchange on Which Registered
|Common Stock, $0.01 par value |  | The NASDAQ Stock Market, LLC        

Securities registered pursuant to Section 12(g) of the Act:

Options to Purchase Shares of Common Stock

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ̈    No  þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.    Yes   ̈    No  þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.    Yes  þ    No   ̈

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act. (Check one):



|                                              |  |                             
|--------------------------------------------- |  | ----------------------------
|Large accelerated filer   ̈                    |  | Accelerated filer  þ        
|Non-accelerated filer   ̈                      |  | Smaller reporting company   ̈
|(Do not check if a smaller reporting company) |  |                             

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).    Yes   ̈   No  þ

The aggregate market value of the outstanding common equity held by non-affiliates of the registrant at June 29, 2007, was approximately $485.6 million, computed based on the closing sale price as quoted on the
Nasdaq National Market on that date.

As of February 29, 2008, we had 35,467,079 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Parts of the registrants proxy statement on Schedule 14A for its 2007 Annual Meeting of Stockholders, to be held May 7, 2008, are incorporated by reference into Part III of this Form 10-K.









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TABLE OF CONTENTS



|                                             |  |                                                                                                              |  |     
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|                                             |  |                                                                                                              |  | PAGE
|                                             |  |                                                                                                             
|PART I                                       |  |                                                                                                              |  |     
|ITEM 1.                                      |  | BUSINESS                                                                                                     |  | 4   
|ITEM 1A.                                     |  | RISK FACTORS                                                                                                 |  | 33  
|ITEM 1B.                                     |  | UNRESOLVED STAFF COMMENTS                                                                                    |  | 40  
|ITEM 2.                                      |  | PROPERTIES                                                                                                   |  | 40  
|ITEM 3.                                      |  | LEGAL PROCEEDINGS                                                                                            |  | 41  
|ITEM 4.                                      |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                          |  | 41  
|                                             |  |                                                                                                             
|PART II                                      |  |                                                                                                              |  |     
|ITEM 5.                                      |  | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |  | 42  
|ITEM 6.                                      |  | SELECTED FINANCIAL DATA                                                                                      |  | 44  
|ITEM 7.                                      |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        |  | 45  
|ITEM 7A.                                     |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                   |  | 59  
|ITEM 8.                                      |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                  |  | 59  
|ITEM 9.                                      |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                         |  | 59  
|ITEM 9A.                                     |  | CONTROLS AND PROCEDURES                                                                                      |  | 60  
|ITEM 9B.                                     |  | OTHER INFORMATION                                                                                            |  | 61  
|                                             |  |                                                                                                             
|PART III                                     |  |                                                                                                              |  |     
|ITEM 10.                                     |  | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                       |  | 62  
|ITEM 11.                                     |  | EXECUTIVE COMPENSATION                                                                                       |  | 66  
|ITEM 12.                                     |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS               |  | 66  
|ITEM 13.                                     |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                    |  | 66  
|ITEM 14.                                     |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                       |  | 66  
|                                             |  |                                                                                                             
|PART IV                                      |  |                                                                                                              |  |     
|ITEM 15.                                     |  | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                   |  | 67  
|                                             | 
|SIGNATURES                                   |  | 74                                                                                                          
|                                             | 
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS   |  | F-1                                                                                                         
|EX-21.1 SUBSIDIARIES OF KNOLOGY, INC.        |  |                                                                                                             
|EX-23.1 CONSENT OF BDO SEIDMAN, LLP          |  |                                                                                                             
|EX-23.2 CONSENT OF DELOITTE & TOUCHE LLP     |  |                                                                                                             
|EX-31.1 SECTION 302 CERTIFICATION OF THE CEO |  |                                                                                                             
|EX-31.2 SECTION 302 CERTIFICATION OF THE CFO |  |                                                                                                             
|EX-32.1 SECTION 906 CERTIFICATION OF THE CEO |  |                                                                                                             
|EX-32.2 SECTION 906 CERTIFICATION OF THE CFO |  |                                                                                                             



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CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K for the year ended December 31, 2007 contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 including, specifically, the information under the captions Business and Managements Discussion and Analysis of Financial Condition and Results of Operations, as well as other
places in this annual report. Statements in this annual report that are not historical facts are forward-looking statements. Such forward-looking statements include those relating to:



| |  |  | our acquisition of Graceba Total Communications Group, Inc.;
| | - |  | ------------------------------------------------------------



| |  |  | our anticipated capital expenditures;
| | - |  | -------------------------------------



| |  |  | our anticipated sources of capital and other funding;
| | - |  | -----------------------------------------------------



| |  |  | plans to develop future networks and upgrade facilities;
| | - |  | --------------------------------------------------------



| |  |  | the current and future markets for our services and products;
| | - |  | -------------------------------------------------------------



| |  |  | the effects of regulatory changes on our business;
| | - |  | --------------------------------------------------



| |  |  | competitive and technological developments;
| | - |  | -------------------------------------------



| |  |  | possible acquisitions, alliances or dispositions; and
| | - |  | -----------------------------------------------------



| |  |  | projected revenues, liquidity, interest costs and income.
| | - |  | ---------------------------------------------------------

The words estimate, project, intend, expect, believe, may, could, plan,, will, should and similar
expressions are intended to identify forward-looking statements. Wherever they occur in this annual report or in other statements attributable to us, forward-looking statements are necessarily estimates reflecting our best judgment. These statements
relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievements to differ materially from any
future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. The most significant of these risks, uncertainties and other factors are discussed above. We caution you to carefully consider
these risks and those risks and uncertainties listed under the caption Risk Factors in this annual report and not to place undue reliance on our forward-looking statements. Except as required by law, we assume no responsibility for
updating any forward-looking statements.



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PART I

For convenience in this annual report, Knology, we, us, and the Company refer to Knology, Inc. and our consolidated subsidiaries, taken as a whole.



|ITEM 1. | BUSINESS
|------- | --------

We were formed as a Delaware corporation
in September 1998, and began trading publicly on the Nasdaq National Market in December 2003. We are a fully integrated provider of video, voice, data and advanced communications services to residential and business customers in nine markets in the
Southeastern United States and two markets in the Midwestern United States. For the year ended December 31, 2007, our revenues were $347.7 million and we had a net loss attributable to common stockholders of $43.9 million. Video,
voice, data and other revenues accounted for approximately 42%, 34%, 23% and 1%, respectively, of our consolidated revenues for the year ended December 31, 2007. We report an aggregate number of connections for video, voice and data services.
For example, a single customer who purchases cable television, local telephone and Internet access services would count as three connections. As of December 31, 2007, we had approximately 643,000 total connections.

We provide our services over our wholly owned, fully upgraded minimum 750 MHz interactive broadband network. As of December 31, 2007, our network
passed approximately 887,000 marketable homes, which are residential and business units passed by our broadband network that are listed in our database and which we do not believe are covered by exclusive arrangements with other providers of
competing services. Our network is designed with sufficient capacity to meet the growing demand for high-speed and high-bandwidth video, voice and data services, as well as the introduction of new communications services.

We have operating experience in marketing, selling, provisioning, servicing and operating video, voice and data systems and services. We have delivered a
bundled service offering for nine years, and we are supported by a management team with decades of experience operating video, voice and data networks. We provide a full suite of video, voice and data services in Alabama, Florida, Georgia, Iowa,
Minnesota, South Carolina, South Dakota and Tennessee, which are in the Southeastern and Midwestern regions of the United States. We offer our bundled service to all of our marketable passings.

We have built our Company through:



| |  |  | construction and expansion of our broadband network to offer integrated video, voice and data services;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | organic growth of connections through increased penetration of services to new marketable homes and our existing customer base, along with new service offerings;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | upgrades of acquired networks to introduce expanded broadband services, including bundled voice and data services; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | acquisitions of other broadband companies.
| | - |  | ------------------------------------------

On April 3, 2007, we completed the $255 million acquisition of PrairieWave Holdings, Inc. (PrairieWave), a video, voice and high-speed Internet broadband services provider in the Rapid City and Sioux Falls, South Dakota regions, as
well as portions of Minnesota and Iowa. In 2006, PrairieWave had revenues totaling $88.3 million and as of December 31, 2006, PrairieWaves network passed approximately 113,000 homes and had approximately 157,000 business and residential
connections.

Recent Developments

In
January 2008, we acquired Graceba Total Communications Group, Inc. (Graceba), a voice, video and high-speed Internet broadband services provider to residential and business customers in Dothan, Alabama. The



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$75 million transaction was funded with the payment of $16 million of cash on hand and the proceeds of a $59 million incremental term loan facility under the
Companys existing credit facility. The incremental debt bears interest at LIBOR plus 2.75% and provides for 1% principal amortization annually with the balance due on June 30, 2012. The company has fixed the floating LIBOR rate at 3.995%
through an interest rate swap contract. See Note 14 of the Notes to Consolidated Financial Statements elsewhere in this annual report.

Website Access to SEC Filings

The Company makes its SEC filings, including its annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, available free of charge on the Companys Internet website, www.knology.com, as soon as reasonably practicable after the reports are electronically filed with or
furnished to the SEC.

Our Industry

In
recent years, regulatory developments and advances in technology have substantially altered the competitive dynamics of the communications industry and blurred the lines among traditional video, voice and data providers. The Telecommunications Act
of 1996 and its implementation through Federal Communications Commission (FCC) regulation have encouraged competition in these markets. Advances in technology have made the transmission of video, voice and data on a single platform feasible and
economical. Communications providers seek to bundle products to leverage their significant capital investments, protect market share in their core service offerings from new sources of competition, and achieve operating efficiencies by providing
more than one service over their networks at lower incremental costs while increasing revenue from the existing customer base.

Incumbent
cable operators are working to expand their core services by offering a bundled package of services, including the provision of Internet Protocol (IP) based voice services for their customers. Most of the major providers have rolled out or announced
plans to roll out Voice over Internet Protocol (VoIP) services.

We believe the future of the industry will include a broader competitive
landscape in which communications providers will offer bundled video, voice and data services and compete with each other based on scope and depth of the service offering, pricing and convenience.

Our Strategy

Our goal is to
be the leading provider of integrated broadband communications services to residential and business customers in our target markets and to fully leverage the capacity and capability of our interactive broadband network. The key components of our
strategy include:



| |  |  | Focus on offering fully integrated bundles of video, voice and data services. We provide video, voice and data services over our broadband network and
promote the adoption of these services by new and existing customers in bundled offerings. Bundling is central to our operating strategy and provides us with meaningful revenue opportunities, enables us to increase penetration and operating
efficiencies, facilitates customer service, and reduces customer acquisition and installation costs. We believe that offering our customers a bundle of video, voice and data services allows us to maximize the revenue generating capability of our
network, increase revenue per customer, provide greater pricing flexibility and promote customer retention.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Leverage our broadband network to provide new services. We built our high-capacity, interactive broadband network with fiber optics as close to the
customer as economically feasible. Our entire network is a minimum of 750MHz, which enables us to provide at least 750 MHz of capacity and two-way capability to all of our homes passed in these markets. We have invested in advanced technology
platforms that support advanced communications services and multiple emerging
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | interactive services such as video-on-demand, subscriber video-on-demand, digital video recorder, interactive television, high-definition television, hosted
IP Centrex services, passive optical network (PON) services and Gigabit Ethernet services in our markets.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Deliver industry-leading customer service. Outstanding customer service is a critical element of our operating philosophy. Through our Augusta,
Georgia call center, which we operate 24 hours a day, seven days a week, and our Sioux Falls, South Dakota call center, we deliver personalized and responsive customer care that promotes customer loyalty. Through our network operations center (NOC),
we monitor and evaluate network performance and quality of service. Our philosophy is to be proactive in retaining customers rather than reactive, and we strive to resolve service delivery problems prior to the customer becoming aware of them.
Because we own our network and actively monitor our digital services from a centralized location to the customer premises, we have greater control over the quality of the services we deliver to our customers and, as a result, the overall customer
experience. We have an enterprise management system that enhances our service capability by providing us with a single platform for sales, provisioning, customer care, trouble ticketing, credit control, scheduling and dispatch of service calls, as
well as providing our customers with a single bill for all services.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Pursue expansion opportunities. We have a history of acquiring, integrating, upgrading and expanding systems, enabling us to offer bundled video,
voice and data services and increasing our revenue opportunity, penetration and operating efficiency. To augment our organic growth, we will pursue value-enhancing expansion opportunities meeting our previously described target market criteria that
allow us to leverage our experience as a bundled broadband provider and endorse our operating philosophy of delivering profitable growth. These opportunities include acquisitions and edge-out expansion in new or existing markets. We will continue to
evaluate growth opportunities based on targeted return requirements.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our Interactive Broadband
Network

Our network is critical to the implementation of our operating strategy, allowing us to offer bundled video, voice and data
services to our customers in an efficient manner and with a high level of service. In addition to providing high capacity and scalability, our network has been specifically engineered to have increased reliability, including features such as:



| |  |  | redundant fiber routing and use of SONET protocol which enables the rapid, automatic redirection of network traffic in the event of a fiber cut;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | back-up power supplies in our network which ensure continuity of our service in the event of a power outage; and
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | network monitoring to the customer premises for all digital video, voice and data services.
| | - |  | -------------------------------------------------------------------------------------------

Technical overview

Our
interactive broadband network consists of fiber-optic cable, coaxial cable and copper wire. Fiber-optic cable is a communications medium that uses hair-thin glass fibers to transmit signals over long distances with minimum signal loss or distortion.
In most of our network, our systems main high capacity fiber-optic cables connect to multiple nodes throughout our network. These nodes are connected to individual homes and buildings by coaxial cable and are shared by a number of customers,
generally 500 homes. We have sufficient fibers in our cables to further subdivide our nodes to 125 homes if growth so dictates. Our network has excellent broadband frequency characteristics and physical durability, which is conducive to providing
video, data transmission and voice service.

As of December 31, 2007, our network consisted of approximately 13,000 miles of network,
passed approximately 887,000 marketable homes and served approximately 643,000 connections. Our interactive



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broadband network is designed using redundant fiber-optic cables. Our SONET rings are self-healing, which means that they provide for the very
rapid, automatic redirection of network traffic so that if there is a single point of failure on a fiber ring, our service will continue.

We power our network from locations called hub sites, each of which is equipped with a generator and battery back-up power source to allow service to continue during a power outage. Additionally, individual nodes that are served by hubs are
equipped with back-up power. Our redundant fiber-optic cables and network powering systems allow us to provide circuit-based voice services consistent with industry reliability standards for traditional telephone systems.

We monitor our network 24 hours a day, seven days a week from our NOC in West Point, Georgia. Technicians in each of our service areas schedule and
perform installations and repairs and monitor the performance of our interactive broadband network. We actively maintain the quality of our network to minimize service interruptions and extend the networks operational life.

Video

We offer video services
over our network in the same way that traditional cable companies provide cable TV service. Our network is designed for an analog and digital two-way interactive transmission with fiber-optic cable carrying signals from the headend to hubs, and to
distribution points (nodes) within our customers neighborhoods, where the signals are transferred to our coaxial cable network for delivery to our customers.

Voice

We offer telephone service over our broadband network in much the same way local phone
companies provide service. We install a network interface box outside a customers home or an Embedded Multimedia Terminal Adapter (EMTA) in the home to provide dial tone service. Our network interconnects with those of other local phone
companies. We provide long-distance service using leased facilities from other telecommunications service providers. We have multiple Class 4 and Class 5 full-featured Nortel DMS 500 switches located in West Point, Georgia, Huguley, Alabama,
and Rapid City and Viborg South Dakota that direct all of our voice traffic and allow us to provide enhanced custom calling services including call waiting, call forwarding and three-way calling. We also operate a telephone system in Valley,
Alabama, West Point, Georgia, and Viborg, South Dakota where we are the rural incumbent telephone company.

Data

We provide Internet access using high-speed cable modems in much the same way customers currently receive Internet services over modems linked to the
local telephone network. The cable modems we presently use are significantly faster than dial-up modems generally in use today. Our customers Internet connections are always on, and there is no need to dial-up for access to the Internet or
wait to connect through a port leased by an Internet service provider. We provide our customers with a high level of data transfer rates through multiple peering arrangements with tier-one Internet facility providers.

Our Bundled Service Offering

We offer a complete
solution of video, voice and data services in all of our markets.

We offer a broad range of service bundles designed to address the
varying needs and interests of existing and potential customers. We sell individual services at prices competitive to those of the incumbent providers, but attractively price additional services from our bundle. Bundling our services enables us to
increase



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penetration, average revenue per customer (ARPC) and operating efficiencies, facilitate customer service, reduce customer acquisition and installation costs,
and increase customer retention.

Our bundled strategy means that we may deliver more than one service to each customer, and therefore we
report an aggregate number of connections for video, voice and data services. For example, a single customer who purchases local video, voice and data services would count as three connections.

Video services

We offer our
customers a full array of video services and programming choices. Customers generally pay initial connection charges and fixed monthly fees for video service. As of December 31, 2007, we provided video services to 227,659 connections. As of
December 31, 2007, 50% of our video connections subscribed for digital video.

Our analog video service offering comprises the
following:



| |  |  | Basic Service: All of our video customers receive a package of basic programming, which generally consists of local broadcast television and local
community programming, including public, educational and government access channels.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Expanded Basic Service: This expanded programming level includes approximately 65 channels of satellite-delivered or non-broadcast channels, such as
ESPN, MTV, USA, CNN, The Discovery Channel, Nickelodeon and various home shopping networks.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Premium Channels: These channels provide commercial-free movies, sports and other special event entertainment programming, such as HBO, Showtime,
Starz, Encore and Cinemax and are available at an additional charge above our expanded basic and digital tiers of services.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our platform enables us to provide an attractive service offering of extensive programming as well as interactive services. Our digital video service consists of approximately 210 digital channels of programming, including our expanded
basic cable service and approximately 45 music channels. We have introduced new service offerings to strengthen our competitive position and generate additional revenues, including high definition TV, digital video recorder, video-on-demand and
subscription video-on-demand. Video-on-demand permits customers to order movies and other programming on demand with DVD-like functions on a fee-per-viewing basis. Subscription video-on-demand is a similar service that has specific content available
from our premium channel offerings for an incremental charge.

Voice services

Our voice services include local and long-distance telephone services. Our telephone packages can be customized to include different combinations of the
following core services:



| |  |  | local area calling plans;
| | - |  | -------------------------



| |  |  | flat-rate local and long-distance plans;
| | - |  | ----------------------------------------



| |  |  | a variety of calling features; and
| | - |  | ----------------------------------



| |  |  | measured and fixed rate toll packages based on usage.
| | - |  | -----------------------------------------------------

For local service, our customers pay a fixed monthly rate, plus additional charges per month for custom and advanced calling features such as call waiting, caller ID, caller ID on TV and voicemail. We also offer
off-net voice services to a small number of customers through an arrangement with a local utility provider in Newnan, Georgia.



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Residential data services

We offer tiered data services to both residential and business customers that include high-speed connections to the Internet using cable modems. Because a
customers Internet service is offered over the existing cable connection in the home, no second phone line is required and there is no disruption of service when the phone rings or when the television is on. We offer IntroNet, a high speed
service aimed at first-time or dial-up Internet users. IntroNet is available at speeds of 256k which is faster than traditional dial-up, but slower than our typical high-speed service, and priced at a discount to our faster product. The IntroNet
product has been successful in capturing additional market share for us and providing a customer base to which higher speed data services may be marketed. Our data packages generally include the following:



| |  |  | speed from six up to eight megabits per second;
| | - |  | -----------------------------------------------



| |  |  | specialized technical support 24 hours a day, seven days a week;
| | - |  | ----------------------------------------------------------------



| |  |  | access to exclusive local content, weather, national news, sports and financial reports;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | value-added features such as e-mail accounts, on-line storage, spam protection and parental controls; and
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | a DOCSIS-compliant modem installed by a trained professional.
| | - |  | -------------------------------------------------------------

Business voice and data services

Our broadband network also supports services to business
customers, and accordingly, we have developed a full suite of products for small, medium and large enterprises. We offer the traditional bundled product offering to these business customers. We also have developed new products to meet the more
complex voice and data needs of the larger business sector. We offer passive optical network service, which enables our customers to have T-1 voice services and data speeds of up to 1 gigabit per second on our fiber network. We have introduced our
Matrix product offering, which can replace customers aging, low functionality PBX products with an IP Centrex voice and data service that offers more flexible features at a lower cost. In addition, we offer a virtual private network service to
provide businesses with multiple sites the ability to exchange information privately among their locations over our network. We serve our business customers from locally based business offices with customer service and network support 24 hours a
day, seven days a week.

Broadband carrier services

We use extra, unused capacity on our network to offer wholesale services to other local and long distance telephone companies, Internet service providers
and other integrated services providers, called broadband carrier services. While this is not a part of our core strategy, we believe our interactive broadband network offers other service providers a reliable and cost competitive alternative to
other telecommunications service providers.

Customer Service and Billing

Customer service

Customer
service is an essential element of our operations and marketing strategy, and we believe our quality of service and responsiveness differentiates us from many of our competitors. A significant number of our employees are dedicated to customer
service activities, including:



| |  |  | sales and service upgrades;
| | - |  | ---------------------------



| |  |  | customer activations and provisioning;
| | - |  | --------------------------------------



| |  |  | service issue resolutions; and
| | - |  | ------------------------------



| |  |  | administration of our customer satisfaction programs.
| | - |  | -----------------------------------------------------



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We provide customer service 24 hours a day, seven days a week. Our representatives are cross-trained to
handle customer service transactions for all of our products and currently exceed the industry standards for call answer times. We operate two centralized customer service call centers in Augusta, Georgia and Sioux Falls, South Dakota, which handle
all customer service transactions. In addition, we provide our business customers with a centralized Business Customer Care Center that is distinctly dedicated to our business customers 24 hours per day, 7 days per week. Also located in Augusta,
Georgia, we have found this dedicated facility improves our responsiveness to customer needs and distinguishes our product in the market. We believe it is a competitive advantage to provide our customers with the convenience of a single point of
contact for all customer service issues for our video, voice and data service offerings and is consistent with our bundling strategy.

We
monitor our network 24 hours a day, seven days a week. Through our network operations center, we monitor our digital video, voice and data services to the customer level and our analog video services to the node level. We strive to resolve service
delivery problems prior to the customer being aware of any service interruptions.

Billing

We are an early adopter of a single billing platform for video, voice and data services, which is part of an enterprise management system that we have
implemented system wide. This system, which was developed to our specifications, enables us to send a single bill to our customers for video, voice and data services.

Sales and Marketing

We believe that we were the first-to-market service provider of a bundled video,
voice and data communications service package in each of our current markets, except the Pinellas market, which we entered via acquisition in 2004. Our sales and marketing materials emphasize the convenience, savings and improved service that can be
obtained by subscribing to our bundled services.

We position ourselves as the local provider of choice in our markets, with a strong local
customer interface and community presence, while simultaneously taking advantage of economies of scale from the centralization of certain marketing functions.

We have a sales staff in each of our markets including managers and direct sales teams for both residential and business services. Our standard residential team consists of direct sales, outbound sales, front counter
sales, and local market coordination as well as support personnel. Our business services sales team consists of our account executives, specialized business installation coordinators and dedicated installation service teams. Our call center sales
team handles all inbound telemarketing sales.

Our sales team is cross-trained on all our products to support our bundling strategy. The
sales team is compensated based on connections and is therefore motivated to sell more than one product to each customer. Our marketing and advertising strategy is to target bundled service prospects utilizing a broad mix of media tactics including
broadcast television, cross channel cable spots, radio, newspaper, outdoor space, Internet and direct mail. We have utilized database-marketing techniques to shape our offers, segment and target our prospect base to increase response and reduce
acquisition costs.

We have implemented customer relationship management and retention techniques, as well as customer referral tactics,
including newsletters and personalized e-mail communications. These programs are designed to increase loyalty and retention and to vertically integrate our current base of customers.

Pricing for Our Products and Services

Our core products are pre-packaged into triple-play bundles and two-product bundles. The bundles significantly reduce the number of plans our sales and call center personnel handle, simplifying the customers



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experience and reducing the products supported in the billing system by our Information Technology (IT) department. Product acceptance by new and existing
customers has been strong.

We attractively price our services to promote sales of bundled packages. We offer bundles of two or more
services with tiered features and prices to meet the demands of a variety of customers. We also sell individual services at prices competitive to those of the incumbent providers. An installation fee is charged to new and reconnected customers. We
charge monthly fees for cable customer premise equipment.

Programming

We purchase some of our programming directly from the program networks by entering into affiliation agreements with the programming suppliers. We also
benefit from our membership with the National Cable Television Cooperative (NCTC), which enables us to take advantage of volume discounts. As of December 31, 2007, approximately 64% of our programming was sourced from the cooperative, which
also handles our contracting and billing arrangements on this programming.

Markets

Current Markets

As of
December 31, 2007, we served the following markets with our interactive broadband network:



|           |  |          |  |                 |  |                           |  |                                       |  |      |  |     
|---------- |  | -------- |  | --------------- |  | ------------------------- |  | ------------------------------------- |  | ---- |  | ----
|Year Added |  | Source   |  | Market          |  | MarketableHomes12/31/2007 |  | Year Services First OfferedBy Knology
|           |  |          |  | Video           |  | Voice                     |  | Data                                 
|1995       |  | Acquired |  | Montgomery, AL  |  | 90,800                    |  | 1995                                  |  | 1997 |  | 1997
|1995       |  | Acquired |  | Columbus, GA    |  | 71,500                    |  | 1995                                  |  | 1998 |  | 1998
|1997       |  | Acquired |  | Panama City, FL |  | 61,700                    |  | 1997                                  |  | 1998 |  | 1998
|1998       |  | Acquired |  | Huntsville, AL  |  | 84,400                    |  | 1998                                  |  | 1999 |  | 1999
|1998       |  | Built    |  | Charleston, SC  |  | 69,100                    |  | 1998                                  |  | 1998 |  | 1998
|1998       |  | Built    |  | Augusta, GA     |  | 55,300                    |  | 1998                                  |  | 1998 |  | 1998
|1999       |  | Acquired |  | West Point, GA  |  | 12,400                    |  | 1999                                  |  | 1999 |  | 1999
|2000       |  | Built    |  | Knoxville, TN   |  | 39,700                    |  | 2001                                  |  | 2001 |  | 2001
|2003       |  | Acquired |  | Pinellas, FL    |  | 273,600                   |  | 2003                                  |  | 2004 |  | 2003
|2007       |  | Acquired |  | Rapid City, SD  |  | 49,345                    |  | 2007                                  |  | 2007 |  | 2007
|2007       |  | Acquired |  | Sioux Falls, SD |  | 64,213                    |  | 2007                                  |  | 2007 |  | 2007

New markets

In addition to the markets served by PrairieWave that we acquired and Graceba that we are acquiring, we plan to evaluate expansion of our operations to
other markets that have the size, market conditions, demographics and geographical location consistent with our business strategy. We plan to evaluate target cities that have the following characteristics, among others:



| |  |  | targeted return requirements;
| | - |  | -----------------------------



| |  |  | an average of at least 70 homes per mile;
| | - |  | -----------------------------------------



| |  |  | competitive dynamics that allow us to be the leading provider of integrated video, voice and data services; and
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | conditions that will afford us the opportunity to capture a substantial number of customers.
| | - |  | --------------------------------------------------------------------------------------------



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Competition

We compete with a variety of communications companies because of the broad number of video, voice and data services we offer. Competition is based on service, content, reliability, bundling, value and convenience.
Virtually all markets for video, voice and data services are extremely competitive, and we expect that competition will intensify in the future. Our competitors are often larger, better-financed companies with greater access to capital resources.
These incumbents presently have numerous advantages as a result of their historic monopolistic control of their respective markets, brand recognition, economies of scale and scope and control of limited conduit relationships.

Video services

Cable
television providers. Cable television systems are operated under non-exclusive franchises granted by local authorities, which may result in more than one cable operator providing video services in a particular market. Other cable television
operations exist in each of our current markets, and many of those operations have long-standing customer relationships with the residents in those markets. Our competitors currently include Bright House Networks (Bright House), Charter
Communications, Inc. (Charter), Comcast Corporation (Comcast), Mediacom Communication Corporation (Mediacom), Midcontinent Communications (Midco) and Time Warner Cable, Inc. (Time Warner). We also encounter competition from direct broadcast
satellite systems, including Direct TV, Inc. (DirecTV) and Echostar Communications Corporation (Echostar) that transmit signals to small dish antennas owned by the end-user.

According to industry sources, as of November 2007, satellite television providers served approximately 31.6% of pay television customers in the United
States; however, the satellite provider penetration in our markets is less. Competition from direct broadcast satellites could become significant as developments in technology increase satellite transmitter power and decrease the cost and size of
equipment. Additionally, providers of direct broadcast satellites are not required to obtain local franchises or pay franchise fees. The Intellectual Property and Communications Omnibus Reform Act of 1999 permits satellite carriers to carry local
television broadcast stations and is expected to enhance satellite carriers ability to compete with us for customers. As a result, we expect competition from these companies to increase.

Other television providers. Cable television distributors may, in some markets, compete for customers with other video programming
distributors and other providers of entertainment, news and information. Alternative methods of distributing the same or similar video programming offered by cable television systems exist. Congress and the FCC have encouraged these alternative
methods and technologies in order to offer services in direct competition with existing cable systems. These competitors include satellite master antenna television systems, local telephone companies and Internet content providers.

We compete with systems that provide multichannel program services directly to hotel, motel, apartment, condominium and other multiunit complexes through
a satellite master antennaa single satellite dish for an entire building or complex. These systems are generally free of any regulation by state and local governmental authorities. Pursuant to the Telecommunications Act of 1996, these systems,
called satellite master antenna television systems, are not commonly owned or managed and do not cross public rights-of-way and, therefore, do not need a franchise to operate.

The Telecommunications Act of 1996 eliminated many restrictions on local telephone companies offering video programming, and we may face increased
competition from those companies. Several major local telephone companies, including AT&T, Qwest Communications (Qwest) and Verizon, started to provide video services to homes.

In addition to other factors, we compete with these companies using programming content, including the number of channels and the availability of local
programming. We obtain our programming by entering into



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contracts or arrangements with video programming suppliers. A programming supplier may enter into an exclusive arrangement with one of our video competitors,
creating a competitive disadvantage for us by restricting our access to programming.

Voice services

In providing local and long-distance voice services, we compete with the incumbent local phone company, various long-distance providers and VoIP telephone
providers in each of our markets. AT&T, Qwest and Verizon, are the incumbent local phone companies in our current markets and are particularly strong competitors. We also compete with a number of providers of long-distance telephone services,
such as AT&T, Embarq (formerly Sprint) and Verizon. In addition, we compete with a variety of smaller, more regional, competitors that lease network components from AT&T or Verizon and focus on the commercial segment of our markets. Recent
regulatory decisions have reduced the economic opportunity for many of these providers.

We expect to continue to face intense competition
in providing our telephone and related telecommunications services. The Telecommunications Act of 1996 allows service providers to enter markets that were previously closed to them. Incumbent local telephone carriers are no longer protected from
significant competition in local service markets.

We are anticipating an increase in the deployment of VoIP telephone services. Following
years of development, VoIP has been deployed by a variety of service providers including other Multiple System Operators (MSOs) such as Cox Communications, Charter and Comcast and independent service providers such as Vonage Holding Corporation.
Unlike circuit switched technology, this technology does not require ownership of the last mile and eliminates the need to rent the last mile from the Regional Bell operating companies (RBOCs). VoIP is essentially a data service and can be more
feature rich than traditional circuit-switched telephone service. The VoIP providers will have differing levels of success based on their brand recognition, financial support, technical abilities, and legal and regulatory decisions. The following
competitors have launched VoIP residential service: Mediacom in our Columbus, Georgia market, Comcast in our Augusta, Georgia, Panama City, Florida, Huntsville, Alabama, Knoxville, Tennessee and Charleston, South Carolina markets, Charter in our
Columbus, Georgia, Montgomery and Valley, Alabama markets, and Bright House in our Pinellas, Florida market.

We believe that wireless
telephone service, such as cellular and personal communication services, or PCS, currently is viewed by most consumers as a supplement to, not a replacement for, traditional telephone service. Wireless service generally is more expensive than
traditional local telephone service and is priced on a usage-sensitive basis. However, there is evidence to indicate that wireless is gaining consideration as a replacement service, and the rate differential between wireless and traditional
telephone service has begun to decrease and is expected to further decrease and lead to more competition between providers of these two types of services.

Data services

Providing data services is a rapidly growing business and competition is
increasing in each of our markets. Some of our competitors benefit from greater experience, resources, marketing capabilities and name recognition. Cable television companies have entered the Internet access market. The incumbent cable television
company in each of our markets currently offers high-speed Internet access services.

Other competitive high-speed data providers include:



| |  |  | incumbent local exchange carriers that provide dial-up and DSL services;
| | - |  | ------------------------------------------------------------------------



| |  |  | traditional dial-up Internet service providers;
| | - |  | -----------------------------------------------



| |  |  | competitive local exchange carriers;
| | - |  | ------------------------------------



| |  |  | providers of satellite-based Internet access services; and
| | - |  | ----------------------------------------------------------



| |  |  | wireless RF providers (WiFi).
| | - |  | -----------------------------



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A large number of companies provide businesses and individuals with direct access to the Internet and a
variety of supporting services. In addition, many companies such as AOL and Microsoft Corporation offer online services consisting of access to closed, proprietary information networks with services similar to those available on the Internet, in
addition to direct access to the Internet. These companies generally offer data services over telephone lines using computer modems. Some of these data service providers also offer high-speed integrated services using digital network connections and
DSL connections to the Internet, and the focus on delivering high-speed services is expected to increase.

Bundled Services

Several of our competitors have initiated business plans to deploy their own versions of the triple-play bundle in our markets. Comcast,
Charter, Bright House, Mediacom, Midco and other MSOs are in varying stages of launching VoIP and thereby enabling their third service offering. Bright House launched VoIP in the Pinellas County market in mid-2004. Comcast and Charter have made
numerous announcements about launching voice services and have done so in all of our markets. It is inevitable that these providers will launch VoIP in all of their markets in the not too distant future.

AT&T and Verizon have each initiated agreements/partnerships with satellite providers enabling their third service offering, video. The RBOCs each
have facilities-based initiatives to construct broadband (last-mile) networks in several markets nationwide. None of these networks currently overlap with Knology. The RBOCs ability to provide the three services will increase competition for
subscribers within Knologys markets.

Knology believes that its emphasis on proven technology for deploying telephone service
enhances its product offering relative to the MSOs for the near future.

Legislation and regulation

We operate in highly regulated industries and both our cable and telecommunications services are subject to regulation at the federal, state and local
levels. Providers of Internet services generally are not subject to regulation. We are required to obtain and maintain local franchises, which is our primary authority to provide video services and to occupy and use the public rights-of-way to
provide cable services. Both federal and state regulators require us to obtain telecommunications operating authority, obtain approvals of various corporate and financing transactions, pay various fees and assessments, file periodic reports and
comply with various rules regarding the contents of our bills, protection of subscriber privacy, service quality and similar consumer protection matters on an ongoing basis. Local authorities also impose various regulatory requirements, including
reporting and fee requirements, and also govern our use of the public rights-of-way to provide telecommunications. If we fail to comply with these existing requirements, or are unable to timely comply with new or modified requirements, we may be
subject to fines or potentially be asked to show cause as to why our authority to provide services should not be revoked. The time and expense of complying with federal, state and local regulations and demonstrating such compliance could increase
our costs of providing services and could have a material adverse effect on our business, results of operations and financial condition.

Federal, state and local regulators may not grant us any required regulatory authorization and may take action against us regarding our compliance with applicable statutory and regulatory requirements. Delays in receiving regulatory
approvals, the enactment of new adverse statutory and regulatory requirements and related compliance and enforcement activity may negatively impact our growth and could have a material adverse effect upon our business, results of operations and
financial condition.

Implementation of the Communications Act of 1934, as amended, is an ongoing process at both the federal and state
levels and it remains subject to judicial review. Ongoing proceedings before the FCC and state regulators include proceedings relating to interconnection access and pricing (including consideration of ILEC requests for forbearance from
regulations governing their provision of broadband services), access to and



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##### Index to Financial Statements

pricing of special access services and other issues that could have a significant impact on our business and the business condition in the telecommunications
industry generally. These proceedings could potentially impact the availability of special access facilities or further increase our costs or impact the flexibility and operating costs of our competitors. In addition, there are other proceedings
relating to, among other things, regulation of IP-based services, privacy, billing, universal service and other subsidy programs, intercarrier compensation, numbering related issues and other issues that could have a significant impact on our
business and business conditions in the communications industry generally. These and future proceedings at the federal and state levels may result in regulatory changes which would cause us to incur additional operating expenditures, reduce our
revenues, negatively impact our growth, assist our competitors, or have some other material adverse effect upon our business. Regulation varies in each jurisdiction and may change in response to judicial decisions, legislative initiatives and
administrative orders, government policies, competition and technological developments. We cannot predict what impact, if any, such changes or proceedings may have on our business or results of operations and we cannot guarantee that regulatory
authorities will not raise material issues regarding our compliance with applicable regulations.

Common carriers are exempt from
regulation by the Federal Trade Commission (FTC). However, to the extent we provide non-common carrier services, including Internet access services and interconnected VoIP services, we may be subject to FTC jurisdiction, especially with respect to
advertised claims regarding such services.

In addition, congressional efforts to rewrite the 1996 Act or enact other legislation, as well
as various state legislative initiatives, may cause major industry and regulatory changes adverse to our cable, telecommunications, and Internet access businesses. We cannot predict the outcome of these proceedings or legislative initiatives or the
effects, if any, that these proceedings or legislative initiatives may have on our business, results of operations and financial condition.

The following is a summary of federal laws and regulations affecting the growth and operation of the cable television and telecommunications industries and a description of relevant state and local laws. It does not purport to be a complete
summary of all present and proposed legislation and regulations pertaining to our operations.

Federal Regulation

Cable Television Consumer Protection and Competition Act of 1992

The Cable Television Consumer Protection and Competition Act of 1992, or the 1992 Cable Act, increased the regulation of the cable industry by imposing
rules governing, among other things:



| |  |  | rates for tiers of cable video services;
| | - |  | ----------------------------------------



| |  |  | access to programming by competitors of cable operators and restrictions on certain exclusivity arrangements by cable operators;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | access to cable channels by unaffiliated programming services;
| | - |  | --------------------------------------------------------------



| |  |  | terms and conditions for the lease of channel space for commercial use by parties unaffiliated with the cable operator;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | ownership of cable systems;
| | - |  | ---------------------------



| |  |  | customer service requirements;
| | - |  | ------------------------------



| |  |  | mandating carriage of certain local television broadcast stations by cable systems and the right of television broadcast stations to withhold consent for cable
systems to carry their stations;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | technical standards; and
| | - |  | ------------------------



| |  |  | cable equipment compatibility.
| | - |  | ------------------------------



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The legislation also encouraged competition with existing cable television systems by:



| |  |  | allowing municipalities to own and operate their own cable television systems without a franchise;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | preventing franchising authorities from granting exclusive franchises or unreasonably refusing to award additional franchises covering an existing cable
systems service area; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | prohibiting the common ownership of cable systems and other types of multichannel video distribution systems.
| | - |  | -------------------------------------------------------------------------------------------------------------

Telecommunications Act of 1996

The
Telecommunications Act of 1996 (1996 Act) and the FCC rules implementing the 1996 Act radically altered the regulatory structure of telecommunications markets by mandating that states permit competition for local telephone services. The 1996 Act
placed certain requirements on most incumbent local exchange carriers to open their networks to competitors, resell their services at a wholesale discount, and permit other carriers to collocate equipment on incumbent local exchange carrier
premises. Rural carriers may be exempt from these incumbent local exchange carrier requirements, as currently is the case with our incumbent local exchange carrier subsidiaries, Interstate Telephone, Valley Telephone, PrairieWave Community
Telephone, and Graceba Total Communications. The following is a summary of the interconnection and other rights granted by the 1996 Act, as implemented by the FCCs regulations, that are most important for full local telecommunications
competition, and our belief as to the effect of the requirements, assuming vigorous implementation.



| |  |  | interconnection of competitors with the networks of incumbents and other carriers, which permits customers of competitors to exchange traffic with customers
connected to other networks;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | unbundling of voice grade and DS0 (and most DS1 and DS3) local loops and transport facilities and other elements of the incumbent local exchange carriers
networks, as well as collocation rights, which allows competitors to selectively gain access to incumbent carriers facilities that connect the incumbent carriers central offices with customer premises, to transmission facilities that
connect to incumbents central offices, and certain incumbent network capabilities, thereby enabling competitors to serve customers not directly connected to their networks on a facilities basis;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reciprocal compensation, which mandates arrangements for local traffic exchange between both incumbent and competitive carriers and compensation for terminating
local traffic originating on other carriers networks, thereby improving competitors margins for local service;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | number portability, which allows customers to change local carriers without changing telephone numbers, thereby removing a significant barrier for a potential
customer to switch to a different carriers local voice services; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | dialing parity, which enables competitors to provide telephone numbers to new customers on the same basis as the incumbent carrier.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------

This 1996 Act also permitted RBOCs under certain conditions to apply to the FCC for authority to provide long-distance services, which authority has now
been approved throughout the RBOCs territories.

The 1996 Act also included significant changes in the regulation of cable operators.
For example, the FCCs authority to regulate the rates for cable programming service tiers, that is all tiers other than the lowest level basic service tier, of all cable operators expired on March 31, 1999. The
legislation also:



| |  |  | repealed the anti-trafficking provisions of the 1992 Cable Act, which required cable systems to be owned by the same person or company for at least three years
before they could be sold to a third party;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | eliminated mandatory franchising requirements and the payment of franchise fees for Open Video System (OVS) operators, although local franchising authorities may
still impose such obligations;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | allows cable operators to enter telecommunications markets which historically have been closed to them;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | limits the rights of franchising authorities to require certain technology or to prohibit or condition the provision of telecommunications services by the cable
operator; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | adjusts the favorable pole attachment rates afforded cable operators under federal law such that they could be increased to a higher telecommunications
carrier rate, if the cable operator also provides telecommunications services over its network.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Regulation of Cable Services

The FCC, the principal federal regulatory agency with jurisdiction over cable
television, has promulgated regulations covering many aspects of cable television operations. The FCC may enforce its regulations through the imposition of fines, the issuance of cease and desist orders and/or the imposition of other administrative
sanctions. A brief summary of certain key federal regulations follows.

Rate regulation. The 1992 Cable Act authorized rate
regulation for certain cable services and equipment. The Act eliminated oversight by the FCC and the community of all but the basic service tier. The 1992 Cable Act requires communities to certify with the FCC before regulating basic cable rates.
Cable service rate regulation does not apply where a cable operator demonstrates to the FCC that it is subject to effective competition in the community. To the extent that any municipality attempts to regulate our basic rates or equipment, we
believe we could demonstrate to the FCC that our systems all face effective competition and, therefore, are not subject to rate regulation.

On February 9, 2006, the FCC released a report describing the possibility of multichannel video programming distributors (MVPD) to offer a la carte and themed-tier services, and thus increasing consumer choice in purchasing video
programming and providing substantial consumer benefits. In the previous report, the FCC concluded that a la carte pricing did not provide substantial economic benefits to consumers and, instead, increased the costs, including operational and
marketing for MVPDs. The new report concludes that a la carte pricing and themed-tiers do provide real economic benefits to consumers. The FCC did not adopt the finding of the new report and it has not required that cable system operators offer a la
carte pricing or themed-tiers. Material changes in the rate requirements may be considered in the future and, if such changes are adopted, the profitability of our cable business could be adversely affected.

Ownership limits. On December 18, 2007, the FCC adopted an order (albeit the text of the order has not yet been released) setting the number
of subscribers a cable operator may serve (a horizontal limit) at 30 percent nationwide. The FCC also issued in the same proceeding a Further Notice of Proposed Rulemaking in which it seeks comments on key issues relating to the appropriate vertical
ownership limits (the number of channels a cable operator may devote to its affiliated programming networks) and related cable and broadcast attribution rules. We are in compliance with the ownership limits. To the extent the FCC establishes new
vertical limits, we believe we could demonstrate compliance with any such restrictions. However, as noted above, the text of the FCCs order and further rulemaking have not been released; examination of these texts when released may reveal
other potential impacts, which could be adverse to our operations.

Program access. To promote competition with incumbent cable
operators by independent cable programmers, the 1992 Cable Act placed restrictions on dealings between cable programmers and cable operators. Satellite video programmers affiliated with cable operators are prohibited from favoring those cable
operators over competing distributors of multichannel video programming, such as satellite television operators and competitive cable operators such as us. These restrictions are designed to limit the ability of vertically integrated satellite cable
programmers from offering exclusive programming arrangements or preferred pricing or non-price terms to cable operators. In an order released October 1, 2007, the FCC found that the existing ban on exclusive contracts between vertically
integrated programmers and cable operators continues to be necessary to preserve and protect competition and diversity in the distribution of video programming, and agreed to retain it again for five years, until October 5, 2012.



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The Communications Act requires a cable system with 36 or more activated channels to designate a
significant portion of its channel capacity for commercial leased access by third parties to provide programming that may compete with services offered by the cable operator (leased access channels). The FCC regulates various aspects of such third
party commercial use of channel capacity on our cable systems, including the rates and some terms and conditions of the commercial use. On November 27, 2007, the FCC adopted an order that establishes more specific leased access customer service
standards and increased enforcement of those standards, faster cable operator response times to information requests and more appropriate leased access disputes. The FCC simultaneously adopted a Further Notice of Proposed Rulemaking seeking comments
on applying the revised rate methodology to programmers transmitting predominantly sales presentations or program length commercials.

Carriage of broadcast television signals. The 1992 Cable Act established broadcast signal carriage requirements that allow local commercial television broadcast stations to elect every three years whether to require the cable system
to carry the station (must-carry) or whether to require the cable system to negotiate for consent to carry the station (retransmission consent). The most recent election by broadcasters became effective on January 1, 2006. Stations are
generally considered local to a cable system where the system is located in the stations Nielsen designated market area. Cable systems must obtain retransmission consent for the carriage of all distant commercial broadcast stations, except for
certain superstations, that are commercial satellite-delivered independent stations such as WGN. Pursuant to the Satellite Home Viewer Improvement Act, the FCC enacted rules governing retransmission consent negotiations between broadcasters and all
distributors of multichannel video programming (including cable operators). Local non-commercial television stations are also given mandatory carriage rights, subject to certain exceptions, within a certain limited radius. Non-commercial stations
are not given the option to negotiate for retransmission consent. Must-carry requests may decrease the attractiveness of the cable operators overall programming offerings by including less popular programming on the channel line-up, while
retransmission consent elections may involve cable operator payments (or other concessions) to the programmer. We carry some stations pursuant to retransmission consent agreements and pay fees for such consents or have agreed to carry additional
services. We carry other stations pursuant to must-carry elections.

By statute, cable operators must make local broadcasters primary
video and program-related material viewable by all of their subscribers. In an order released November 30, 2007, the FCC adopted rules to ensure all cable subscribers, including those with analog TV sets, can view broadcast television after the
transition to digital television occurs on February 17, 2009. The new FCC rules allow cable operators to comply with the viewability requirement by choosing to either: (1) carry the digital signal in analog format, or (2) carry the
signal only in digital format, provided that all subscribers have the necessary equipment to view the broadcast content. The viewability requirements extend to February 2012 with the FCC committing to review them during the final year of this period
in light of the state of technology and the marketplace. We expect to be able to comply with the viewability requirements to ensure that cable subscribers with analog television sets can continue to view all must-carry stations after the end of the
DTV transition, but our implementation might be flawed, and circumstances outside our control may make it impossible for us to comply in a timely fashion, in which case we may be subject to investigations and potential fines and penalties.

Registration procedures and reporting requirements. Before beginning operation in a particular community, all cable television
systems must file a registration statement with the FCC listing the broadcast signals they will carry and certain other information. Additionally, cable operators periodically are required to file various informational reports with the FCC. Cable
operators that operate in certain frequency bands, including us, are required on an annual basis to file the results of their periodic cumulative leakage testing measurements. Operators that fail to make this filing or who exceed the FCCs
allowable cumulative leakage index risk being prohibited from operating in those frequency bands in addition to other sanctions.

Equal
Employment Opportunity (EEO) Rules and Policies. The 1992 Cable Act established rules that prohibit discrimination by cable operators. They also require cable operators to provide notice of job vacancies and to undertake additional outreach
measures, such as job fairs and scholarship programs, while at the same



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##### Index to Financial Statements

time affording them enough flexibility to create the programs most effective for their communities. The FCC established specific record keeping obligations
relating to EEO compliance. In addition, the EEO rules will be enforced through review at renewal time, at mid-term for larger broadcasters, and through random audits and targeted investigations resulting from information received as to possible
violations. To the extent the FCC conducts an audit, we believe that we could demonstrate compliance with the requirements.

Franchise
authority. Cable television systems operate pursuant to franchises issued by local franchising authorities (which are the cities, counties or political subdivisions in which a cable operator provides cable service). Local franchising authority
is premised upon the cable operators facilities crossing the public rights-of-way. Franchises are typically of fixed duration with the prospect for renewal. These franchises must be nonexclusive. The terms of local franchises vary by
community, but typically include requirements concerning service rates, franchise fees, construction timelines, mandated service areas, customer service standards, technical requirements, public, educational and government access channels, and
channel capacity. Franchises often may be terminated, or penalties may be assessed, if the franchised cable operator fails to adhere to the conditions of the franchise. Although largely discretionary, the exercise of local franchise authority is
limited by federal law. For example, local franchise authorities may not issue exclusive franchises, may not require franchise fees that exceed 5% of gross revenues from the provision of cable services, and may not mandate the use of a particular
technology. Local franchise authorities are permitted to charge fees other than cable franchise fees, such as fees for a telecommunications providers use of public rights-of-way. We hold cable franchises in all of the franchise areas in which
we provide service. We believe that the conditions in our franchises are fairly typical for the industry. Our franchises generally provide for the payment of fees to the municipality ranging from 3% to 5% of revenues from telephone and cable
television service, respectively. The Telecommunications Act of 1996 exempted those telecommunications services provided by a cable operator or its affiliate from cable franchise requirements, although municipalities retain authority to regulate the
manner in which a cable operator uses the public rights-of-way to provide telecommunications services.

On December 20, 2006, the FCC
adopted an order establishing rules and providing guidance to implement Section 621(a)(1) of the Communications Act of 1934, and prohibiting franchising authorities from unreasonably refusing to award competitive franchises for the provision of
cable services. The FCC concluded that the current operation of the franchising process constitutes an unreasonable barrier to entry that impedes the achievement of the interrelated federal goals of enhanced cable competition and accelerated
broadband deployment. The FCC discussed several ways by which local franchising authorities are unreasonably refusing to award competitive franchises, including drawn-out local negotiations with no time limits; unreasonable build-out requirements;
unreasonable requests for in-kind payments that attempt to subvert the five percent cap on franchise fees; and unreasonable demands with respect to public, educational and government access (or PEG). In order to eliminate the
unreasonable barriers to entry into the cable market, and to encourage investment in broadband facilities, the Commission: preempted local laws, regulations, and requirements, including local level-playing-field provisions, to the extent they impose
greater restrictions on market entry than those adopted under the order. This order should be beneficial to us by facilitating our provision of cable service in a more expeditious manner subject to fewer requirements imposed by local franchising
authorities, although the decision may make it easier for new competitors to provide video services in competition with us. The FCC simultaneously opened a rulemaking proceeding in which it seeks comments on how its findings should affect existing
franchisees. Certain parties filed petitions for review in various federal appellate courts of the FCCs order. The petitions have been consolidated and are pending in the United States Court of Appeals for the Sixth Circuit. On
October 31, 2007, the FCC adopted a second report and order concluding that many of the findings of the first order should be made applicable to incumbent operators. The second order has been appealed in federal court. It is impossible to
predict how the courts will rule on these petitions.

Several state legislatures have streamlined the franchising processes in their states
or have adopted statewide franchises, including Florida, Georgia, Iowa, and South Carolina. State legislation regarding streamlined or state-wide video franchising has also been introduced and is actively being considered in a number of
states, including Tennessee. It is impossible to predict whether or when such state legislation might pass.



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Franchise renewal. Franchise renewal, or approval for the sale or transfer of a franchise, may
involve the imposition of additional requirements not present in the initial franchise (such as facility upgrades or funding for public, educational, and government access channels). Although franchise renewal is not guaranteed, federal law imposes
certain standards to prohibit the arbitrary denial of franchise renewal. Our franchises generally have 10 to 15 year terms, and we expect our franchises to be renewed by the relevant franchising authority before or upon expiration. The order
adopted by the FCC in December 2006 reduces the potential for unreasonable conditions being imposed upon us during renewal just as is the case with new competitive franchises.

Franchise transfer. Under federal law, local franchise authorities are required to act on a cable operators franchise transfer request
within 120 days after receipt of all information required by FCC regulations and the franchising authority. Approval is deemed granted if the franchising authority fails to act within such period.

Pole attachments. Federal law requires utilities, defined to include all local telephone companies and electric utilities except those owned by
municipalities and co-operatives, to provide cable operators and telecommunications carriers (with the exception of incumbent LECs) with nondiscriminatory access to poles, ducts, conduit and rights-of-way at just and reasonable rates, except where
states have certified to the FCC that they regulate pole access and pole attachment rates. The right to access is beneficial to facilities-based providers such as us. Federal law also establishes principles to govern the pricing of and terms of such
access. Utilities may charge telecommunications carriers (and cable operators providing both cable television service and telecommunications service, such as us) a different (often higher) rate for pole attachments than they charge cable operators
providing solely cable service. The FCC adopted rules implementing the two different statutory formulas for pole attachment rates. These regulations became effective on February 8, 2001, and increases in attachment rates relative to rates for
providers that exclusively provide cable service resulting from the regulations were phased-in in equal annual increments over a period of five years. The phase-in is now complete. Currently, 18 states plus the District of Columbia have certified to
the FCC, leaving pole attachment matters to be regulated by those states. Of the states in which we operate, none has certified to the FCC. The FCC has clarified that the provision of Internet services by a cable operator does not affect the
agencys jurisdiction over pole attachments by that cable operator, nor does it affect the rate formula otherwise applicable to the cable operator. Although the U.S. Court of Appeals for the Eleventh Circuit overturned the FCCs
conclusion, the U.S. Supreme Court ultimately upheld the FCC. In late 2007, the Commission initiated a rulemaking proceeding to examine the pole attachment rate formula, specifically whether a single rate should apply to all attachers and whether
incumbent local exchange carriers should be entitled to the same rate as other telecommunications service providers, among other matters.

Inside wiring of multiple dwelling units. FCC rules provide generally that, in cases where the cable operator owns the wiring inside a multiple dwelling unit but has no right of access to the premises, the multiple dwelling unit
owner may give the cable operator notice in the event it intends to permit another cable operator to provide service there. The cable operator then must elect whether to remove the inside wiring, sell the inside wiring to the multiple dwelling unit
owner at a price not to exceed the replacement cost of the wire on a per-foot basis, or abandon the inside wiring. The FCC also adopted rules that, among other things, require utilities (including incumbent local exchange carriers and other local
exchange carriers) to provide telecommunications carriers and cable operators with reasonable and nondiscriminatory access to utility-owned or controlled conduits and rights-of-way in all multiple tenant environments (including, for
example, apartment buildings, office buildings, campuses, etc.) in those states where the FCC possesses authority to regulate pole attachments,i.e., in those states where the state government has not certified to the FCC that it regulates
utility pole attachments and rights-of-way matters.

In late 2004, in response to a remand decision by the U.S. Court of Appeals for the DC
Circuit, the FCC initiated a rulemaking proceeding to examine how cable television inside wiring rules pertain to home run wiring. Home run wiring is wiring located behind sheet rock, which is considered to be physically inaccessible for purposes of
determining the demarcation point between inside wiring and home run wiring. The comment cycle ended in December 2004, but the FCC has not released a decision in that proceeding.



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Access to and competition in multiple dwelling units by and among video operators. The FCC has
preempted laws and rules that restrict occupants of multiple dwelling units from placing small satellite antennas on their balconies (or areas under the occupants exclusive use). The FCCs action increases the ability of satellite
television operators such as DirecTV to compete with us in certain multiple dwelling units. The FCC recently decided not to abrogate or restrict existing or future exclusive video multiple dwelling unit access contracts by multichannel video
programming distributors. The decision not to abrogate existing exclusive multiple dwelling unit access contracts may restrict us in competing with the incumbent cable operator (or other video competitors) in those multiple dwelling units where
another cable operator has obtained an exclusive access arrangement.

Privacy. Federal law restricts the manner in which cable
operators can collect and disclose data about individual system customers. Federal law also requires that the cable operator periodically provide all customers with written information about its policies regarding the collection and handling of data
about customers, their privacy rights under federal law and their enforcement rights. Cable operators must also take such actions as are necessary to prevent unauthorized access to personally identifiable information. Failure to adhere to these
requirements subjects the cable operator to payment of damages, attorneys fees and other costs.

Copyright. Cable television
systems are subject to federal compulsory copyright licensing covering carriage of broadcast signals. In exchange for making semi-annual payments to a federal copyright royalty pool and meeting certain other obligations, cable operators obtain a
statutory license to retransmit broadcast signals. The amount of the royalty payment varies, depending on the amount of system revenues from certain sources, the number of distant signals carried, and the location of the cable system with respect to
over-the-air television stations.

Adjustments in copyright royalty rates are made through an arbitration process supervised by the U.S.
Copyright Office. The modification or elimination of the compulsory copyright licensing scheme could adversely affect our ability to provide our customers with their desired broadcast programming.

Internet service. The FCC rejected requests by some Internet service providers to require cable operators to provide unaffiliated Internet service
providers with direct access to the operators broadband facilities. A contrary decision may have facilitated greater competition by non-facilities-based Internet service providers with our broadband service offerings. In addition, the FCC
sought comment on the scope of its jurisdiction to regulate cable modem service and the extent to which state and local governments may regulate cable modem service. Although the FCC has indicated a clear preference for minimizing regulation of
broadband services, future regulation of cable modem service by federal, state or local government entities remains possible. The FCC also sought comment on whether it should resolve any disputes that may arise over cable operators previous
collection of franchise fees from their customers based, in part, on cable modem service revenues, or whether the FCC should leave such matters to the courts. There remains a risk that we will confront litigation on this issue. See also
Regulatory treatment of cable modem service under Regulation of Telecommunications Services.

Regulatory
fees. The FCC requires payment of annual regulatory fees by the various industries it regulates, including the cable television industry. Regulatory fees may be passed on to customers as external cost adjustments to rates for basic cable
service.

Fees are also assessed for other FCC licenses, including licenses for business radio, cable television relay systems and earth
stations. These fees, however, may not be collected directly from customers as long as the FCCs rate regulations remain applicable to the cable system.

Tier buy-through. The tier buy-through prohibition of the 1992 Cable Act generally prohibits cable operators from requiring subscribers to purchase a particular service tier, other than the basic service tier,
in order to obtain access to video programming offered on a per-channel or per-program basis. In general, a cable television operator has the right to select the channels and services that are available on its cable system. With the exception of
certain channels, such as local broadcast television channels, that are required to be carried by



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federal law as part of the basic tier, as discussed above, the cable operator has broad discretion in choosing the channels that will be available and how
those channels will be packaged and marketed to subscribers. In order to maximize the number of subscribers, the cable operator selects channels that are likely to appeal to a broad spectrum of viewers. If the Congress or the FCC were to place more
stringent requirements on how we package our services, it could have an adverse effect on our profitability.

Potential regulatory
changes. The regulation of cable television systems at the federal, state, and local levels is subject to the political process and has seen constant change over the past decade. Material additional changes in the law and regulatory requirements
must be anticipated in the future, even if what those changes will be cannot be ascertained with any certainty at this time. Our business could be adversely affected by future regulations.

Regulation of Telecommunication Services

Our telecommunications services are subject to varying degrees of federal, state and local regulation. Pursuant to the Communications Act of 1934, as amended by the Telecommunications Act of 1996, the FCC generally
exercises jurisdiction over the facilities of, and the services offered by, telecommunications carriers that provide interstate or international communications services. Barring federal preemption, state regulatory authorities retain jurisdiction
over the same facilities to the extent that they are used to provide intrastate communications services, as well as facilities solely used to provide intrastate services. Local regulation is largely limited to management of the occupation and use of
county or municipal public rights-of-way. Various international authorities may also seek to regulate the provision of certain services.

As explained above, incumbent local exchange carriers are subject to obligations (under Section 251(c) of the federal Communications Act) to open their networks to competitive access, including both unbundling and collocation
obligations, as well as heightened interconnection obligations and a duty to make their services available to resellers at a wholesale discount rate. The Communications Act includes an exemption from Section 251(c) requirements for rural
telephone companies, absent a finding by the appropriate state commission that the request is not unduly economically burdensome. Interstate Telephone, Valley Telephone, PrairieWave Community Telephone, and Graceba Total Communications are all rural
telephone companies as defined by the federal Communications Act. With respect to Valley Telephone and Graceba Total Communications, the Alabama Public Service Commission has determined that these companies qualify as rural incumbent LECs and
therefore should be exempt from the incumbent local exchange carrier interconnection requirements under Section 251(c) of the Communications Act. Similarly, the Georgia Public Service Commission and the South Dakota Public Utilities Commission
have determined that Interstate Telephone and PrairieWave Community Telephone, respectively, are rural carriers and should be exempt from these incumbent local exchange carrier interconnection requirements under Section 251(c), In the event the
circumstances upon which these determinations are based change in the future, it is possible these conclusions could be revisited and reversed, exposing either company to the incumbent local exchange carrier interconnection, unbundling, wholesale
discount, and/or collocation obligations.

Tariffs and detariffing. Several of our subsidiaries, Knology of Alabama, Inc.; Knology
of Florida, Inc.; Knology of Georgia, Inc.; Knology of South Carolina, Inc.; and Knology of Tennessee, Inc.; PrairieWave Communications, Inc.; PrairieWave Telecommunications, Inc.; PrairieWave Black Hills, LLC; and Wiregrass Telecom, Inc. are
classified by the FCC as non-dominant carriers with respect to both domestic interstate and international long-distance carrier services and competitive local exchange carrier services. As non-dominant carriers, these subsidiaries rates
presently are not generally regulated by the FCC, although the rates are still subject to general requirements that they be just, reasonable, and nondiscriminatory. The FCC has ordered mandatory detariffing of non-dominant carriers interstate
and international interexchange services, except in very limited circumstances. Rather, we must post standard rates, terms, and conditions on the Internet and negotiate and/or execute individual agreements with each of our customers to cover the
rates, terms and conditions for our provision of such services, including limitations on liability. The FCCs detariffing regime has



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no impact on our tariffs for intrastate services, nor does it affect the federal access charge tariff system. It is uncertain whether we will be able to
execute individual agreements with each of our long-distance customers on favorable terms going forward and whether the additional costs of having to comply with this regime will have an adverse effect on our revenues. There is also some uncertainty
about whether, in the absence of a tariff, such carrier protections such as strict limitations on liability, can be negotiated with the end users and, if they are, whether they are enforceable.

Non-dominant local exchange carriers are not permitted to file tariffs with the FCC for their interstate access services if the charges for such services
are higher than FCC benchmarks established in 2001. If a non-dominant carriers charges for interstate access services are equal to or below the FCC-established benchmark, it is permitted, but not required, to file tariffs with the FCC for such
services. Our interstate access services fall within the FCC-established benchmark and we have a tariff on file with the FCC for those services. While we do not know what the FCC will ultimately decide in its intercarrier compensation proceeding
(see Interconnection and Compensation for Transport and Termination, below), we can be expected to face continued downward pressure on our switched access rates in the future.

Interstate Telephone, Valley Telephone, PrairieWave Community Telephone, and Graceba Total Communications are regulated by the FCC as dominant carriers
in the provision of interstate switched access services. As dominant carriers, Interstate Telephone, Valley Telephone, PrairieWave Community Telephone, and Graceba Total Communications must file tariffs with the FCC and must provide the FCC with
notice prior to changing their rates, terms or conditions of interstate access services. Interstate Telephone has its own tariffs on file with the FCC, while Valley Telephone, PrairieWave Community Telephone and Graceba Total Communications concur
in tariffs filed by the National Exchange Carrier Association. Interstate Telephone, Valley Telephone, PrairieWave Community Telephone, and Graceba Total Communications are each classified as non-dominant in the provision of interstate and
international interexchange services, rendering them subject to mandatory detariffing at the FCC for such services, as described above.

Interconnection. The Telecommunications Act of 1996 established a national policy to foster the development of local telephone competition. This Act preempts laws that prohibit competition for local telephone services
and establishes requirements and standards for local network interconnection, unbundling of network elements, and resale. The Telecommunications Act of 1996 also requires incumbent local exchange carriers to enter into mutual compensation
arrangements with competitive local exchange companies for transport and termination of local calls on each others networks. The interconnection, unbundling, and resale standards were developed by the FCC in a series of orders and have been
further implemented by the states and reviewed by the federal courts of appeals. The terms of interconnection agreements between incumbent local exchange carriers and other telecommunications carriers have been, and are likely to continue to be,
overseen by the states. A majority of the federal circuit courts of appeals, including the Court of Appeals for the Eleventh Circuit (which covers many of our markets), have concluded that the states possess such authority.

We have local interconnection agreements with AT&T (formerly BellSouth), CenturyTel, Embarq (formerly Sprint), Qwest, and Verizon for, among other
things, the transport and termination of local telephone traffic. These agreements have been filed with, and approved by, the applicable regulatory authority in each state in which we conduct our operations and in which the agreements apply. Our
interconnection arrangements are subject to changes as a result of changes in laws and regulations, and there is no guarantee that the rates and terms concerning our interconnection arrangements with incumbent local carriers under which we operate
today will be available in the future.

Intercarrier compensation for transport and termination. The FCC has concluded
that calls to Internet service providers are jurisdictionally interstate and the exchange of ISP-bound traffic is not subject to the reciprocal compensation requirements of the Communications Act. The FCC established an interim scheme, however,
whereby traffic below a 3:1 originating-to-terminating ratio is presumed to be reciprocal compensation traffic and traffic above 3:1 is presumed to be ISP-bound. While the FCC decision was remanded by the U.S. Court of Appeals for the D.C. Circuit
to the FCC for further elaboration and as to the legal basis for its decision,



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the Court let the interim regulations remain in effect. Until the FCC addresses the issue again, ISP-bound traffic is generally being exchanged at a
lower rate than other reciprocal compensation traffic. Except for PrairieWave, under our interconnection agreements, we exchange local traffic with incumbent carriers on a bill-and-keep basis (in which no compensation is actually paid). The
PrairieWave/Qwest agreement specifies a rate for, and the payment of, reciprocal compensation.

In March 2005, the FCC issued a
further notice of proposed rulemaking requesting comment on various proposals to replace the existing intercarrier compensation regimes with a unified regime designed for the developing marketplace, including the transport and termination of
IP-enabled traffic (see Regulatory treatment of voice over Internet Protocol (IP) services, below). As part of the proceeding, the FCC will review numerous aspects of intercarrier compensation, including transport and termination.
Supplemental requests for comment were issued in July and November 2006 on specific intercarrier compensation proposals, all of which remain pending. Any future FCCs decision in this proceeding or any other involving intercarrier compensation
will likely impact the amounts that we both pay and receive from all carriers with whom we are interconnected, whether directly or indirectly.

Number portability. All providers of telecommunications services, as well as providers of interconnected Voice over Internet Protocol (VoIP) service, must offer service provider local number portability, which the FCC has defined as
the ability of end users to retain, at the same location, existing telephone numbers when switching local telephone companies without impairment of quality, reliability or convenience. Number portability is intended to remove one barrier to entry
faced by new competitors, which would otherwise have to persuade customers to switch local service providers despite having to change telephone numbers. Although number portability generally benefits our competitive local exchange carrier
operations, it represents a burden to Valley Telephone, Interstate Telephone, PrairieWave Community Telephone, and Graceba Total Communications. Moreover, wireline-to-wireless number portability may have an adverse impact on all wireline carriers
because end users may port more numbers from wireline to wireless carriers than vice versa. Any changes to regulations regarding the recovery of number portability costs would likely shift costs from ILECs to their competitors, which could have an
overall adverse effect on our business.

Universal service. The FCC has adopted rules implementing the universal service
requirements of the Telecommunications Act of 1996. The federal universal service fund is the support mechanism established by the FCC to ensure that high quality, affordable telecommunications service is available to all Americans. Pursuant to the
FCCs universal service rules, all telecommunications providers currently must contribute a percentage of their telecommunications revenues to the federal universal service fund. In June 2006, the FCC adopted an order extending the obligation
to make payments to the universal service fund to providers of interconnected VoIP services. As a telecommunications carrier and /or provider of interconnected VoIP services, we are required to contribute to the federal universal service fund on the
basis of our projected, collected interstate and international end user telecommunications revenues. The FCC devises a quarterly factor for contribution to the federal universal service fund based on the ratio of total projected demand for universal
service support as compared to total end user interstate and international revenue for a given quarter. The contribution factor for the fourth quarter of 2007 was 11.0%. Accordingly, for the fourth quarter of 2007, we contributed approximately 11%
of our combined interstate and international end user telecommunications revenues to the federal universal service fund. The contribution rate is reviewed quarterly and may increase, raising our costs of operations.

Contributors to the federal Universal Service Fund may assess a federal universal service surcharge on their non-carrier customers, either as a flat
amount or a percentage of a customers service charges; however, this amount may not exceed the total amount of the universal service contribution factor currently in effect. (Carrier customers of contributors to the Universal Service Fund may
avoid such surcharges if they certify to their provider that either they or their own customers contribute to the Fund.) As a result, we are precluded from assessing a federal universal service-related charge on our end user customers in excess of
the current relevant interstate and international telecommunications portion of each customers bill times the relevant contribution factor. We remain able to recover legitimate administrative costs relating to our contribution to the federal



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Universal Service Fund, provided that such cost recovery is made through areas other than our universal service line item surcharge.

The FCC currently is conducting a comprehensive review of the rules governing contributions to the federal universal service fund. The FCC is considering
the adoption of an alternative universal service contribution methodology under which affected providers would contribute to the federal Universal Service Fund based on either the number of end user connections, the number of working telephone
numbers, or the amount of capacity per connection. Although the timing or outcome of this proceeding and its effect on our business cannot be predicted, if any of these proposals are implemented, the amount of our contributions to the federal
universal service fund may increase, and could negatively impact our business, prospects, gross profits, cash flows and financial condition. The Congress is also considering several pieces of legislation which could affect the basis on which
universal service contributions are made and how the funds are distributed. Legislative or regulatory changes to federal universal service funding obligations could adversely affect us by increasing the payments owed to support the fund. Changes to
the universal service fund distribution mechanisms could affect our abilities, or the opportunities for our qualified customers, to apply for and receive universal service funding.

Access charge reform. The FCC has adopted several orders in recent years having the effect of reducing switched access charges imposed by local
telephone companies for origination and termination of interstate long-distance traffic. Overall decreases in local telephone carriers access charges as contemplated by the FCCs access reform policies would likely put downward pricing
pressure on our charges to domestic interstate and international long-distance carriers for comparable access. Changes to the federal access charge regime could adversely affect us by reducing the revenues that we generate from charges to domestic
interstate and international long-distance carriers for originating and terminating interstate traffic over our telecommunications facilities.

The FCC has adopted an order, the MAG Plan, to reform interstate access charges and universal service support for rate-of-return incumbent local exchange carriers such as Valley Telephone, Interstate Telephone, PrairieWave Community
Telephone, and Graceba Total Communications. The MAG Plan is designed to lower access charges toward cost, replace implicit support for universal service with explicit support that is portable to all eligible telecommunications carriers, and provide
certainty and stability for the small and mid-sized local telephone companies serving rural and high-cost areas by permitting them to continue to set rates based on a rate-of-return of 11.25%, thereby encouraging rural investment. The MAG Plan, as
adopted, will reduce switched access fees for small incumbent local exchange carriers and protect universal service in areas served by those incumbent local exchange carriers. Although the MAG Plan significantly reduces per-minute access charge
revenues to these carriers, it is designed to protect them for at least the term of the plan from potentially much larger revenue reductions. On February 12, 2004, the FCC issued an order regarding the MAG Plan designed to streamline the
FCCs rules further and increase rural carriers flexibility to respond to market conditions.

The FCC issued a Notice of Public
Rulemaking on January 31, 2005 in WC Docket No. 05-25. On July 9, 2007, the FCC issued a Public Notice inviting interested parties to refresh the record in the proceeding. This proceeding includes a broad examination of the regulatory
framework that is applied to local exchange carriers interstate special access services preventing them from exceeding certain prices after June 30, 2005. In conducting this examination, the FCC announced that it seeks comment on the
special access regulatory regime that should follow the expiration of the Coalition for Affordable Local and Long Distance Service (CALLS) plan, including whether to maintain or modify the Commissions pricing flexibility rules for special
access services. We cannot predict whether the FCC will further modify its access change rules as a result of this proceeding or the effect that any such changes would have on our business.

In July and November 2006, the FCC requested further comment in its intercarrier compensation proceeding (WC Docket No. 01-92) which is considering
replacing the existing intercarrier compensation regimes with a unified regime designed for the developing marketplace, as previously discussed. As part of the proceeding, the FCC is reviewing most aspects of intercarrier compensation, including
access charges. Any FCC decision in this



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proceeding will impact the amounts that we both pay and receive from all carriers with whom we are interconnected, both directly and indirectly, although the
net effect of any such FCC order for our operations cannot be predicted at this time (see discussion of intercarrier compensation, above).

In October 2006, the FCC launched a new rulemaking considering new regulations designed to ensure that, when a small incumbent local exchange carrier or a competitive local exchange carrier experiences large growth in access traffic, its
access charges remain just and reasonable. Were the Commission to adopt rules in this proceeding that affect any of our local exchange carrier operations, it could increase our regulatory burdens and costs of doing business and adversely affect our
ability to adequately recover our costs of providing access services.

Regulatory treatment of voice over Internet Protocol (IP)
services. Currently, the FCC and state regulators do not treat most IP-enabled services, including those offering real time voice transmissions, as regulated telecommunications services. A number of providers are using VoIP to compete with our
voice services, and some providers using VoIP may be avoiding certain regulatory obligations or access charges for interexchange services that might otherwise be due if such voice over IP offerings were subject to regulation. However, in March 2004,
the FCC commenced a rulemaking proceeding to comprehensively address the regulatory treatment of IP-enabled services, including VoIP applications. Although we cannot predict when the FCC will issue a decision in this proceeding, the FCC issued an
order in 2004 precluding states from regulating interconnected VoIP services, subsequently clarifying that such services are subject to its exclusive jurisdiction when providers do not know the geographic location of their customers. It is not clear
whether future decisions from the FCC will clarify the extent to which it intends to assert exclusive jurisdiction over VoIP and other IP-enabled services. In response to individual petitions for declaratory ruling, the FCC has addressed specific
VoIP applications. For example, in 2004, the FCC ruled that an AT&T service using VoIP solely as an intermediate routing technology is a telecommunications service. By contrast, the FCC ruled that pulver.coms Free World Dialup service,
which enables customers to make computer-to-computer VoIP calls, is an information service. The FCC currently has before it a series of petitions for declaratory rulings requesting clarification on which parties are interexchange carriers for
purposes of access charge liability on any IP-enabled traffic subject to access charges, whether interexchange carriers not directly connected to local exchange carriers can be subject to access charges, and whether intermediate, terminating LECs
can rely on certification by their customers that traffic is enhanced services traffic in making decisions regarding the routing of an intercarrier compensation for access traffic and other issues. In October 2007 and January 2008, two companies
filed petitions for forbearance with the FCC containing contradictory requests which, if granted, would, as a general matter, either relieve many if not most VoIP services from any future duty to pay access charges or involve a determination that
many if not most VoIP services are subject access charges in the future (and possibly that they were subject to access charges in the past as well.) These petitions are likely to be decided together in late 2008 or January of 2009. The FCC is also
considering as part of its intercarrier compensation proceeding various proposals to address problems with so-called phantom traffic, traffic terminated on the local switched telephone network which is often, although not exclusively,
IP-enabled and which allegedly has been stripped of signaling information which allegedly prevents terminating LECs from determining whether the traffic is interexchange traffic that may be subject to access charges. Decisions and regulations
adopted in these and other similar proceedings could lead to an increase in the costs of VoIP providers if they become subject to additional regulation (in the absence of forbearance from the same), and may change the compensation structure for
IP-enabled services. At this time, we are unable to predict the impact, if any, that additional regulatory action on these issues will have on our business.

Other aspects of VoIP and Internet telephony services, such as regulations relating to the confidentiality of data and communications, copyright issues, taxation of services, licensing and 911 emergency access, may be
subject to federal or state regulation. For instance, in 2002 the FCC undertook an examination of whether emergency 911 requirements should be extended to packet-based networks and services, and on June 3, 2005 it released an order requiring
providers of certain VoIP services to provide enhanced 911 emergency services to their customers. Those requirements continue to be implemented and are subject to a series of petitions for



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reconsideration, for waiver, and requests for extension. Compliance with these and other regulations the FCC may adopt regarding the treatment of VoIP
services could increase ours costs of providing service. On May 3, 2006, the FCC determined that both facilities-based broadband Internet access and interconnected VoIP providers should be subject to the same wiretap rules as providers of
traditional telecommunications services. The new rules require that all facilities-based broadband Internet access and interconnected VoIP service providers are technically capable of opening their networks to provide access to law enforcement
agencies by May 14, 2007. Similarly, the FCC in June of 2006 extended USF contribution requirements to providers of interconnected VoIP services, as discussed above. Finally, in November 2007, the FCC ruled that interconnected VoIP providers
must offer local number portability. Such changes in the legal and regulatory environment relating to the Internet connectivity market, including regulatory changes that affect communications costs or that may increase the likelihood of competition
from Regional Bell Operating Companies or other communications companies, could increase our costs of providing service.

Forbearance
and Other Relief to Dominant Carriers. The Telecommunications Act of 1996 permits the FCC to forbear from requiring telecommunications carriers to comply with certain regulations if certain conditions are present. Future reduction or elimination
of federal regulatory requirements could free us from regulatory burdens, but also might increase the flexibility of our competitors. For example, the FCC allowed a petition filed by Verizon for forbearance from Title II regulation of its broadband
services to become effective by operation of statute. Although there is some dispute about which specific services were deregulated, especially in the absence of an affirmative decision by the FCC, a letter filed in the record by Verizon states that
its request covered all (i) packet switched services capable of 200 kbps in each direction and (ii) non-TDM based optical networking, optical hubbing and optical transmission services. In 2007, the FCC released orders that appear to
confirm that the relief granted was limited to those services specified in Verizons letter. An appeal of the FCCs decision was dismissed on procedural grounds. (The FCC has indicated that it plans to adopt an order addressing
Verizons petition and limiting in certain respects the relief Verizon previously had received. As of January 31, 2008, that order had not been adopted.) Similar petitions for forbearance from regulation of broadband services filed by
AT&T, Embarq, and Frontier were granted in part in late 2007. Specifically, in October 2007, the FCC granted AT&T forbearance from the application of dominant carrier tariff filing, cost support, discontinuance, domestic transfer of control
and certain Computer Inquiry requirements to broadband services with regard to (1) its existing non-TDM-based, packet-switched services capable of transmitting 200 kbps or greater in each direction and (2) its existing non-TDM-based
optical transmission services. These services include frame relay services, ATM services, LAN services, Ethernet-based services, video transmission services, optical network services, and wave-based services. The grant was restricted to services
that AT&T currently offers and lists in its petitions, and excludes all TDM-based, DS1 and DS3 services. An appeal of this partial grant is pending. Qwest has a similar application pending which must be resolved by late 2008. As a result of the
grants of the Verizon, AT&T and Embarq petitions, our costs (and those of our competitors) of purchasing Ethernet, OCn, SONET and similar services from these carriers could increase significantly, as the rates, terms and conditions offered in
non-tariffed commercial agreements may become less favorable and we may not be able to purchase these services from alternative vendors. Changes to the rates, terms and conditions under which we purchase Ethernet, OCn and SONET services
may increase our costs and may have a material adverse effect on our business, results of operations and financial condition.

The FCC, in
December 2007, denied a forbearance request by Verizon that sought relief in its six largest markets from unbundling and other ILEC obligations under the Telecommunications Act of 1996. A similar request by Qwest involving four of its largest
markets is pending and must be decided later in 2008. While we expect the major ILECs to file similar petitions covering other markets, as a condition to FCC approval of its merger with BellSouth, AT&T, the ILEC in a majority of our markets,
committed not to seek additional forbearance relief with respect to any of its markets prior to June 29, 2010.

In November 2007, in
response to a petition for rulemaking filed by a group of competitive carriers, the Commission launched a forbearance proceeding to address how it handles forbearance requests. It is unclear at this point whether the FCC will adopt new procedures
and, if they do, whether the new procedures will make it easier or more difficult for our largest competitors to obtain regulatory relief.



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##### Index to Financial Statements

In 2007, Qwest, AT&T, Verizon and Embarq were granted non-dominant status in their provision of
interexchange or long distance services. In addition, the RBOCs were relieved of their obligation to offer long-distance services through a separate affiliate. As a result of these de-regulatory measures, ILECs may be able to compete against our
services more aggressively.

The FCC also is considering a request by Embarq to forbear from enforcement of rules requiring the filing of
contract tariffs issued under pricing flexibility rules. We cannot predict the outcome of this proceeding or whether other ILECs will file requests for forbearance similar to Embarqs. If the FCC were to grant such requests, it could make it
easier for the ILECs to compete with us legitimately or through unlawful price discrimination. Increased competition could raise our costs associated with customer retention and acquisition and may have a material adverse effect on our business,
results of operations and financial condition.

Advanced services. The FCCs Triennial Review Order, effective October 2,
2003, significantly changed many of the regulations governing the telecommunications industry. Among the changes adopted, the FCC determined that all-fiber loops to a customers premises are not subject to the mandatory unbundling provisions of
the Telecommunications Act of 1996, and that in the case of hybrid loops containing some fiber and some copper, the broadband capabilities of these loops do not need to be unbundled. These rulings give the incumbent local exchange
carriers greater control over whether, and at what price, broadband access facilities will be made available to third parties. Although the U.S. Court of Appeal for the D.C. Circuit vacated and remanded several aspects of the Triennial Review Order,
the FCCs decisions regarding broadband unbundling were upheld. Subsequently, the FCC extended its deregulation of broadband facilities to fiber loops deployed to multi-tenant buildings or campuses where the predominant use is residential and
to loops with no more than 500 feet of copper (so-called fiber-to-the-curb loops). In October 2004, the FCC exempted the former Bell Telephone Company entities from long distance market entry provisions to the extent those provisions
might have imposed a separate obligation to unbundled all fiber or fiber-to-the-curb broadband loops.

On August 5, 2005, the FCC
issued an order finding that wireline broadband Internet access services are information services functionally integrated with a telecommunications component and therefore eliminated the long-standing requirement that incumbent local
exchange companies share the underlying transmission component used to provide Internet access services. The FCC had previously required facilities-based providers to offer that wireline broadband transmission component separately from their
Internet service as a stand-alone service on a common-carrier basis, and thus had previously classified that component as a telecommunications service. As a result of the more recent decision, incumbent local exchange companies may refuse to offer
underlying broadband transmission services to unaffiliated providers of broadband services or charge above-cost rates that make it economically infeasible for unaffiliated providers to compete with the incumbent local exchange companys
broadband services. These carriers may contend that, as a result of the FCCs wireline broadband order, they will no longer provide high capacity facilities as network elements for use in providing Internet access. If so, some of our
competitors that currently rely on unbundled network elements may be forced to substitute higher priced special access services for this purpose.

Regulatory treatment of cable modem services. Cable modem services that do not contain a separate telecommunications service offering are treated as information services under applicable FCC precedent which has been
upheld by the U.S. Supreme Court. As a result, cable modem providers are not required to comply with common carrier telecommunications obligations, except to the extent that the Commission decides to apply similar obligations using its authority
under Title I of the Communications Act, as amended. However, we have offered, and will likely continue to offer, access to our network on a wholesale basis. Notwithstanding the determination that cable modem services are information
services, the FCC could decide to treat providers of cable modem service as telecommunications carriers for purposes of universal service contribution obligations and other social regulation similar to what the FCC has done for VoIP services.
See Regulatory treatment of voice over Internet Protocol (IP) services, above. In addition, to the extent they do not otherwise apply, cable modem service providers may become subject to local franchise and right-of-way requirements separately
applicable to telecommunications carriers, including franchise fees. Results imposing authorization and other



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##### Index to Financial Statements

telecommunications carrier requirements, obligations to contribute to universal service, franchise fees, or similar burdens would likely have the effect of
increasing the costs of providing cable modem service relative to non-cable-based alternatives, such as providers of Internet access through DSL service, depending upon how the FCC treats non-cable-based providers with respect to obligations
traditionally applied to providers of telecommunications service.

Access to, and competition in, multiple dwelling units by
and among telecommunications carriers.In October 2000, the FCC prohibited telecommunications carriers from entering into future exclusive access agreements with building owners or managers in commercial (but not residential) multi-tenant
environments. Simultaneously, the FCC adopted rules that require utilities (including incumbent local exchange carriers and other local exchange carriers) to provide telecommunications carriers (and cable operators) with reasonable and
non-discriminatory access to utility-owned or controlled conduits and rights-of-way in all multiple tenant environments (e.g., apartment buildings, office buildings, campuses, etc.) in those states where the state government has not certified to the
FCC that it regulates utility pole attachments and rights-of-way matters. The FCC has pending before it the question of whether to adopt rules abrogating existing exclusive telecommunications carrier access arrangements in commercial multitenant
environments. The FCC is also considering whether to extend prohibitions against exclusivity to residential multiple dwelling units. Finally, the FCC is considering rules that would require owners of multi-tenant environments to allow
telecommunications carriers nondiscriminatory access to their buildings. If adopted, these requirements may facilitate our access (as well as the access of competitors) to customers in multi-tenant environments, at least with regard to its provision
of telecommunications services. These prospective requirements, if adopted, may also increase competition in multiple dwelling units and other multi-tenant environments where we currently provide service.

Customer Proprietary Network Information. FCC rules protect the privacy of certain information about customers
that communications carriers, including us, acquire in the course of providing communications services. Such protected information, known as Customer Proprietary Network Information (CPNI), includes information related to the quantity, technological
configuration, type, destination and the amount of use of a communications service. Certain states have also adopted state-specific CPNI rules. The FCCs initial CPNI rules prevented a carrier from using CPNI to market certain services without
the express approval of the affected customer, referred to as an opt-in approach. In July 2002, the FCC revised its opt-in rules in a manner that limits our ability to use the CPNI of our subscribers without first engaging in extensive customer
service processes and record keeping. The FCCs Enforcement Bureau recently directed all telecommunications carriers to submit an annual certification stating that they are in compliance with the Commissions CPNI rules. In April 2007, the
FCC revised its existing CPNI rules to modify the means by which customers may obtain access to call records, and by which carriers may obtain customer approval for the sharing of CPNI with independent contractors and joint venture partners.
Additionally, notify customers immediately of certain account changes and notify the United States Secret Service, the Federal Bureau of Investigation and customers if a security breach results in the unauthorized disclosure of CPNI. We filed our
most recent compliance certificate with the FCC on February 29, 2008, stating that we use our subscribers CPNI in accordance with applicable regulatory requirements. However, if a federal or state regulatory body determines that we have
implemented the FCCs requirements incorrectly, we could be subject to fines or penalties. In addition, both the FCC and Congress are considering whether additional security measures should be adopted to prevent the unauthorized disclosure of
sensitive customer information held by telecommunications companies.

Telephone Numbering.The
FCC oversees the administration and the assignment of local telephone numbers. AT&T and Verizon have asked the FCC to move from a system where cost recovery is allocated according to a carriers proportion of overall industry revenue to a
cost recovery mechanism based on usage. While we cannot predict the outcome of this proceeding, if the ILECs proposals are adopted, our costs would increase significantly.

Communications Assistance for Law Enforcement Act. The Communications Assistance for Law Enforcement Act (CALEA) requires communications providers
to provide law enforcement officials with call content and call identifying information under a valid electronic surveillance warrant, reserve a sufficient number



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##### Index to Financial Statements

of circuits for use by law enforcement officials in executing lawful electronic surveillance and adopt and adhere to specific system security policies and
record keeping requirements. In 2005, the FCC concluded that CALEA also applies to facilities-based broadband Internet access providers and providers of interconnected VoIP. As a network operator, we are subject to these requirements.

Additional requirements. The FCC imposes additional obligations on all telecommunications carriers to which we are subject, including obligations
to:



| |  |  | interconnect, directly or indirectly, with other carriers and not to install equipment that cannot be connected with the facilities of other carriers;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | ensure that their services are accessible and usable by persons with disabilities;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | present bills to customers in a manner that is clear and not misleading. ;
| | - |  | --------------------------------------------------------------------------



| |  |  | provide telecommunications relay service either directly or through arrangements with other carriers or service providers, which service enables hearing impaired
individuals to communicate by telephone with hearing individuals through an operator at a relay center;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | comply with verification procedures in connection with changing a customers carrier;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | maintain equipment, facilities, and services in such a manner as to allow for the interception of wire and electronic communications and access to call-identifying
information by authorized law enforcement;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | pay annual regulatory fees to the FCC; and
| | - |  | ------------------------------------------



| |  |  | contribute to the Telecommunications Relay Services Fund, as well as funds to support telephone numbering administration and local number portability.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

State Telecommunications Regulation

Traditionally, the states have exercised jurisdiction over intrastate telecommunications services. Additionally, some states have imposed taxes, fees or
surcharges applicable to VoIP telephony services. The Telecommunications Act of 1996 modifies the dimensions of state authority in relation to federal authority. It also prohibits states and localities from adopting or imposing any legal requirement
that may prohibit, or have the effect of prohibiting, market entry by new providers of interstate or intrastate telecommunications services. The FCC is required to preempt any such state or local requirement to the extent necessary to enforce the
Telecommunications Act of 1996s open market entry requirements. States and localities may, however, continue to regulate the provision of intrastate telecommunications services (barring federal preemption) and require carriers to obtain
certificates or licenses before providing service.

Alabama, Georgia, Florida, Iowa, Kentucky, Minnesota, South Carolina, South Dakota, and
Tennessee each have adopted statutory and regulatory schemes that require us to comply with telecommunications certification and other regulatory requirements. To date, we are authorized to provide intrastate local telephone, long-distance telephone
and operator services in Alabama, Georgia, Florida, Iowa, Kentucky, Minnesota, South Carolina, South Dakota, and Tennessee. As a condition of providing intrastate telecommunications services, we are required, depending upon specific state
requirements, among other things:



| |  |  | to file and maintain intrastate tariffs or price lists describing the rates, terms and conditions of our services;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | to comply with state regulatory reporting, tax and fee obligations, including contributions to state-administered universal service funds; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | to comply with, and to submit to, state regulatory jurisdiction over consumer protection policies (including regulations governing customer privacy, changing of
service providers, and content of customer bills), complaints, transfers of control and certain financing transactions.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Index to Financial Statements

Generally, state regulatory authorities can condition, modify, cancel, terminate or revoke certificates
of authority to operate in a state for failure to comply with state laws or the rules, regulations and policies of the state regulatory authority. Fines and other penalties may also be imposed for such violations. As we expand our telecommunications
services into new states, we will likely be required to obtain certificates of authority to operate, and be subject to similar ongoing regulatory requirements, in those states as well. We are certificated in all states where we currently have
operations and certification is required. We cannot be sure that we will retain such certifications or that we will receive authorization for markets in which we expect to operate in the future.

A number of state regulatory commissions are reviewing the rules governing the amount CLECs may charge for intrastate switched access services. The
result of any such proceedings could require us to reduce our current rates for intrastate access to a level at or below the ILEC carriers rates or in the alternative, to file cost-studies in a rate proceeding at the applicable state
commission. Such developments would require us to reduce rates and revenues or to expend additional funds to develop and file cost studies in order to attempt to secure state approval to maintain higher access charge rates, and either of which could
result in a material adverse effect on our business, results of operations and financial condition.

In addition, the states are involved
in the determinations under the Telecommunications Act of 1996 whether we are eligible to receive funds from the federal universal service fund. They also possess authority to approve or (in limited circumstances) reject agreements for the
interconnection of telecommunications carriers facilities with those of the local exchange carrier, and to arbitrate disputes arising in negotiations for interconnection. As mentioned previously, most federal courts of appeals, including the
Court of Appeals for the Eleventh Circuit (which covers many of our markets), have concluded that state public service commissions have the authority under Section 252 of the federal Communications Act to interpret and enforce interconnection
agreements. The states also have jurisdiction over whether Interstate Telephone, Valley Telephone, PrairieWave Community Telephone, and Graceba Total Communications will continue to be subject to exemptions as rural carriers from the incumbent local
exchange carrier obligations under Section 251(c) of the Communications Act.

Interstate Telephone, Valley Telephone, PrairieWave
Community Telephone, and Graceba Total Communications are subject to additional requirements under state law, including rate regulation and quality of service requirements. In Alabama, both Interstate Telephone and Graceba Total Communications
Valley Telephone are subject to a form of alternative rate regulation. Valley Telephone and PrairieWave Community Telephone, operating in Georgia and South Dakota, are also subject to a form of alternate rate regulation. Under this alternative form
of regulation, the companies have limited ability to raise rates for intrastate telephone services, but the Alabama and Georgia Public Service Commissions and the South Dakota Public Utilities Commission do not regulate the rate of return earned by
the companies. Rate regulation for the states in which PrairieWave operates (South Dakota, Minnesota, and Iowa) is largely limited to ensuring that rates are not discriminatory.

Many states also have unfair and deceptive trade practice statutes that apply to the billing of telecommunications and non-telecommunications services by
communications carriers. Failure to comply with these requirements could lead to significant litigation risks, claims and fines.

Taxes
and Regulatory Fees.We are subject to numerous local, state and federal taxes and regulatory fees, including but not limited to FCC regulatory fees and public utility commission regulatory fees. We have procedures in place to
ensure that we properly collect taxes and fees from our customers and remit such taxes and fees to the appropriate entity pursuant to applicable law and/or regulation. If our collection procedures prove to be insufficient or if a taxing or
regulatory authority determines that our remittances were inadequate, we could be required to make additional payments, which could have a material adverse effect on our business.



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Local Telecommunications Regulation

In certain locations, we must obtain local franchises, licenses or other operating rights and street opening and construction permits to install, expand
and operate our telecommunications facilities in the public rights-of-way. In some of the areas where we provide services, we pay license or franchise fees based on a percentage of gross revenues. Municipalities that do not currently impose fees on
providers of telecommunications might seek to impose them in the future, and after the expiration of our existing franchises, fees could increase. Under the Telecommunications Act, state and local governments retain the right to manage the public
rights-of-way and to require fair and reasonable compensation from telecommunications providers, on a competitively neutral and nondiscriminatory basis, for use of public rights-of-way. As noted above, these activities must be consistent with the
Telecommunications Act, and may not have the effect of prohibiting us from providing telecommunications services in any particular local jurisdiction.

If an existing franchise or license agreement were to be terminated prior to its expiration date and we were forced to remove our facilities from the streets or abandon them in place, our operations in that area would
cease, which could have a material adverse effect on our business as a whole. We believe that the provisions of the Telecommunications Act barring state and local requirements that prohibit or have the effect of prohibiting any entity from providing
telecommunications service should be construed to limit any such action, but there is no guarantee that they would be.

Environmental
Regulation

We are subject to a variety of federal, state, and local environmental, safety and health laws, and regulations
governing matters such as the generation, storage, handling, use, and transportation of hazardous materials, the emission and discharge of hazardous materials into the atmosphere, the emission of electromagnetic radiation, the protection of
wetlands, historic sites, and endangered species and the health and safety of employees. We also may be subject to laws requiring the investigation and cleanup of contamination at sites we own or operate or at third-party waste disposal sites. Such
laws often impose liability even if the owner or operator did not know of, or was not responsible for, the contamination. We operate several sites in connection with our operations. Our switch site and some customer premise locations are equipped
with back-up power sources in the event of an electrical failure. Each of our switch site locations has battery and diesel fuel powered backup generators, and we use batteries to back-up some of our customer premise equipment. We believe that we
currently are in compliance with the relevant federal, state, and local requirements in all material respects, and we are not aware of any liability or alleged liability at any operated sites or third-party waste disposal sites that would be
expected to have a material adverse effect on us.

Franchises

As described above, cable television systems and local telephone systems generally are constructed and operated under the authority of nonexclusive franchises, granted by local and/or state governmental authorities.
Franchises typically contain many conditions, such as: time limitations on commencement and completion of system construction, customer service standards including number of channels, the provision of free service to schools and certain other public
institutions and the maintenance of insurance and indemnity bonds.

As of December 31, 2007, Knology held approximately 95 cable
franchises. We are currently in the process of renegotiating one of our existing franchises in Huntsville Alabama. Knology has never had a franchise revoked and it has never been denied a franchise renewal. Although franchises historically have been
renewed, renewals may include less favorable terms and conditions then existing franchises. We believe that the conditions in our franchises are fairly typical for the industry. Our franchises generally provide for the payment of fees to the
municipality ranging from 3% to 5% of revenues from telephone and cable television services. Our franchises generally have 10- to 15-year terms, and we expect our franchises to be renewed by the relevant franchising authority before or upon
expiration.



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##### Index to Financial Statements

Local regulation of cable television operations and franchising matters is currently subject to federal
regulation under the Communications Act of 1934, as amended and the corresponding regulations of the FCC. As discussed in the Legislation and Regulation section above, the FCC has taken recent steps toward streamlining the franchising
process. See Legislation and RegulationRegulation of Cable Services.

Prior to the scheduled expiration of most
franchises, we may initiate renewal proceedings with the relevant franchising authorities. The Cable Communications Policy Act of 1984 provides for an orderly franchise renewal process in which the franchising authorities may not unreasonably deny
renewals. If a renewal is withheld and the franchising authority takes over operation of the affected cable system or awards the franchise to another party, the franchising authority must pay the cable operator the fair market value of
the system. The Cable Communications Policy Act of 1984 also established comprehensive renewal procedures requiring that the renewal application be evaluated on its own merit and not as part of a comparative process with other proposals.

The Cable Communications Policy Act of 1984 also prohibits franchising authorities from granting exclusive franchises or unreasonably refusing to
award additional franchises covering an existing cable systems service area. The FCC, in late 2006, took actions (which are under appeal) to streamline this process and expedite the entry of new cable operators into the local markets of their
choice. While this makes it easier for us to enter new markets, it also makes it easier for competitors to enter the markets in which we currently have franchises.

Employees

At December 31, 2007 we had 1,686 full-time employees. We consider our relations with our employees to be
good, and we structure our compensation and benefit plans in order to attract and retain high-caliber personnel. We will need to recruit additional employees in order to implement our expansion plan, including general managers for each new city and
additional personnel for installation, sales, customer service and network construction. We recruit from several major industries for employees with skills in video, voice and data technologies.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

Risks Related to Our Business

We have a history of net losses and may not be profitable in the future.

As of December 31, 2007, we had an accumulated deficit of $610.9 million. We expect to incur net losses for the next several years as our
business matures. Our ability to generate profits and positive cash flow from operating activities will depend in large part on our ability to increase our revenues to offset the costs of operating our network and providing services. If we cannot
achieve and maintain operating profitability or positive cash flow from operating activities, our business, financial condition and operating results will be adversely affected.

Failure to obtain additional funding may limit our ability to complete our existing networks or to expand our business.

As of December 31, 2007, we had working capital of $6.8 million but $610.9 million of accumulated deficit. If we expand our build out in existing or new markets, it will have to be funded by cash flow
from operations in that market or from additional financings. If financing is available, it may not be obtained on a timely basis and with acceptable terms. See Item 7Managements Discussion and Analysis of Financial Condition
and Results of OperationsLiquidity and Capital Resources.



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##### Index to Financial Statements

Our substantial indebtedness may adversely affect our cash flows, future financing and flexibility.

As of December 31, 2007, we had approximately $565.3 million of outstanding indebtedness, including accrued interest, and our stockholders
deficit was $35.0 million. We pay interest in cash on our credit facilities. Our level of indebtedness could adversely affect our business in a number of ways, including:



| |  |  | we may have to dedicate a significant amount of our available funding and cash flow from operating activities to the payment of interest and the repayment of
principal on outstanding indebtedness;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | depending on the levels of our outstanding debt and the terms of our debt agreements, we may have trouble obtaining future financing for working capital, capital
expenditures, general corporate and other purposes;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | high levels of indebtedness may limit our flexibility in planning for or reacting to changes in our business; and
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | increases in our outstanding indebtedness and leverage will make us more vulnerable to adverse changes in general economic and industry conditions, as well as to
competitive pressure.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We may not be able to make future principal and interest payments on our indebtedness.

We currently generate sufficient cash flow from operating activities to service our indebtedness. However, our ability to make future principal and
interest payments on our debt depends upon our future performance, which is subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control. If we
cannot grow and generate sufficient cash flow from operating activities to service our debt payments, we may be required, among other things to:



| |  |  | seek additional financing in the debt or equity markets;
| | - |  | --------------------------------------------------------



| |  |  | refinance or restructure all or a portion of our debt;
| | - |  | ------------------------------------------------------



| |  |  | sell selected assets; or
| | - |  | ------------------------



| |  |  | reduce or delay planned capital expenditures.
| | - |  | ---------------------------------------------

These measures may not be sufficient to enable us to service our debt. In addition, any such financing, refinancing or sale of assets may not be available on commercially reasonable terms, or at all.

Restrictions on our business imposed by our debt agreements could limit our growth or activities.

Our credit agreements place operating and financial restrictions on us and our subsidiaries. These restrictions affect, and any restrictions created by
future financings will affect, our and our subsidiaries ability to, among other things:



| |  |  | incur additional debt;
| | - |  | ----------------------



| |  |  | create or incur liens on our assets;
| | - |  | ------------------------------------



| |  |  | make certain investments;
| | - |  | -------------------------



| |  |  | use the proceeds from the sale of assets;
| | - |  | -----------------------------------------



| |  |  | pay cash dividends on or redeem or repurchase our capital stock;
| | - |  | ----------------------------------------------------------------



| |  |  | utilize excess liquidity except for debt reduction;
| | - |  | ---------------------------------------------------



| |  |  | engage in potential mergers and acquisitions, sale/leaseback transactions or other fundamental changes in the nature of our business; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | make capital expenditures.
| | - |  | --------------------------



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##### Index to Financial Statements

In addition, our credit facilities require us to maintain specified financial ratios, such as debt to
EBITDA (earnings before income, taxes, depreciation and amortization) and EBITDA to cash interest. These limitations may affect our ability to finance our future operations or to engage in other business activities that may be in our interest. If we
violate any of these restrictions or any restrictions created by future financings, we could be in default under our agreements and be required to repay our debt immediately rather than at scheduled maturity.

We may not be able to integrate acquired businesses successfully.

We consummated the acquisitions of PrairieWave in April 2007, and Graceba in January 2008, and are operating in three additional markets. Our future growth and profitability will depend in part on the success of our
integration of the acquired operations into our operations. Our ability to successfully integrate such operations will depend on a number of factors, including our ability to devote adequate personnel to the integration process, while still managing
our current operations effectively. We may experience difficulties in integrating the acquired businesses, which could increase our costs or adversely impact our ability to operate our business.

Future acquisitions and joint ventures could strain our business and resources.

If we acquire existing companies or networks or enter into joint ventures, we may:



| |  |  | miscalculate the value of the acquired company or joint venture;
| | - |  | ----------------------------------------------------------------



| |  |  | divert resources and management time;
| | - |  | -------------------------------------



| |  |  | experience difficulties in integrating the acquired business or joint venture with our operations;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | experience relationship issues, such as with customers, employees and suppliers, as a result of changes in management;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | incur additional liabilities or obligations as a result of the acquisition or joint venture; and
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | assume additional financial burdens or dilution in connection with the transaction.
| | - |  | -----------------------------------------------------------------------------------

Additionally, ongoing consolidation in our industry may reduce the number of attractive acquisition targets.

The demand for our bundled broadband communications services may be lower than we expect.

The demand for video, voice and data services, either alone or as part of a bundle, cannot readily be determined. Our business could be adversely affected
if demand for bundled broadband communications services is materially lower than we expect. If the markets for the services we offer, including voice and data services, fail to develop, grow more slowly than anticipated or become saturated with
competitors, our ability to generate revenue will suffer.

Competition from other providers of video services could adversely affect our results of
operations.

To be successful, we will need to retain our existing video customers and attract video customers away from our
competitors. Some of our competitors have advantages over us, such as long-standing customer relationships, larger networks, and greater experience, resources, marketing capabilities and name recognition. In addition, a continuing trend toward
business combinations and alliances in the cable television area and in the telecommunications industry as a whole as well as changes in the regulatory environment facilitating entry for additional providers of video service may result in the
emergence of significant new competitors for us. In providing video service, we currently compete with Bright House, Charter, Comcast, Mediacom, Midcontinent and Time Warner. We also compete with satellite television providers, including DirecTV and
Echostar. Legislation now allows satellite television providers to offer local broadcast television stations. This may reduce our current advantage over satellite television providers and our ability to attract and maintain customers.



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##### Index to Financial Statements

The providers of video services in our markets have, from time to time, adopted promotional discounts. We
expect these promotional discounts in our markets to continue into the foreseeable future and additional promotional discounts may be adopted. We may need to offer additional promotional discounts to be competitive, which could have an adverse
impact on our revenues. In addition, incumbent local phone companies may market video services in their service areas to provide a bundle of services. As telephone service providers offer video services in our markets, it could increase our
competition for our video and voice services and for our bundled services.

Competition from other providers of voice services could adversely affect
our results of operations.

In providing local and long-distance telephone services, we compete with the incumbent local phone company
in each of our markets. We are not the first provider of telephone services in most of our markets and we therefore must attract customers away from other telephone companies. AT&T, Qwest and Verizon are the primary incumbent local exchange
carriers in our targeted region. They offer both local and long-distance services in our markets and are particularly strong competitors. In the future, we may face other competitors, such as cable television service operators who have announced
their intention to offer telephone services with Internet-based telephony. If cable operators offer voice services in our markets, it could increase competition for our bundled services. Other wireline-based carriers also compete with us for voice
services, including competitive local exchange carriers and VoIP service providers.

Competition from other providers of data services could adversely
affect our results of operations.

Providing data services is a rapidly growing business and competition is increasing in each of our
markets. Some of our competitors have advantages over us, such as greater experience, resources, marketing capabilities and name recognition. In providing data services, we compete with:



| |  |  | traditional dial-up Internet service providers;
| | - |  | -----------------------------------------------



| |  |  | incumbent local exchange carriers that provide dial-up and digital subscriber line (DSL) services;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | providers of satellite-based Internet access services;
| | - |  | ------------------------------------------------------



| |  |  | competitive local exchange carriers; and
| | - |  | ----------------------------------------



| |  |  | cable television companies.
| | - |  | ---------------------------

In
addition, some providers of data services have reduced prices and engaged in aggressive promotional activities. We expect these price reductions and promotional activities to continue into the foreseeable future and additional price reductions may
be adopted. We may need to lower our prices for data services to remain competitive and this could adversely affect our results of operations.

Our
programming costs are increasing, which could reduce our gross profit.

Programming has been our largest single operating expense and we
expect this to continue. In recent years, the cable industry has experienced rapid increases in the cost of programming, particularly sports programming. Our relatively small base of subscribers limits our ability to negotiate lower programming
costs. We expect these increases to continue, and we may not be able to pass our programming cost increases on to our customers. In addition, as we increase the channel capacity of our systems and add programming to our expanded basic and digital
programming tiers, we may face additional market constraints on our ability to pass programming costs on to our customers. Any inability to pass programming cost increases on to our customers would have an adverse impact on our gross profit. See
Legislation and RegulationFederal RegulationRegulation of Cable ServicesProgram Access for more information.



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##### Index to Financial Statements

Programming exclusivity in favor of our competitors could adversely affect the demand for our video services.

We obtain our programming by entering into contracts or arrangements with programming suppliers. A programming supplier could enter into an
exclusive arrangement with one of our video competitors that could create a competitive advantage for that competitor by restricting our access to this programming. If our ability to offer popular programming on our cable television systems is
restricted by exclusive arrangements between our competitors and programming suppliers, the demand for our video services may be adversely affected and our cost to obtain programming may increase. See Legislation and RegulationFederal
RegulationRegulation of Cable ServicesProgram access for more information.

The rates we pay for pole attachments may increase
significantly.

The rates we must pay utility companies for space on their utility poles is the subject of frequent disputes. If the
rates we pay for pole attachments were to increase significantly or unexpectedly, it would cause our network to be more expensive to operate. It could also place us at a competitive disadvantage with video and telecommunications service providers
who do not require, or who are less dependent upon, pole attachments, such as satellite providers and wireless voice service providers. See Legislation and RegulationFederal RegulationRegulation of Cable ServicesPole
Attachments for more information.

Loss of interconnection arrangements could impair our telephone service.

We rely on other companies to connect our local telephone customers with customers of other local telephone providers. We presently have access to
AT&Ts telephone network under a nine-state interconnection agreement, which expires on December 16. 2010. We have access to Verizons telephone network in Florida under an interconnection agreement covering Florida, which
expires November 19, 2008. We continue to exchange traffic with Verizon in Florida through an existing interconnection arrangement currently subject to the rates, terms, and conditions of the terminated agreement. We are currently engaged
in the process of adopting a new interconnection agreement with Verizon. If the AT&T agreement is not renewed or terminated, or a new Verizon agreement is not executed, we could be adversely affected and our interconnection arrangements
could be on terms less favorable than those we receive currently.

It is generally expected that the Telecommunications Act of 1996 will
continue to undergo considerable interpretation and implementation, which could have a negative impact on our interconnection agreements with AT&T and Verizon. It is also possible that further amendments to the Communications Act of 1934 may be
enacted which could have a negative impact on our interconnection agreements with AT&T and Verizon. The contractual arrangements for interconnection and access to unbundled network elements with incumbent carriers generally contain provisions
for incorporation of changes in governing law. Thus, future FCC, state public service commission and/or court decisions may negatively impact the rates, terms and conditions of the interconnection services we have obtained and may seek to obtain
under these agreements, which could adversely affect our business, financial condition or results of operations. Our ability to compete successfully in the provision of services will depend on the nature and timing of any such legislative changes,
regulations and interpretations and whether they are favorable to us or to our competitors. See Legislation and Regulation for more information.

We could be negatively impacted by future interpretation or implementation of regulations.

The current communications and
cable legislation is complex and in many areas sets forth policy objectives to be implemented by regulation at the federal, state, and local levels. It is generally expected that the Communications Act of 1934, as amended, the Telecommunications Act
of 1996 and implementing regulations and decisions, as well as applicable state laws and regulations, will continue to undergo considerable interpretation and implementation. Regulations that enhance the ability of certain classes of our
competitors, or interpretation of existing regulations to the same effect, would adversely affect our competitive position. It is also



37



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##### Index to Financial Statements

possible that further amendments to the Communications Act of 1934 and state statutes to which we or our competitors are subject may be enacted. Our ability
to compete successfully will depend on the nature and timing of any such legislative changes, regulations, and interpretations and whether they are favorable to us or to our competitors. See Legislation and Regulation for more
information.

We operate our network under franchises that are subject to non-renewal or termination.

Our network generally operates pursuant to franchises, permits or licenses typically granted by a municipality or other state or local government
controlling the public rights-of-way. Often, franchises are terminable if the franchisee fails to comply with material terms of the franchise order or the local franchise authoritys regulations. Although none of our existing franchise or
license agreements have been terminated, and we have received no threat of such a termination, one or more local authorities may attempt to take such action. We may not prevail in any judicial or regulatory proceeding to resolve such a dispute.

Further, franchises generally have fixed terms and must be renewed periodically. Local franchising authorities may resist granting a
renewal if they consider either past performance or the prospective operating proposal to be inadequate. In a number of jurisdictions, local authorities have attempted to impose rights-of-way fees on providers that have been challenged as violating
federal law. A number of FCC and judicial decisions have addressed the issues posed by the imposition of rights-of-way fees on competitive local exchange carriers and on video distributors. To date, the state of the law is uncertain and may remain
so for some time. We may become subject to future obligations to pay local rights-of-way fees that are excessive or discriminatory.

The
local franchising authorities can grant franchises to competitors who may build networks in our market areas. A recent FCC decision facilitates competitive video entry by limiting the actions that local franchising authorities may take when
reviewing applications by new competitors. Local franchise authorities have the ability to impose regulatory constraints or requirements on our business, including those that could materially increase our expenses. In the past, local franchise
authorities have imposed regulatory constraints, by local ordinance or as part of the process of granting or renewing a franchise, on the construction of our network. They have also imposed requirements on the level of customer service we provide,
as well as other requirements. The local franchise authorities in our markets may also impose regulatory constraints or requirements that may be found to be consistent with applicable law but which could increase our expenses in operating our
business. See Legislation and Regulation for more information.

We may not be able to obtain telephone numbers for new voice customers in a
timely manner.

In providing voice services, we rely on access to numbering resources in order to provide our customers with telephone
numbers. A shortage of or a delay in obtaining new numbers from numbering administrators, as has sometimes been the case for local exchange carriers in the recent past, could adversely affect our ability to expand into new markets or enlarge our
market share in existing markets.

We may encounter difficulties in implementing and developing new technologies.

We have invested in advanced technology platforms that support advanced communications services and multiple emerging interactive services, such as
video-on-demand, subscriber video-on-demand, digital video recording, interactive television, IP Centrex services and passive optical network services. We have also invested in our new enterprise management system. However, existing and future
technological implementations and developments may allow new competitors to emerge, reduce our networks competitiveness or require expensive and time-consuming upgrades or additional equipment, which may also require the write-down of existing
equipment. In addition, we may be required to select in advance one technology over another and may not choose the technology that is the most economic, efficient or attractive to customers. We may also encounter difficulties in implementing new
technologies, products and services and may encounter disruptions in service as a result.



38



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##### Index to Financial Statements

We may encounter difficulties expanding into additional markets.

To expand into additional cities we will have to obtain pole attachment agreements, construction permits, telephone numbers, franchises and other
regulatory approvals. Delays in entering into pole attachment agreements, receiving the necessary construction permits and conducting the construction itself have adversely affected our schedule in the past and could do so again in the future.
Difficulty in obtaining numbering resources may also adversely affect our ability to expand into new markets. We may face legal or similar resistance from competitors who are already in markets we wish to enter. For example, a competitor may oppose
or delay our video franchise application or our request for pole attachment space. These difficulties could significantly harm or delay the development of our business in new markets. See Legislation and RegulationFederal
RegulationRegulation of Cable ServicesProgram Access for more information.

We depend on the services of key personnel to implement
our strategy. If we lose the services of our key personnel or are unable to attract and retain other qualified management personnel, we may be unable to implement our strategy.

Our business is currently managed by a small number of key management and operating personnel. We do not have any employment agreements with, nor do we
maintain key man life insurance policies on, these or any other employees. The loss of members of our key management and certain other members of our operating personnel could adversely affect our business.

Our ability to manage our anticipated growth depends on our ability to identify, hire and retain additional qualified management personnel. While we are
able to offer competitive compensation to prospective employees, we may still be unsuccessful in attracting and retaining personnel, which could affect our ability to grow effectively and adversely affect our business.

Since our business is concentrated in specific geographic locations, our business could be adversely impacted by a depressed economy and natural disasters in these
areas.

We provide our services to areas in Alabama, Florida, Georgia, Iowa, Minnesota, South Carolina, South Dakota and Tennessee,
which are in the Southeastern and Midwestern regions of the United States. A stagnant or depressed economy in the United States and the Southeastern or Midwestern United States in particular could affect all of our markets and adversely affect our
business and results of operations.

Our success depends on the efficient and uninterrupted operation of our communications services. Our
network is attached to poles and other structures in our service areas, and our ability to provide service depends on the availability of electric power. A tornado, hurricane, flood, mudslide or other natural catastrophe in one of these areas could
damage our network, interrupt our service and harm our business in the affected area. In addition, many of our markets are close together, and a single natural catastrophe could damage our network in more than one market.

Risks Related to Relationships with Stockholders, Affiliates and Related Parties

A small number of stockholders control a significant portion of our stock and could exercise significant influence over matters requiring stockholder approval, regardless of the wishes of other stockholders.

As of February 29, 2008, Gilder, Ganon, Howe & Co. LLC, our largest stockholder, owned approximately 16.4% of our outstanding
common stock. Farallon Capital Management, LLC, owned approximately 14.0% of our outstanding common stock. Donald W. Burton, a member of our board of directors, owned or controlled approximately 8.9% of our common stock, including shares owned by
the Burton Partnerships, of which Donald W. Burton is a general partner. Further, approximately 6.3% of our outstanding common stock was owned by Campbell B. Lanier, III, the chairman of our board of directors, and members of
Mr. Laniers immediate family. As a result, these stockholders have significant voting power with respect to the ability to:



| |  |  | authorize additional shares of capital stock or otherwise amend our certificate of incorporation or bylaws;
| | - |  | -----------------------------------------------------------------------------------------------------------



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##### Index to Financial Statements

| |  |  | elect our directors; or
| | - |  | -----------------------



| |  |  | effect a merger, sale of assets or other corporate transaction.
| | - |  | ---------------------------------------------------------------

The extent of ownership by these stockholders may also discourage a potential acquirer from making an offer to acquire us. This could reduce the value of our stock.

Risks Related to Our Common Stock

If we issue more stock
in future offerings, the percentage of our stock that our stockholders own will be diluted.

As of February 29, 2008, we had
35,467,079 shares of common stock outstanding. We also had outstanding on that date options to purchase 3,327,734 shares of common stock and warrants to purchase 1,000,000 shares of common stock Our authorized capital stock includes 200,000,000
shares of common stock and 199,000,000 shares of preferred stock, which our board of directors has the authority to issue without further stockholder action. Future stock issuances also will reduce the percentage ownership of our current
stockholders.

Our board of directors has the authority to issue, without stockholder approval, shares of preferred stock with rights and
preferences senior to the rights and preferences of the common stock. As a result, our board of directors could issue shares of preferred stock with the right to receive dividends and the assets of the company upon liquidation prior to the holders
of the common stock.

The value of our stock could be hurt by substantial price fluctuations.

The value of our common stock could be subject to sudden and material increases and decreases. The value of our stock could fluctuate in response to:



| |  |  | our quarterly operating results;
| | - |  | --------------------------------



| |  |  | changes in our business;
| | - |  | ------------------------



| |  |  | changes in the markets perception of our bundled services;
| | - |  | -----------------------------------------------------------



| |  |  | changes in the businesses or market perceptions of our competitors; and
| | - |  | -----------------------------------------------------------------------



| |  |  | changes in general market or economic conditions.
| | - |  | -------------------------------------------------

In addition, the stock market has experienced extreme price and volume fluctuations in recent years that have significantly affected the value of securities of many companies. These changes often appear to occur
without regard to specific operating performance. The value of our common stock could increase or decrease based on change of this type. These fluctuations could materially reduce the value of our stock. Fluctuations in the value of our stock will
also affect the value of our outstanding warrants and options, which may adversely affect stockholders equity, net income or both.



|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None.



|ITEM 2. | PROPERTIES
|------- | ----------

Our primary assets consist of voice,
video and data distribution plant and equipment, including voice switching equipment, data receiving equipment, data decoding equipment, data encoding equipment, headend reception facilities, distribution systems and customer premise equipment.



40



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##### Index to Financial Statements

Our plant and related equipment are generally attached to utility poles under pole rental agreements with
public electric utilities, electric cooperative utilities, municipal electric utilities and telephone companies. In certain locations our plant is buried underground. We own or lease real property for signal reception sites. Our headend locations
are located on owned or leased parcels of land.

We own or lease the real property and buildings for our market administrative offices,
customer call centers, data center, and our corporate offices.

The physical components of our broadband systems require maintenance as
well as periodic upgrades to support the new services and products we may introduce. We believe that our properties are generally in good operating condition and are suitable for our business operations.



|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

We are subject to litigation in
the normal course of our business. However, in our opinion, there is no legal proceeding pending against us which would have a material adverse effect on our financial position, results of operations or liquidity. We are also a party to regulatory
proceedings affecting the segments of the communications industry generally in which we engage in business.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

None.



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PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | ---------------------------------------------------------------------------------------------------------------

Market Information

Our common stock has traded on
the Nasdaq Global Market under the ticker symbol KNOL since December 18, 2003. The following table sets forth the high and low sales prices as reported on the Nasdaq Global Market for the period from January 1, 2006 through
December 31, 2007:



|               |  |      |       |     |   |      
|-------------- |  | ---- | ----- | --- | - | -----
|               |  | High |       | Low
|2007           |  |      |       |     |   |      
|Fourth Quarter |  | $    | 17.16 |     | $ | 11.12
|Third Quarter  |  | $    | 18.22 |     | $ | 12.88
|Second Quarter |  | $    | 19.73 |     | $ | 16.04
|First Quarter  |  | $    | 15.83 |     | $ | 10.38
|               |  |     
|2006           |  |      |       |     |   |      
|Fourth Quarter |  | $    | 11.12 |     | $ | 9.82 
|Third Quarter  |  | $    | 10.76 |     | $ | 8.75 
|Second Quarter |  | $    | 10.07 |     | $ | 6.50 
|First Quarter  |  | $    | 6.83  |     | $ | 3.50 

Holders

As of February 29, 2008, there were approximately 391 stockholders of record of our common stock (excluding beneficial owners of shares registered in nominee or street name).

Dividends

We have never declared or paid any cash
dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. It is the current policy of our board of directors to retain earnings to finance the upgrade and expansion of our operations.
Future declarations and payments of dividends, if any, will be determined based on the then-current conditions, including our earnings, operations, capital requirements, financial condition, and other factors our board of directors deems relevant.
From its issuance in May 2005 until its conversion to common stock in June 2006, we accrued dividends on our Series AA preferred stock at an 8% annual rate, which could have been paid in cash or additional shares of the Series AA preferred stock.
However, pursuant to the restrictions of our credit agreements, we were prohibited from paying dividends in cash other than cash in lieu of fractional shares. During the years ended December 31, 2007, 2006 and 2005, respectively, we issued
zero, 216,621 and 58,742 shares of Series AA preferred stock as dividends.



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##### Index to Financial Statements

Comparison of Cumulative Total Stockholder Return

The following graph and related information shall not be deemed soliciting material or to be filed with the SEC, nor shall such
information be incorporated by reference into any future filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent we specifically incorporate it by reference into such filing.

The following graph and table set forth our cumulative total stockholder return as compared to the NASDAQ Composite Index and the NASDAQ
Telecommunications Index since the close of business on December 18, 2003, the effective date of the registration of our common stock under the Securities Act of 1933, as amended. This graph assumes that $100 was invested on December 18,
2003 in Knologys common stock, or was invested on November 30, 2003 in the NASDAQ Composite Index or the NASDAQ Telecommunications Index, as set forth below, and assumes reinvestment of all dividends.

LOGO



|                          |  |                         |        |                  |   |                  |  |                  |        |                  |   |                  |  |   |        |  |   |       
|------------------------- |  | ----------------------- | ------ | ---------------- | - | ---------------- |  | ---------------- | ------ | ---------------- | - | ---------------- |  | - | ------ |  | - | ------
|                          |  | Cumulative Total Return
|                          |  | December 18,2003        |        | December 31,2003 |   | December 31,2004 |  | December 31,2005 |        | December 31,2006 |   | December 31,2007
|Knology, Inc              |  | $                       | 100.00 |                  | $ | 96.27            |  | $                | 41.58  |                  | $ | 40.94            |  | $ | 113.43 |  | $ | 136.25
|NASDAQ Composite          |  |                         | 100.00 |                  |   | 102.07           |  |                  | 110.63 |                  |   | 113.90           |  |   | 127.26 |  |   | 140.45
|NASDAQ Telecommunications |  |                         | 100.00 |                  |   | 106.79           |  |                  | 112.91 |                  |   | 109.03           |  |   | 138.65 |  |   | 143.59

There have been no recent sales of unregistered securities. Additionally, we did not repurchase
any shares of our common stock during the fourth quarter ended December 31, 2007.



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##### Index to Financial Statements

|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

The selected financial
data set forth below should be read in conjunction with Item 7Managements Discussion and Analysis of Financial Condition and Results of Operations, our consolidated financial statements and the related notes, and other
financial data included elsewhere in this annual report.



|                                                                                                    |  |                                  |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|--------------------------------------------------------------------------------------------------- |  | -------------------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | - |  | ---- | -------- | - |  | - | -------- | -
|                                                                                                    |  | Year Ended December 31,          |         
|                                                                                                    |  | 2003                             |          |   | 2004 |   |          | 2005 |  |   | 2006     |   |  | 2007 |         
|                                                                                                    |  | (in thousands, except per share) |         
|Statement of Operations Data:                                                                       |  |                                  |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Operating revenues                                                                                  |  | $                                | 172,938  |   |      | $ | 211,458  |      |  | $ | 230,857  |   |  | $    | 258,991  |   |  | $ | 347,652  |  
|Operating expenses:                                                                                 |  |                                  |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Direct costs                                                                                        |  |                                  | 47,754   |   |      |   | 64,266   |      |  |   | 69,616   |   |  |      | 75,497   |   |  |   | 104,060  |  
|Selling, operations and administrative                                                              |  |                                  | 92,137   |   |      |   | 114,143  |      |  |   | 113,529  |   |  |      | 116,191  |   |  |   | 138,509  |  
|Depreciation and amortization                                                                       |  |                                  | 77,806   |   |      |   | 74,163   |      |  |   | 74,490   |   |  |      | 68,189   |   |  |   | 85,776   |  
|Reorganization professional fees                                                                    |  |                                  | 84       |   |      |   | 0        |      |  |   | 0        |   |  |      | 0        |   |  |   | 0        |  
|Capital markets activity and other                                                                  |  |                                  | 0        |   |      |   | 880      |      |  |   | 606      |   |  |      | 1,623    |   |  |   | 219      |  
|Asset impairment and severance                                                                      |  |                                  | 0        |   |      |   | 0        |      |  |   | 334      |   |  |      | 0        |   |  |   | 0        |  
|Non-cash stock option compensation                                                                  |  |                                  | 1,883    |   |      |   | 3,625    |      |  |   | 2,101    |   |  |      | 2,025    |   |  |   | 2,799    |  
|Litigation fees                                                                                     |  |                                  | 907      |   |      |   | 377      |      |  |   | 46       |   |  |      | 0        |   |  |   | 0        |  
|                                                                                                    |  |                                  |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Total operating expenses                                                                            |  |                                  | 220,571  |   |      |   | 257,454  |      |  |   | 260,722  |   |  |      | 263,525  |   |  |   | 331,363  |  
|                                                                                                    |  |                                  |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Operating income (loss)                                                                             |  |                                  | (47,633  | ) |      |   | (45,996  | )    |  |   | (29,865  | ) |  |      | (4,534   | ) |  |   | 16,289   |  
|Interest expense, net                                                                               |  |                                  | (28,796  | ) |      |   | (30,342  | )    |  |   | (33,645  | ) |  |      | (33,722  | ) |  |   | (40,622  | )
|Loss on debt extinguishment                                                                         |  |                                  | 0        |   |      |   | 0        |      |  |   | 0        |   |  |      | 0        |   |  |   | (27,375  | )
|Gain (loss) on interest rate derivative instrument                                                  |  |                                  | 0        |   |      |   | 0        |      |  |   | 267      |   |  |      | (63      | ) |  |   | (758     | )
|Gain (loss) on adjustments of warrants to market                                                    |  |                                  | 929      |   |      |   | 535      |      |  |   | 37       |   |  |      | (464     | ) |  |   | (262     | )
|Other income (expense), net                                                                         |  |                                  | (12,288  | ) |      |   | 133      |      |  |   | (12      | ) |  |      | 25       |   |  |   | (53      | )
|                                                                                                    |  |                                  |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Loss from continuing operations before discontinued operations                                      |  |                                  | (87,788  | ) |      |   | (75,670  | )    |  |   | (63,218  | ) |  |      | (38,758  | ) |  |   | (52,781  | )
|Income from discontinued operations                                                                 |  |                                  | 0        |   |      |   | 106      |      |  |   | 8,404    |   |  |      | 0        |   |  |   | 8,863    |  
|                                                                                                    |  |                                  |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Net loss                                                                                            |  |                                  | (87,788  | ) |      |   | (75,564  | )    |  |   | (54,814  | ) |  |      | (38,758  | ) |  |   | (43,918  | )
|                                                                                                    |  |                                  |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Preferred stock dividends                                                                           |  |                                  | 0        |   |      |   | 0        |      |  |   | (588     | ) |  |      | (747     | ) |  |   | 0        |  
|Net loss attributable to common stockholders                                                        |  | $                                | (87,788  | ) |      | $ | (75,564  | )    |  | $ | (55,402  | ) |  | $    | (39,505  | ) |  | $ | (43,918  | )
|Basic and diluted net loss per share from continuing operations attributable to common stockholders |  | $                                | (5.17    | ) |      | $ | (3.20    | )    |  | $ | (2.69    | ) |  | $    | (1.41    | ) |  | $ | (1.51    | )
|Basic and diluted net loss per share attributable to common stockholders                            |  | $                                | (5.17    | ) |      | $ | (3.19    | )    |  | $ | (2.33    | ) |  | $    | (1.41    | ) |  | $ | (1.25    | )
|Other Financial Data:                                                                               |  |                                  |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Capital expenditures                                                                                |  | $                                | 35,533   |   |      | $ | 63,592   |      |  | $ | 31,613   |   |  | $    | 27,821   |   |  | $ | 45,792   |  
|Cash provided by operating activities                                                               |  |                                  | 29,512   |   |      |   | 22,263   |      |  |   | 18,818   |   |  |      | 30,543   |   |  |   | 57,507   |  
|Cash used in investing activities                                                                   |  |                                  | (96,993  | ) |      |   | (40,941  | )    |  |   | (5,555   | ) |  |      | (26,028  | ) |  |   | (293,073 | )
|Cash provided by (used in) financing activities                                                     |  |                                  | 45,383   |   |      |   | 4,185    |      |  |   | (7,162   | ) |  |      | (5,121   | ) |  |   | 270,437  |  
|                                                                                                    | 
|                                                                                                    |  | December 31,                     |         
|                                                                                                    |  | 2003                             |          |   | 2004 |   |          | 2005 |  |   | 2006     |   |  | 2007 |         
|                                                                                                    |  | (in thousands)                   |         
|Balance Sheet Data:                                                                                 |  |                                  |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Net working capital                                                                                 |  | $                                | 42,935   |   |      | $ | 3,201    |      |  | $ | (14,235  | ) |  | $    | (9,670   | ) |  | $ | 6,810    |  
|Property and equipment, net                                                                         |  |                                  | 336,060  |   |      |   | 326,499  |      |  |   | 285,638  |   |  |      | 243,831  |   |  |   | 403,476  |  
|Total assets                                                                                        |  |                                  | 463,712  |   |      |   | 418,587  |      |  |   | 375,534  |   |  |      | 336,561  |   |  |   | 601,437  |  
|Long-term liabilities                                                                               |  |                                  | 271,317  |   |      |   | 286,888  |      |  |   | 271,167  |   |  |      | 271,301  |   |  |   | 562,938  |  
|Total liabilities                                                                                   |  |                                  | 312,819  |   |      |   | 333,924  |      |  |   | 322,172  |   |  |      | 319,188  |   |  |   | 636,387  |  
|Accumulated deficit                                                                                 |  |                                  | (397,853 | ) |      |   | (473,420 | )    |  |   | (528,234 | ) |  |      | (566,992 | ) |  |   | (610,910 | )
|Total stockholders equity (deficit)                                                                |  |                                  | 150,893  |   |      |   | 86,269   |      |  |   | 33,511   |   |  |      | 17,373   |   |  |   | (34,950  | )



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##### Index to Financial Statements

|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Overview

We are a fully integrated provider of video, voice, data and advanced communications
services to residential and business customers in nine markets in the southeastern United States, as well as two markets in South Dakota. We provide a full suite of video, voice and data services in Huntsville and Montgomery, Alabama; Panama City
and portions of Pinellas County, Florida; Augusta, Columbus and West Point, Georgia; Charleston, South Carolina; Knoxville, Tennessee; and Rapid City and Sioux Falls, South Dakota, as well as portions of Minnesota and Iowa. Our primary business is
the delivery of bundled communication services over our own network. In addition to our bundled package offerings, we sell these services on an unbundled basis.

We have built our business through:



| |  |  | construction and expansion of our broadband network to offer integrated video, voice and data services;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | organic growth of connections through increased penetration of services to new marketable homes and our existing customer base;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | upgrades of acquired networks to introduce expanded broadband services including bundled video, voice and data services; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | acquisitions of broadband systems.
| | - |  | ----------------------------------

The following discussion includes details, highlights and insight into our consolidated financial condition and results of operations, including recent business developments, critical accounting policies, estimates used in preparing the
financial statements and other factors that are expected to affect our prospective financial condition. The following discussion and analysis should be read in conjunction with our Selected Consolidated Financial Data and our financial
statements and related notes elsewhere in this annual report.

To date, we have experienced operating losses as a result of the expansion
of our service territories and the construction of our network. We expect to continue to focus on increasing our customer base and expanding our broadband operations. Our ability to generate profits will depend in large part on our ability to
increase revenues to offset the costs of construction and operation of our business.

During 2007, we completed several key transactions to
improve our financial condition and liquidity. These transactions include the following:



| |  |  | In April 2007, we completed the $255 million acquisition of PrairieWave, which has delivered significant increases in key operating and financial metrics as well as
being free cash flow accretive.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We simplified the capital structure and significantly reduced the cost of capital by entering into a $555 million credit facility, the proceeds of which were used
to fund the PrairieWave transaction and refinance our existing credit facilities.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require us to
make estimates and assumptions. We believe that, of our significant accounting estimates described in Note 2 of Notes to Consolidated Financial Statements included elsewhere in this annual report, the following may involve a higher
degree of judgment and complexity.

Allowance for Doubtful Accounts. We use estimates to determine our allowance for bad debts.
These estimates are based on historical collection experience, current trends, credit policy and a percentage of our delinquent customer accounts receivable.



45



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##### Index to Financial Statements

Capitalization of labor and overhead costs. Our business is capital intensive, and a large portion
of the capital we have raised to date has been spent on activities associated with building, extending, upgrading and enhancing our network. As of December 31, 2006 and 2007, the net carrying amount of our property, plant and equipment was
approximately $243.8 million, 72% of total assets, and $403.4 million, 65% of total assets, respectively. Total capital expenditures for the years ended December 31, 2005, 2006 and 2007 were approximately $31.6 million, $27.8 million
and $45.8 million, respectively.

Costs associated with network construction, network enhancements and initial customer installation
are capitalized. Costs capitalized as part of the initial customer installation include materials, direct labor, and certain indirect costs. These indirect costs are associated with the activities of personnel who assist in connecting and activating
the new service and consist of compensation and overhead costs associated with these support functions. The costs of disconnecting service at a customers premise or reconnecting service to a previously installed premise are charged to
operating expense in the period incurred. Costs for repairs and maintenance are charged to operating expense as incurred, while equipment replacement and significant enhancements, including replacement of cable drops from the pole to the premise,
are capitalized.

We make judgments regarding the installation and construction activities to be capitalized. We capitalize direct labor
and certain indirect costs using operational data and estimations of capital activity. We calculate standards for items such as the labor rates, overhead rates and the actual amount of time required to perform a capitalizable activity. Overhead
rates are established based on an estimation of the nature of costs incurred in support of capitalizable activities and a determination of the portion of costs that is directly attributable to capitalizable activities.

Judgment is required to determine the extent to which overhead is incurred as a result of specific capital activities, and therefore should be
capitalized. The primary costs that are included in the determination of the overhead rate are (1) employee benefits and payroll taxes associated with capitalized direct labor, 2i) direct variable costs associated with capitalizable
activities, consisting primarily of installation costs, (3) the cost of support personnel that directly assist with capitalizable installation activities, and (4) indirect costs directly attributable to capitalizable activities.

While we believe our existing capitalization policies are reasonable, a significant change in the nature or extent of our system
activities could affect managements judgment about the extent to which we should capitalize direct labor or overhead in the future. We monitor the appropriateness of our capitalization policies, and perform updates to our internal studies on
an ongoing basis to determine whether facts or circumstances warrant a change to our capitalization policies.

Valuation of Long-Lived
and Intangible Assets and Goodwill. We assess the impairment of identifiable long-lived assets and related goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable in accordance with SFAS
No. 142, Goodwill and Other Intangible Assets, and SFAS No. 144 Accounting for Asset Impairment. Factors we consider important and that could trigger an impairment review include the following:



| |  |  | significant underperformance of our assets relative to expected historical or projected future operating results;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | significant changes in the manner in which we use our assets or significant changes in our overall business strategy; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | significant negative industry economic trends.
| | - |  | ----------------------------------------------

We perform a goodwill impairment test annually in accordance with SFAS No. 142 on January 1. Based on the results of the test, we recorded no impairment loss to our goodwill as of January 1, 2006, 2007
and 2008.



46



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##### Index to Financial Statements

Significant and Subjective Estimates. The following discussion and analysis of our results of
operations and financial condition is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires
us to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and contingent liabilities. In many cases, the accounting treatment of a particular transaction is
specifically dictated by accounting principles generally accepted in the United States, with no need for us to judge the application. On an ongoing basis, we evaluate our estimates, including those related to collectibility of accounts receivable,
valuation of inventories and investments, recoverability of goodwill and intangible assets, income taxes and contingencies. We base our judgments on historical experience and on various other assumptions that we believe are reasonable under the
circumstances, the results of which form the basis for making estimates about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions
or conditions. See our consolidated financial statements and related notes thereto included elsewhere in this annual report, which contain accounting policies and other disclosures required by accounting principles generally accepted in the United
States.

Homes Passed and Connections

We report homes passed as the number of residential and business units, such as single residence homes, apartments and condominium units, passed by our broadband network and listed in our database. Marketable homes passed are
homes passed other than those we believe are covered by exclusive arrangements with other providers of competing services. Because we deliver multiple services to our customers, we report the total number of connections for video, voice and data
rather than the total number of customers. We count each video, voice or data purchase as a separate connection. For example, a single customer who purchases cable television, local telephone and Internet access services would count as three
connections. We do not record the purchase of digital video services by an analog video customer as an additional connection. As we continue to sell bundled services, we expect more of our video customers to purchase voice, data and other enhanced
services in addition to basic video services. Accordingly, we expect that our number of voice and data connections will grow faster than our video connections and will represent a higher percentage of our total connections in the future.

Revenues

Our operating revenues are primarily
derived from monthly charges for video, voice and Internet data services and other services to residential and business customers. We provide these services over our network. Our products and services involve different types of charges and in some
cases a different method of accounting for or recording revenues. Below is a description of our significant sources of revenue:



| |  |  | Video revenues. Our video revenues consist of fixed monthly fees for expanded basic, premium and digital cable television services, as well as fees from
pay-per-view movies, fees for video-on-demand and events such as boxing matches and concerts that involve a charge for each viewing. Video revenues accounted for approximately 44.6%, 44.4% and 42.1% of our consolidated revenues for the years ended
December 31, 2005, 2006 and 2007, respectively.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Voice revenues. Our voice revenues consist primarily of fixed monthly fees for local service and enhanced services, such as call waiting, voice mail and
measured and flat rate long-distance service. Voice revenues accounted for approximately 33.6%, 31.8% and 33.7% of our consolidated revenues for the years ended December 31, 2005, 2006 and 2007, respectively.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Data revenues. Our data revenues consist primarily of fixed monthly fees for data service and rental of cable modems. Data revenues accounted for
approximately 21.0%, 22.6% and 22.7% of our consolidated revenues for the years ended December 31, 2005, 2006 and 2007, respectively. Providing data services is a rapidly growing business and competition is increasing in each of our markets.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other revenues.Other revenues result principally from broadband carrier services. Other revenues accounted for approximately .8%, 1.2% and 1.4% of our
consolidated revenues for the years ended December 31, 2005, 2006 and 2007, respectively.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



47



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##### Index to Financial Statements

Our ability to increase the number of our connections and, as a result, our revenues is directly affected
by the level of competition we face in each of our markets with respect to each of our service offerings:



| |  |  | In providing video services, we currently compete with AT&T, Bright House, Charter, Comcast, Mediacom, MidContinent Communications and Time Warner. We also
compete with satellite television providers such as DirecTV and Echostar. Our other competitors include broadcast television stations and other satellite television companies. We expect in the future to face additional competition from telephone
companies providing video services within their service areas.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In providing local and long-distance telephone services, we compete with the incumbent local phone company and various long-distance providers in each of our
markets. AT&T, Verizon and Qwest are the incumbent local phone companies in our markets. They offer both local and long-distance services in our markets and are particularly strong competitors. We also compete with providers of long-distance
telephone services, such as AT&T, MCI and Sprint. We also expect an increase in the deployment of VoIP services and expect to continue to compete with Vonage Holding Company, Comcast and other providers.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In providing data services, we compete with traditional dial-up Internet service providers; incumbent local exchange carriers that provide dial-up and DSL services;
providers of satellite-based Internet access services; cable television companies; and providers of wireless high-speed data services. Providing data services is a rapidly growing business and competition is increasing in each of our markets. Some
of our competitors have competitive advantages such as greater experience, resources, marketing capabilities and stronger name recognition.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Costs and Expenses

Our operating expenses primarily include cost of services, selling, operations and administrative
expenses and depreciation and amortization.

Direct costs include:



| |  |  | Direct costs of video services. Direct cost of video services consists primarily of monthly fees to the National Cable Television Cooperative and other
programming providers. Programming costs are our largest single cost and we expect this trend to continue. Programming costs as a percentage of video revenue were approximately 47.2%, 48.8% and 52.0% for the years ended December 31, 2005, 2006
and 2007, respectively. We have entered into contracts with various entities to provide programming to be aired on our network. We pay a monthly fee for these programming services, generally based on the average number of subscribers to the program,
although some fees are adjusted based on the total number of subscribers to the system and/or the system penetration percentage. Because programming cost is partially based on the number of subscribers, it will increase as we add more subscribers.
It will also increase as costs per channel increase over time.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Direct costs of voice services. Direct costs of voice services consist primarily of transport cost and network access fees. The direct cost of voice services
as a percentage of voice revenues was approximately 16.6%, 15.9% and 15.8% for the years ended December 31, 2005, 2006 and 2007, respectively.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Direct costs of data services. Direct costs of data services consist primarily of transport cost and network access fees. The direct cost of data services as
a percentage of data revenue was 3.7%, 3.1% and 4.5% for the years ended December 31, 2005, 2006 and 2007, respectively.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Direct costs of other services. Direct costs of other services consist primarily of transport cost and network access fees. The direct cost of other services
as a percentage of other revenue was 10.7%, 18.7% and 16.5% for the years ended December 31, 2005, 2006 and 2007, respectively.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Pole attachment and other network rental expenses. Pole attachment and other network rental expenses consist primarily of pole attachments rents paid to
utility companies for space on their utility poles to
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



48



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##### Table of Contents

##### Index to Financial Statements

| | deliver our various services and network hub rents. Pole attachment and other network rental expenses as a percentage of total revenue was approximately
1.6%, 1.5% and 1.4% of total revenues for the years ended December 31, 2005, 2006 and 2007, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Relative
to our current product mix, we expect voice, data and other revenue will become larger percentages of our overall revenue, and potentially will provide higher gross profits. Based on the anticipated changes in our revenue mix, we expect that our
consolidated cost of services as a percentage of our consolidated revenues will decrease.

Selling, general and administrative expenses
include:



| |  |  | Sales and marketing expenses. Sales and marketing expenses include the cost of sales and marketing personnel and advertising and promotional expenses.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Network operations and maintenance expenses. Network operations and maintenance expenses include payroll and departmental costs incurred for network design,
24 hours a day, seven days a week maintenance monitoring and plant maintenance activity.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Service and installation expenses. Service and installation expenses include payroll and departmental cost incurred for customer installation and service
technicians.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Customer service expenses. Customer service expenses include payroll and departmental costs incurred for customer service representatives and customer
service management, primarily at our centralized call center.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | General and administrative expenses. General and administrative expenses consist of corporate and subsidiary management and administrative costs.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------

Depreciation and amortization expenses include depreciation of our interactive broadband networks and equipment and
amortization of costs in excess of net assets and other intangible assets related to acquisitions.

As our sales and marketing efforts
continue and our networks expand, we expect to add customer connections resulting in increased revenue. We also expect our cost of services and operating expenses to increase as we add connections and grow our business.



49



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##### Index to Financial Statements

Results of Operations

The following table sets forth financial data as a percentage of operating revenues for the years ended December 31, 2005, 2006 and 2007.



|                                                                                |  |                        |    |  |      |    |  |      |   
|------------------------------------------------------------------------------- |  | ---------------------- | -- |  | ---- | -- |  | ---- | --
|                                                                                |  | Year EndedDecember 31, |   
|                                                                                |  | 2005                   |    |  | 2006 |    |  | 2007 |   
|Operating revenues:                                                             |  |                        |    |  |      |    |  |      |   
|Video                                                                           |  | 44                     | %  |  | 44   | %  |  | 42   | % 
|Voice                                                                           |  | 34                     |    |  | 32   |    |  | 34   |   
|Data                                                                            |  | 21                     |    |  | 23   |    |  | 23   |   
|Other                                                                           |  | 1                      |    |  | 1    |    |  | 1    |   
|                                                                                |  |                        |    |  |      |    |  |      |   
|Total operating revenues                                                        |  | 100                    |    |  | 100  |    |  | 100  |   
|Operating expenses:                                                             |  |                        |    |  |      |    |  |      |   
|Direct costs                                                                    |  | 30                     |    |  | 29   |    |  | 30   |   
|Selling, general and administrative expenses                                    |  | 51                     |    |  | 46   |    |  | 41   |   
|Depreciation and amortization                                                   |  | 32                     |    |  | 26   |    |  | 24   |   
|Capital markets activity and other                                              |  | 0                      |    |  | 1    |    |  | 0    |   
|                                                                                |  |                        |    |  |      |    |  |      |   
|Total operating expenses                                                        |  | 113                    |    |  | 102  |    |  | 95   |   
|                                                                                |  |                        |    |  |      |    |  |      |   
|Operating income (loss)                                                         |  | (13                    | )  |  | (2   | )  |  | 5    |   
|                                                                                |  |                        |    |  |      |    |  |      |   
|Other income (expense):                                                         |  |                        |    |  |      |    |  |      |   
|Interest income                                                                 |  | 1                      |    |  | 0    |    |  | 0    |   
|Interest expense                                                                |  | (15                    | )  |  | (13  | )  |  | (12  | ) 
|Loss on debt extinguishment                                                     |  | 0                      |    |  | 0    |    |  | (8   | ) 
|(Loss) gain on interest rate derivative instrument                              |  | 0                      |    |  | 0    |    |  | 0    |   
|(Loss) gain on adjustment of warrants to market                                 |  | 0                      |    |  | 0    |    |  | 0    |   
|Other income (expense), net                                                     |  | 0                      |    |  | 0    |    |  | 0    |   
|                                                                                |  |                        |    |  |      |    |  |      |   
|Total other income (expense)                                                    |  | (14                    | )  |  | (13  | )  |  | (20  | ) 
|                                                                                |  |                        |    |  |      |    |  |      |   
|Loss before income taxes, discontinued operations and preferred stock dividends |  | (27                    | )  |  | (15  | )  |  | (15  | ) 
|                                                                                |  |                        |    |  |      |    |  |      |   
|Income tax benefit (provision)                                                  |  | 0                      |    |  | 0    |    |  | 0    |   
|Income from discontinued operations                                             |  | 3                      |    |  | 0    |    |  | 2    |   
|Preferred stock dividend                                                        |  | 0                      |    |  | 0    |    |  | 0    |   
|                                                                                |  |                        |    |  |      |    |  |      |   
|Net loss attributable to common stockholders                                    |  | (24                    | )% |  | (15  | )% |  | (13  | )%
|                                                                                |  |                        |    |  |      |    |  |      |   



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##### Index to Financial Statements

Quarterly Comparison

The following table presents certain unaudited consolidated statements of operations and other operating data for our eight most recent quarters. The information for each of these quarters is unaudited and has been
prepared on the same basis as our audited consolidated financial statements appearing elsewhere in this annual report. In the opinion of our management, all necessary adjustments, consisting only of normal recurring adjustments, have been included
to present fairly the unaudited quarterly results when read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. We believe that results of operations for interim periods
should not be relied upon as any indication of the results to be expected or achieved in any future periods or any year as a whole.



|                                              |  |                                                     |         |   |              |   |         |               |  |   |              |   |  |              |         |   |              |   |         |               |  |   |              |   |  |   |           |   |  |   |           |  
|--------------------------------------------- |  | --------------------------------------------------- | ------- | - | ------------ | - | ------- | ------------- |  | - | ------------ | - |  | ------------ | ------- | - | ------------ | - | ------- | ------------- |  | - | ------------ | - |  | - | --------- | - |  | - | --------- | -
|                                              |  | Quarters ended                                      |        
|                                              |  | Mar. 31,2006                                        |         |   | June 30,2006 |   |         | Sept. 30,2006 |  |   | Dec. 31,2006 |   |  | Mar. 31,2007 |         |   | June 30,2007 |   |         | Sept. 30,2007 |  |   | Dec. 31,2007 |  
|                                              |  | (in thousands, except per share and operating data) |        
|Revenues                                      |  | $                                                   | 62,699  |   |              | $ | 64,113  |               |  | $ | 65,250       |   |  | $            | 66,929  |   |              | $ | 69,019  |               |  | $ | 91,553       |   |  | $ | 92,327    |   |  | $ | 94,753    |  
|Direct costs                                  |  |                                                     | 18,514  |   |              |   | 18,888  |               |  |   | 18,958       |   |  |              | 19,137  |   |              |   | 20,479  |               |  |   | 27,549       |   |  |   | 28,758    |   |  |   | 27,274    |  
|Loss from continuing operations               |  |                                                     | (10,674 | ) |              |   | (9,847  | )             |  |   | (10,495      | ) |  |              | (7,742  | ) |              |   | (6,693  | )             |  |   | (33,362      | ) |  |   | (6,730    | ) |  |   | (5,996    | )
|Net income (loss)                             |  |                                                     | (10,674 | ) |              |   | (9,847  | )             |  |   | (10,495      | ) |  |              | (7,742  | ) |              |   | (6,693  | )             |  |   | (32,998      | ) |  |   | 1,769     |   |  |   | (5,996    | )
|Basic and diluted net income (loss) per share |  | $                                                   | (.46    | ) |              | $ | (.42    | )             |  | $ | (.30         | ) |  | $            | (.23    | ) |              | $ | (.19    | )             |  | $ | (.94         | ) |  | $ | .05       |   |  | $ | (.17      | )
|Homes passed                                  |  |                                                     | 960,034 |   |              |   | 962,391 |               |  |   | 965,678      |   |  |              | 968,187 |   |              |   | 971,566 |               |  |   | 1,093,448    |   |  |   | 1,095,492 |   |  |   | 1,097,455 |  
|Marketable homes passed                       |  |                                                     | 751,574 |   |              |   | 753,769 |               |  |   | 756,568      |   |  |              | 758,928 |   |              |   | 762,003 |               |  |   | 883,401      |   |  |   | 885,419   |   |  |   | 887,365   |  
|Video connections (1)                         |  |                                                     | 177,546 |   |              |   | 177,410 |               |  |   | 178,708      |   |  |              | 178,618 |   |              |   | 180,876 |               |  |   | 224,766      |   |  |   | 227,810   |   |  |   | 227,659   |  
|Video penetration (2)                         |  |                                                     | 23.6    | % |              |   | 23.5    | %             |  |   | 23.6         | % |  |              | 23.5    | % |              |   | 23.7    | %             |  |   | 25.4         | % |  |   | 25.7      | % |  |   | 25.7      | %
|Digital video connections                     |  |                                                     | 58,638  |   |              |   | 59,327  |               |  |   | 61,060       |   |  |              | 63,007  |   |              |   | 65,627  |               |  |   | 94,218       |   |  |   | 105,517   |   |  |   | 112,782   |  
|Digital penetration of video connections      |  |                                                     | 33.0    | % |              |   | 33.4    | %             |  |   | 34.2         | % |  |              | 35.3    | % |              |   | 36.3    | %             |  |   | 41.9         | % |  |   | 46.3      | % |  |   | 49.5      | %
|Voice connections                             |  |                                                     | 155,337 |   |              |   | 158,033 |               |  |   | 160,362      |   |  |              | 161,498 |   |              |   | 163,972 |               |  |   | 232,112      |   |  |   | 235,040   |   |  |   | 235,434   |  
|Voice penetration (2)                         |  |                                                     | 20.7    | % |              |   | 21.0    | %             |  |   | 21.2         | % |  |              | 21.3    | % |              |   | 21.5    | %             |  |   | 26.3         | % |  |   | 26.5      | % |  |   | 26.5      | %
|Data connections                              |  |                                                     | 111,476 |   |              |   | 114,633 |               |  |   | 119,397      |   |  |              | 122,195 |   |              |   | 126,723 |               |  |   | 169,974      |   |  |   | 176,547   |   |  |   | 179,565   |  
|Data penetration (2)                          |  |                                                     | 14.8    | % |              |   | 15.2    | %             |  |   | 15.8         | % |  |              | 16.1    | % |              |   | 16.6    | %             |  |   | 19.2         | % |  |   | 19.9      | % |  |   | 20.2      | %
|Total connections                             |  |                                                     | 444,359 |   |              |   | 450,076 |               |  |   | 458,467      |   |  |              | 462,311 |   |              |   | 471,571 |               |  |   | 626,852      |   |  |   | 639,397   |   |  |   | 642,658   |  
|Average monthly revenue per connection        |  | $                                                   | 47.66   |   |              | $ | 47.89   |               |  | $ | 47.79        |   |  | $            | 48.42   |   |              | $ | 49.16   |               |  | $ | 48.90        |   |  | $ | 48.87     |   |  | $ | 49.17     |  



|(1) | Video connections include customers who receive analog or digital video services.
|--- | ---------------------------------------------------------------------------------

|(2) | Penetration is measured as a percentage of marketable homes passed.
|--- | -------------------------------------------------------------------

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Revenues. Operating revenues
increased 34.2% from $259.0 million for the year ended December 31, 2006, to $347.7 million for the year ended December 31, 2007. Operating revenues from video services increased 27.5% from $114.9 million for the year ended
December 31, 2006, to $146.5 million for the same period in 2007. Operating revenues from voice services increased 42.3% from $82.4 million for the year ended December 31, 2006, to $117.3 million for the same period in 2007.
Operating revenues from data services increased 34.8% from $58.6 million for the year ended December 31, 2006, to $79.0 million for the same period in 2007. Operating revenues from other services increased 59.2% from $3.1 million
for the year ended December 31, 2006, to $4.9 million for the same period in 2007.

The increased revenues from video, voice and
data and other services are due primarily to an increase in the number of connections, from 462,311 as of December 31, 2006, to 642,658 as of December 31, 2007 and rate increases effective the first quarter of 2007. The additional
connections resulted primarily from the PrairieWave acquisition and:



| |  |  | continued growth in our bundled customers;
| | - |  | ------------------------------------------



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##### Index to Financial Statements

| |  |  | continued strong growth in business sales; and
| | - |  | ----------------------------------------------



| |  |  | continued penetration in our mature markets.
| | - |  | --------------------------------------------

We added video connections in 2007 as the popularity of additional services and products such as digital video recorders (DVRs), high-definition televisions and broadcasts continued to grow. We expect to add new video connections in the
future, but as our video segment matures in our current markets, we expect to grow at a decreasing rate compared to our historical experience. While the number of new video connections may grow at a declining rate, we believe that the opportunity to
increase revenue and video gross profits is available through price increases and the introduction of new products and new technology. New voice and data connections are expected to increase as we continue our sales and marketing efforts directed at
selling customers a bundle of services, penetrating untapped market segments and offering new services. Relative to our current product mix, we expect voice and data revenue will become larger percentages of our overall revenue, and potentially will
provide higher gross profits. Based on the anticipated changes in our revenue mix, we expect that our consolidated cost of services as a percentage of consolidated revenues will decrease.

Direct costs. Direct costs increased 37.8% from $75.5 million for the year ended December 31, 2006, to $104.1 million for the year
ended December 31, 2007. Direct costs of services for video services increased 35.9% from $56.0 million for the year ended December 31, 2006, to $76.2 million for the same period in 2007. Direct costs of services for voice services
increased 41.2% from $13.1 million for the year ended December 31, 2006, to $18.5 million for the same period in 2007. Direct costs of services for data services increased 98.0% from $1.8 million for the year ended December 31,
2006, to $3.5 million for the same period in 2007. Direct costs of services for other services increased 40.6% from $574,000 for the year ended December 31, 2006, to $808,000 for the same period in 2007. Pole attachment and other network
rental expenses increased 26.3% from $4.0 million for the year ended December 31, 2006, to $5.0 million for the same period in 2007. The increase in direct costs was primarily from the acquisition of PrairieWave. We expect our direct costs to
increase as we add more connections. The increase in direct costs of video services is primarily due to programming costs increases, which have been increasing over the last several years on an aggregate basis due to an increase in subscribers and
on a per subscriber basis due to an increase in costs per program channel. We expect this trend to continue and may not be able to pass these higher costs on to customers because of competitive factors, which could adversely affect our cash flow and
gross profit. We expect increases in voice, data and other costs of services with the additions of leased facilities used to backhaul our traffic to our switching facilities as connections and data capacity requirements increase.

Selling, general and administrative. Our selling, general and administrative increased 19.5% from $118.2 million for the year ended
December 31, 2006, to $141.3 million for the year ended December 31, 2007. The increase in our operating costs, included in selling, general and administrative, is consistent with our acquisition of PrairieWave and growth in connections
and customers in 2007, and included increases in personnel cost, sales and marketing, bad debt and general office expenses, that were partially offset by reductions in tax and insurance expense. We incurred one time charges related to travel and
other PrairieWave integration costs, included in selling, general and administrative, of $654,000 for the year ended December 31, 2007. Our non-cash stock option compensation expense, included in selling, general and administrative, increased
from $2.0 million for the year ended December 31, 2006, to $2.8 million for the year ended December 31, 2007.

Depreciation and amortization.Our depreciation and amortization increased from $68.2 million for the year ended December 31, 2006, to $85.8 million for the year ended December 31, 2007, primarily due to the
PrairieWave acquisition. We expect depreciation and amortization expense to decrease as our overall capital expenditures decrease and existing long-lived assets become fully depreciated.

Capital markets activity and other. Our capital markets activity and other were $1.6 million for the year ended December 31, 2006, compared
to $219,000 for the year ended December 31, 2007. The capital market activities in 2006 were primarily one-time charges related to the amendment of our first lien credit facility. The capital market activities in 2007 were primarily one-time
charges related to due diligence performed on potential acquisitions.



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##### Index to Financial Statements

Loss on debt extinguishment.In 2007, we recorded a loss of $27.4 million on the early
extinguishment of debt related to the prepayment penalty payment and writeoff of debt issuance costs for the existing credit facilities.

Interest income.Interest income was $365,000 for the year ended December 31, 2006, compared to $784,000 for the same period in 2007. The increase in interest income primarily reflects a higher average cash and cash equivalent
balance during the year ended December 31, 2007.

Interest expense. Interest expense increased from $34.1 million for the year
ended December 31, 2006, to $41.4 million for the year ended December 31, 2007. The increase in interest expense is primarily a result of the amendment of our term loan for the PrairieWave acquisition.

Gain (loss) on interest rate derivative instrument. Our loss on interest rate derivative instrument was $63,000 for the year ended
December 31, 2006, compared to $758,000 for the year ended December 31, 2007. We paid $1.3 million for a hedge instrument, which became effective July 29, 2005 and was scheduled to terminate July 29, 2008. The agreement had a
fair value of $1.5 million as of December 31, 2006. We terminated this agreement on April 18, 2007 for cash proceeds of $716,000 in connection with our entry into a new hedge agreement with a notional amount of $555 million. See Note 4 of
the Notes to Consolidated Financial Statements included elsewhere in this annual report.

Gain (loss) on adjustment of
warrants to market. During 2006, we adjusted the carrying value of the outstanding warrants to purchase our common stock to market value based on the published per share market value of our common stock. The published per share market value of
our common stock on December 31, 2006 was $10.64 resulting in a $464,000 loss on the adjustment of warrants to market value. During 2007, we adjusted the carrying value of the outstanding warrants to purchase our common stock to market value
based on the published per share market value of our common stock. The warrants to purchase shares of common stock for an exercise price of $0.10 per share expired October 22, 2007. The published market per share value of our common stock on
October 22, 2007 was $16.73 resulting in a $337,000 loss on the adjustment of warrants to market value, offset by a gain of $75,000 on forfeited warrants, resulting in a loss of $262,000 on the adjustment of warrants.

Other income (expense), net. Other income (expense), net decreased from income of $25,000 for the year ended December 31, 2006, to expense of
$53,000 for the year ended December 31, 2007, primarily due to the disposition of property, plant and equipment.

Income tax
provision. We recorded no income tax provision for the years ended December 31, 2006 and 2007, respectively, as our net operating losses are fully offset by a valuation allowance.

Loss before discontinued operations. We incurred a loss before discontinued operations of $38.8 million for the year ended December 31,
2006, compared to a loss before discontinued operations of $52.8 million for the year ended December 31, 2007.

Income from
discontinued operations.On September 7, 2007, we sold our telephone directory business to Yellow Book USA for $8.6 million. This business was included in the April 2007 acquisition of PrairieWave, and we intended to operate this business
after its acquisition. After recording transactions costs of $139,000 and writing off net assets of $210,000, the company recorded a gain of $8.3 million. The net income from the directory business for the year ended December 31, 2007 was
$612,000 and is also included in income from discontinued operations.

Preferred stock dividends. We issued 216,621 additional
shares of the Series AA convertible preferred stock in the year ended December 31, 2006 as a stock dividend, and recognized dividends of $747,000 for the year ended December 31, 2006. All the outstanding shares of the Series AA preferred
stock were converted to shares of common stock in June 2006.



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##### Index to Financial Statements

Net loss attributable to common stockholders. We incurred a net loss attributable to common
stockholders of $39.5 million and $43.9 million for the years ended December 31, 2006 and 2007, respectively. We expect net losses to decrease as our business matures.

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

Revenues.
Operating revenues increased 12.2% from $230.9 million for the year ended December 31, 2005, to $259.0 million for the year ended December 31, 2006. Operating revenues from video services increased 11.5% from $103.0 million
for the year ended December 31, 2005, to $114.9 million for the same period in 2006. Operating revenues from voice services increased 6.2% from $77.6 million for the year ended December 31, 2005, to $82.4 million for the same
period in 2006. Operating revenues from data services increased 20.9% from $48.5 million for the year ended December 31, 2005, to $58.6 million for the same period in 2006. Operating revenues from other services increased 74.4% from
$1.8 million for the year ended December 31, 2005, to $3.1 million for the same period in 2006.

The increased revenues from
video, voice and data and other services are due primarily to an increase in the number of connections, from 432,849 as of December 31, 2005, to 462,311 as of December 31, 2006. The additional connections resulted primarily from:



| |  |  | continued growth in our bundled customers;
| | - |  | ------------------------------------------



| |  |  | continued reduction in the rate of churn of connections as a greater portion of our customer base is bundled;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | continued strong growth in business sales; and
| | - |  | ----------------------------------------------



| |  |  | continued penetration in our mature markets.
| | - |  | --------------------------------------------

We added video connections in 2006 as the popularity of additional services and products such as DVRs, high-definition televisions and broadcast continued to grow.

Direct costs. Direct costs increased 8.4% from $69.6 million for the year ended December 31, 2005, to $75.5 million for the year
ended December 31, 2006. Direct costs of services for video services increased 9.5% from $51.2 million for the year ended December 31, 2005, to $56.0 million for the same period in 2006. Direct costs of services for voice services
increased 2.2% from $12.9 million for the year ended December 31, 2005, to $13.1 million for the same period in 2006. Direct costs of services for data services increased 1.0% from $1.8 million for the year ended December 31,
2005, to $1.8 million for the same period in 2006. Direct costs of services for other services increased 204.4% from $189,000 for the year ended December 31, 2005, to $574,000 for the same period in 2006. Pole attachment and other network
rental expenses increased 10.1% from $3.6 million for the year ended December 31, 2005, to $4.0 million for the same period in 2006. We expect our direct costs to increase as we add more connections. The increase in direct costs of video
services is primarily due to programming costs increases, which have been increasing over the last several years on an aggregate basis due to an increase in subscribers and on a per subscriber basis due to an increase in costs per program channel.
We expect this trend to continue and may not be able to pass these higher costs on to customers because of competitive factors, which could adversely affect our cash flow and gross profit. We expect increases in voice, data and other costs of
services with the additions of leased facilities used to backhaul our traffic to our switching facilities as connections and data capacity requirements increase.

Selling, general and administrative. Our selling, general and administrative increased 1.9% from $116.0 million for the year ended December 31, 2005, to $118.2 million for the year ended
December 31, 2006. The increase in our operating costs, included in selling, general and administrative, is consistent with our growth in connections and customers in 2006, and included increases in personnel cost, cost of billing our
customers, insurance and general office expenses, that were partially offset by reductions in outside or contract labor and bad debt expense. Our litigation fees, included in selling, general and administrative, decreased from $46,000 for



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##### Index to Financial Statements

the year ended December 31, 2005, to $0 for the year ended December 31, 2006, primarily due to conclusion of the Insight litigation. Our non-cash
stock option compensation expense, included in selling, general and administrative, decreased from $2.1 million for the year ended December 31, 2005, to $2.0 million for the year ended December 31, 2006.

Depreciation and amortization.Our depreciation and amortization decreased from $74.5 million for the year ended December 31, 2005, to
$68.2 million for the year ended December 31, 2006. We expect depreciation and amortization expense to decrease as our overall capital expenditures decrease and existing long-lived assets become fully depreciated.

Capital markets activity and other. Our capital markets activity and other were $606,000 for the year ended December 31, 2005, compared to
$1.6 million for the year ended December 31, 2006. The capital market activities in 2005 included $62,000 of one-time charges related to the amendment of our first lien credit facility and a $544,000 loss on the early extinguishment of debt
related to the repayment of all amounts outstanding under our credit facilities with Wachovia Bank, National Association and CoBank, ACB and the redemption of our 12% senior notes due in 2009.

Interest income.Interest income was $1.1 million for the year ended December 31, 2005, compared to $365,000 for the same period in 2006. The
decrease in interest income primarily reflects a lower average cash and cash equivalent balance during the year ended December 31, 2006.

Interest expense. Interest expense decreased from $34.7 million for the year ended December 31, 2005, to $34.1 million for the year ended December 31, 2006. The decrease in interest expense for 2006 is primarily a
result of the June 2006 amendment of our first lien term loan reducing the effective interest rate to LIBOR plus 2.5% from LIBOR plus 5.5%.

Gain (loss) on interest rate derivative agreement. We paid $1.3 million for an interest rate cap agreement, which became effective July 29, 2005. The cap agreement had a fair value of $1.54 million as of December 31,
2005 and $1.47 million as of December 31, 2006, resulting in a derivative loss of $63,000.

Gain (loss) on the adjustment of
warrants to market. During 2005, we adjusted the carrying value of the outstanding warrants to purchase our common stock to market value based on the published per share market value of our common stock. The published per share market value of
our common stock on December 31, 2005 was $3.84 resulting in a $37,000 gain on the adjustment of warrants to market. During 2006, we adjusted the carrying value of the outstanding warrants to purchase our common stock to market value based on
the published per share market value of our common stock. The published per share market value of our common stock on December 31, 2006 was $10.64 resulting in a $464,000 loss on the adjustment of warrants to market value.

Other income (expense), net. Other income (expense), net increased from expense of $12,000 for the year ended December 31, 2005, to income of
$25,000 for the year ended December 31, 2006.

Income tax provision. We recorded no income tax provision for the years ended
December 31, 2005 and 2006, respectively, as our net operating losses are fully offset by a valuation allowance.

Loss before
discontinued operations. We incurred a loss before discontinued operations of $63.2 million for the year ended December 31, 2005, compared to a loss before discontinued operations of $38.8 million for the year ended
December 31, 2006.

Income from discontinued operations.Following the guidance of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, we deemed the Cerritos, California cable system to be a long-lived asset to be disposed of based on our actions taken to sell the property. We recorded income from discontinued operations of $8.4
million, including the gain from disposal of the asset, for the year ended December 31, 2005.



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Preferred stock dividends. We issued 58,742 and 216,621 additional shares of the Series AA
convertible preferred stock in the years ended December 31, 2005 and 2006, respectively, as a stock dividend, and recognized dividends of $588,000 and $747,000 for the years ended December 31, 2005 and 2006, respectively. All the
outstanding shares of the Series AA preferred stock were converted to shares of common stock in June 2006.

Net loss attributable to
common stockholders. We incurred a net loss attributable to common stockholders of $55.4 million and $39.5 million for the years ended December 31, 2005 and 2006, respectively.

Liquidity and Capital Resources

Overview.

As of December 31, 2007, we had approximately $47.9 million of cash, cash equivalents and restricted cash on our balance sheet. Our net working
capital on December 31, 2007 was $6.8 million, compared to net working deficit of $9.7 million as of December 31, 2006.

The Companys current financial condition has been significantly influenced by positive cash flow from operations and changes in our debt capital structure. On March 14, 2007, the Company entered into an Amended and Restated
Credit Agreement that provides for a $580.0 million credit facility, consisting of a $555.0 million term loan and a $25.0 million revolving credit facility, of which $1.5 million was outstanding as unused letters of credit as of December 31,
2007. The term loan bears interest at LIBOR plus 2.25% and amortizes at a rate of 1% per annum, payable quarterly, with a June 30, 2012 maturity date.

On January 4, 2008, the Company entered into a First Amendment to Amended and Restated Credit Agreement which provides for a $59.0 million incremental term loan to partially fund the $75.0 million Graceba Total
Communications Group, Inc. acquisition purchase price. The term loan bears interest at LIBOR plus 2.75% and amortizes at a rate of 1% per annum, payable quarterly, with a June 30, 2012 maturity date.

As discussed above, the borrowings under our term loans bear interest at variable rates and expose us to interest rate risk. If interest rates increase,
our debt service obligations on our variable rate debt would also increase even though the amount borrowed remained the same. In May 2007, the Company entered into a new interest rate swap contract to mitigate interest rate risk on a notional amount
of $555.0 million amortizing 1% annually. The swap agreement fixes 100% of the floating rate debt at 4.977% until July 3, 2010. In December 2007, the Company entered into a new interest rate swap contract to mitigate interest rate risk on a
notional amount of $59.0 million amortizing 1% annually, which relates to an additional new borrowing to partially fund the Graceba acquisition. The swap agreement fixes 100% of the floating rate debt at 3.995% until September 30, 2010.

We believe there is adequate liquidity from cash on hand and cash provided from operations to fund capital expenditures, operating
expenses and debt service through 2008. Should we require additional funding, we have available a $25.0 million revolving loan. We believe that cash on hand and the cash flows from the existing Knology business plus the expected cash flows from the
Graceba operations will be adequate to fund the operations, capital expenditures and debt service requirements of the combined business through 2008.

As of December 31, 2007 we are in compliance with all of our debt covenants.

Operating, Investing and Financing
Activities.

As of December 31, 2007, we had a net working capital of $6.8 million, compared to net working deficit of $9.7
million as of December 31, 2006. The reduction in the working capital deficit from December 31, 2006 to December 31, 2007 is primarily due to an increase in trade accounts receivable resulting from customer connection growth and
higher revenues and cash received from the sale of the directory business.



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##### Index to Financial Statements

Net cash provided by operating activities from continuing operations totaled $19.2 million, $30.5
million and $57.0 million for the years ended December 31, 2005, 2006 and 2007, respectively, and operating activities from discontinued operations used net cash of $0.4 million for the year ended December 31, 2006 and provided net
cash of $0.5 million for the year ended December 31, 2007. The net cash flow activity related to operations consists primarily of changes in operating assets and liabilities and adjustments to net income for non-cash transactions including:



| |  |  | depreciation and amortization;
| | - |  | ------------------------------



| |  |  | loss on debt extinguishment;
| | - |  | ----------------------------



| |  |  | non-cash stock option compensation;
| | - |  | -----------------------------------



| |  |  | accretion of second term lien loan;
| | - |  | -----------------------------------



| |  |  | non-cash bank loan interest expense;
| | - |  | ------------------------------------



| |  |  | non-cash (gain) loss on interest rate derivative instrument;
| | - |  | ------------------------------------------------------------



| |  |  | provision for bad debt;
| | - |  | -----------------------



| |  |  | loss on disposition of assets; and
| | - |  | ----------------------------------



| |  |  | (gain) loss on adjustment of warrants to market.
| | - |  | ------------------------------------------------

Net cash used in investing activities was $5.5 million, $26.0 million and $293.1 million for the years ended December 31, 2005, 2006 and 2007, respectively. Investing activities in 2005 consisted
primarily of $31.6 million of capital expenditures and $4.0 million for the purchase of short-term investments, partially offset by $16.6 million from the sale of short-term investments, $9.7 million proceeds from the sale of discontinued
operations, and $3.8 million of cash pledged as security that was returned. The sale of discontinued operations was a result of the sale of our cable assets in Cerritos, California to WaveDivision Holdings, LLC for $10.0 million in cash. Our
investing activities in 2006 primarily consisted of $27.8 million of capital expenditures, partially offset by $1.9 million of cash pledged as security that was returned. Our investing activities in 2007 primarily consisted of $256.2 million
purchase of PrairieWave, and $45.8 million of capital expenditures, partially offset by $8.6 million proceeds from sale of discontinued operations. The sale of discontinued operations was a result of the sale of our telephone directory business to
Yellow Book USA for $8.6 million, of which $860,000 was placed in escrow, and will be paid out in September 2008, subject to any indemnification claims by Yellow Book, but was recognized into income at the sale date.

Net cash used in financing activities totaled $7.2 million and $5.1 million for the years ended December 31, 2005 and 2006, respectively, and net
cash provided by financing activities totaled $270.4 million for the year ended December 31, 2007. In 2005, financing activities consisted primarily of $296.0 million in principal payments on debt, $9.7 million of expenditures related to
issuance of debt and $1.3 million for the purchase of a interest rate hedge agreement with Credit Suisse First Boston International, partially offset by $280.0 million of proceeds from the first lien and the second lien credit agreement and
$20.0 million in gross proceeds from the issuance of our Series AA preferred stock. In 2006, financing activities consisted primarily of $2.2 million in principal payments on debt and $3.5 million of expenditures related to issuance of debt, which
represents a 2% call premium associated with the amendment of the first lien term loan facility, partially offset by $584,000 of proceeds from stock options exercised. In 2007, financing activities consisted primarily of $555.0 million proceeds from
first lien term loan, $1.7 million proceeds from stock options exercised and $716,000 proceeds from unwinding the interest rate derivative instrument, partially offset by $273.7 million in principal payments on debt and $13.3 million of expenditures
related to issuance of debt.

Capital Expenditures, Operating Expenses and Debt Service

We spent approximately $45.8 million in capital expenditures during 2007, of which approximately $26.7 million related to the purchase and
installation of customer premise equipment, $7.8 million related to



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##### Index to Financial Statements

plant extensions and enhancements and $11.3 million related to network equipment, billing and information systems and other capital items.

We expect to spend approximately $50.0 million in capital expenditures during 2008. We believe we will have sufficient cash on hand and cash from
internally generated cash flow to cover our planned operating expenses, capital expenditures and service our debt during 2008. The credit agreements and covenants on our new debt limit the amount of our capital expenditures on an annual basis.

In 2008, we will expand into a market in Dothan, Alabama through the $75.0 million acquisition of Graceba, which was completed January
2008. See Note 14 of the Notes to Consolidated Financial Statements included elsewhere in this annual report.

We do not intend
to expand into other markets or make further acquisitions until the required funding is available.

Contractual Obligations

The following table sets forth, as of December 31, 2007, our long-term debt, capital leases, operating lease and other obligations for 2008, the
following four years and thereafter. The long-term debt obligations are our principal payments on cash debt service obligations. Interest is comprised of interest payments on cash debt service and capital lease obligations. The capital lease
obligations are our future rental payments under one lease with a 10-year term, Video on Demand equipment and network fiber leasing agreements. Operating lease obligations are the future minimum rental payments required under the operating leases
that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 2007.



|                                      |  |                       |       |                                        |   |                                        |  |                                        |       |                       |   |       |  |   |    
|------------------------------------- |  | --------------------- | ----- | -------------------------------------- | - | -------------------------------------- |  | -------------------------------------- | ----- | --------------------- | - | ----- |  | - | ---
|                                      |  | Payment due by period
|Contractual obligations (in millions) |  | Total                 |       | January 1,2008 throughDecember 31,2008 |   | January 1,2009 throughDecember 31,2010 |  | January 1,2011 throughDecember 31,2012 |       | AfterDecember 31,2012
|                                      |  | (in thousands)       
|Long-term debt obligations            |  | $                     | 552.2 |                                        | $ | 5.5                                    |  | $                                      | 11.1  |                       | $ | 535.6 |  | $ | 0  
|Interest                              |  |                       | 168.5 |                                        |   | 40.4                                   |  |                                        | 79.4  |                       |   | 48.7  |  |   | 0  
|Capital lease obligation              |  |                       | 3.1   |                                        |   | .6                                     |  |                                        | 1.4   |                       |   | 1.1   |  |   | 0  
|Operating lease obligations           |  |                       | 19.1  |                                        |   | 4.4                                    |  |                                        | 6.0   |                       |   | 3.6   |  |   | 5.1
|Programming contracts(1)              |  |                       | 242.8 |                                        |   | 80.8                                   |  |                                        | 162.0 |                       |   | 0     |  |   | 0  
|Pole attachment obligations (2)       |  |                       | 13.5  |                                        |   | 4.5                                    |  |                                        | 9.0   |                       |   | 0     |  |   | 0  
|                                      |  |                       |       |                                        |   |                                        |  |                                        |       |                       |   |       |  |   |    
|Total                                 |  | $                     | 999.2 |                                        | $ | 136.2                                  |  | $                                      | 268.9 |                       | $ | 589.0 |  | $ | 5.1
|                                      |  |                       |       |                                        |   |                                        |  |                                        |       |                       |   |       |  |   |    



|(1) | We have entered into contracts with various entities to provide programming to be aired by us. We pay a monthly fee for the programming services, generally based on the number of
average video subscribers to the program, although some fees are adjusted based on the total number of video subscribers to the system and/or the system penetration percentage. The amounts presented are based on the estimated number of connections
we will have in future periods through the completion of the current contracts.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Federal law requires utilities, defined to include all local telephone companies and electric utilities except those owned by municipalities and co-operatives, to provide cable
operators and telecommunications carriers with nondiscriminatory access to poles, ducts, conduit and rights-of-way at just and reasonable rates. Utilities may charge telecommunications carriers a different rate for pole attachments than they charge
cable operators providing solely cable service. The amounts presented are based on the estimated number of poles we will attach to in future periods through the completion of the current contracts.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As discussed above, we currently expect to spend $50.0 million in capital expenditures in 2008. We expect to fund our contractual obligations,
programming costs, expected capital expenditures and service debt using a



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##### Index to Financial Statements

portion of the approximately $46.4 million of cash and cash equivalents on hand as of December 31, 2007, with the remainder funded by cash flow
generated by operations. Beyond 2008, we may need to raise additional capital through equity offerings, asset sales or debt refinancing to grow the business through any potential merger and acquisition activity.



|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

The Company uses interest rate swap and interest rate cap contracts to manage the impact of interest rate changes on earnings and operating cash flows. Interest rate swaps involve the receipt of variable-rate amounts in exchange for
fixed-rate payments over the life of the agreements without exchange of the underlying principal amount. Interest rate caps involve the receipt of variable-rate amounts beyond a specified strike price over the life of the agreements without exchange
of the underlying principal amount. The Company believes these agreements are with counter-parties who are creditworthy financial institutions.

The Company has adopted FASB Statement No. 133 (subsequently amended by SFAS Nos. 137 and 138), Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133). This statement requires that
all derivatives be recorded in the balance sheet as either an asset or liability measured at fair value, and that changes in fair value be recognized currently in earnings unless specific hedge accounting criteria are met. For derivatives designated
as qualifying cash flow hedges, the effective portion of changes in fair value of the derivatives is initially recognized in other comprehensive income and subsequently reclassified as an increase or decrease to interest expense in the same periods
in which the related interest on the variable-rate debt affects earnings. The ineffective portions are recognized directly in earnings. Upon early termination of a derivative instrument that has been designated as a hedge, the resulting gains or
losses are deferred and amortized as adjustments to interest expense of the related debt over the remaining period covered by the terminated instrument. The Company has formally documented, designated and assessed at inception of the derivative
instruments. Based on criteria listed in SFAS No. 133 pertaining to cash flow derivative instruments that are interest rate swaps, the Company has assessed that the swap agreements are completely effective and therefore there are no
ineffectiveness. The Company assesses for ineffectiveness on a quarterly basis. The Company uses derivative instruments as risk management tools and not for trading purposes.

In July 2005, the Company entered into an interest rate cap agreement with Credit Suisse First Boston International with a notional amount of $280.0
million to cap its adjustable LIBOR rate at 5%, mitigating interest rate risk on the first and second lien term loans. The Company paid $1.3 million for this cap agreement, which became effective July 29, 2005 and terminated July 29, 2008.
The Company did not designate the cap agreement as an accounting hedge under SFAS No. 133. Accordingly changes in fair value of the cap agreement were recorded through earnings as derivative gains/(losses). Gain (loss) on interest rate
derivative instrument was $267,000, $(63,000) and $(758,000) for the years ended December 31, 2005, 2006 and 2007, respectively. On April 18, 2007, the Company unwound its existing interest rate cap agreement for $716,000 cash
proceeds.

On April 18, 2007, the Company entered into a new interest rate swap contract to mitigate interest rate risk on a notional
amount of $555.0 million amortizing 1% annually. The swap agreement fixes 100% of the floating rate debt at 4.977% until July 3, 2010. The interest rate hedge instrument is designated as a hedge under SFAS No. 133. Changes in the fair
value of the swap agreement are initially recorded as Accumulated Other Comprehensive Loss in the equity section of the balance sheet and subsequently reclassified to Interest Expense on the statement of operations.



|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------

Item 8 is incorporated by reference to pages F-1 through F-21 of this annual report.



|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------

None.



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##### Index to Financial Statements

|ITEM 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Evaluation of
Disclosure Controls and Procedures. The Companys management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of December 31, 2007. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of
December 31, 2007, the Companys disclosure controls and procedures are effective.

Evaluation of Internal Control over
Financial Reporting.Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, the Company has included a report on managements assessment of the design and effectiveness of its internal control over financial reporting as part of
this Annual Report on Form 10-K for the year ended December 31, 2007. The Companys independent registered public accounting firm also audited, and reported on the effectiveness of internal control over financial reporting.
Managements report is included below under the caption Managements Report on Internal Control over Financial Reporting and the independent registered public accounting firms attestation report entitled Report of
Independent Registered Public Accounting Firm on Internal Control over Financial Reporting is included in Item 8 of this annual report.

Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2007 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.



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MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange
Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal
control over financial reporting as of December 31, 2007 based on the framework in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our
management concluded that our internal control over financial reporting was effective as of December 31, 2007.

Because of its
inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation
and presentation.

The effectiveness of our internal control over financial reporting as of December 31, 2007 has been audited by BDO
Seidman, LLP, an independent registered public accounting firm, as stated in their report which is included elsewhere herein.



|                                      |  |  |  |                        
|------------------------------------- |  |  |  | -----------------------
|Date: March 14, 2008                  |  |  |  |                        
|                                      |  | 
|/s/    RODGER L.
JOHNSON              |  |  |  | /s/    M. TODD
HOLT    
|Rodger L. Johnson                     |  |  |  | M. Todd Holt           
|President and Chief Executive Officer |  |  |  | Chief Financial Officer



|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------

None.



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##### Index to Financial Statements

PART III



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|-------- | ------------------------------------------------------

The following table sets forth information regarding our officers and directors. Our board of directors is divided among three classes, with members serving three-year terms expiring in the years indicated.



|                             |  |     |  |                                                                                                           |  |                   
|---------------------------- |  | --- |  | --------------------------------------------------------------------------------------------------------- |  | ------------------
|Name                         |  | Age |  | Position                                                                                                  |  | CurrentTermExpires
|Rodger L. Johnson            |  | 60  |  | President, Chief Executive Officer and Director                                                           |  | 2008              
|M. Todd Holt                 |  | 40  |  | Chief Financial Officer, Vice President of Finance and Administration, Treasurer and Corporate Controller |  |                   
|Felix L. Boccucci, Jr.       |  | 49  |  | Vice President of Business Development                                                                    |  |                   
|Weldon A.Feightner           |  | 47  |  | Vice President and Regional General Manager                                                               |  |                   
|Allan H. Goodson             |  | 50  |  | Vice President and Regional General Manager                                                               |  |                   
|Bruce D. Herman              |  | 51  |  | Vice President, Mergers and Acquisitions                                                                  |  |                   
|Ronald K. Johnson            |  | 53  |  | Vice President, Business Sales and Service                                                                |  |                   
|Marcus R. Luke, PhD          |  | 53  |  | Chief Technology Officer                                                                                  |  |                   
|Bret T. McCants              |  | 48  |  | Senior Vice President of Operations                                                                       |  |                   
|Anthony J. Palermo           |  | 52  |  | Vice President of Marketing                                                                               |  |                   
|Richard D. Perkins           |  | 49  |  | Vice President of Information Technology                                                                  |  |                   
|Andrew M. Sivell             |  | 48  |  | Vice President of Network Operations                                                                      |  |                   
|Brad M. Vanacore             |  | 53  |  | Vice President of Human Resources                                                                         |  |                   
|Chad S. Wachter              |  | 41  |  | Vice President, General Counsel and Secretary                                                             |  |                   
|Campbell B. Lanier, III      |  | 57  |  | Chairman of the Board                                                                                     |  | 2008              
|Alan A. Burgess (1)          |  | 72  |  | Director                                                                                                  |  | 2009              
|Donald W. Burton (2)         |  | 64  |  | Director                                                                                                  |  | 2010              
|Eugene I. Davis (1)(3)       |  | 53  |  | Director                                                                                                  |  | 2008              
|O. Gene Gabbard (1)(2)       |  | 67  |  | Director                                                                                                  |  | 2009              
|William H. Scott, III (2)(3) |  | 60  |  | Director                                                                                                  |  | 2010              



|(1) | Member of the audit committee.
|--- | ------------------------------

|(2) | Member of the compensation and stock option committee.
|--- | ------------------------------------------------------

|(3) | Member of the nominating committee.
|--- | -----------------------------------

Provided below are
biographies of each of the officers and directors listed in the table above.

Rodger L. Johnson has served as President and as a
director since April 1999 and as our Chief Executive Officer since June 1999. Prior to joining us, Mr. Johnson had served as President and Chief Executive Officer, as well as a Director, of Communications Central, Inc., a publicly
traded provider of pay telephone services, since November 1995. Prior to joining Communications Central, Mr. Johnson served as the President and Chief Executive Officer of JKC Holdings, Inc., a consulting company providing advice to the
information processing industry. In that capacity, Mr. Johnson also served as the Chief Operating Officer of CareCentric, Inc., a publicly traded medical software manufacturer. Before founding JKC Holdings, Inc., Mr. Johnson served for
approximately eight years as the President and Chief Operating Officer and as the President and Chief Executive Officer of Firstwave Technologies, Inc., a publicly traded sales and marketing software provider. Mr. Johnson spent his early career
from June 1971 to November 1984 with AT&T where he worked in numerous departments, including sales, marketing, engineering, operations and human resources. In his final job at AT&T, he directed the development of consumer market
sales strategies for the northeastern United States, a territory encompassing 10.5 million customers at the time.

M. Todd Holt
has served as our Chief Financial Officer since August 2005. Mr. Holt served as our Corporate Controller from 1998 to July 2005. Mr. Holt is a member of the American Institute of Certified Public Accountants and previously practiced public
accounting as an audit manager with Ernst & Young.



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Felix L. Boccucci, Jr. has served as Vice President Regulatory Affairs/Governmental Affairs since
February 2008. Previously Mr. Boccucci served as Vice President of Business Development since August 1997, and he served as the Chief Financial Officer, Treasurer and Secretary from November 1995 through August 1997. From
October 1994 until December 1995, he served as Vice President Finance-Broadband of ITC Holding. As Vice President Finance-Broadband of ITC Holding Company, Mr. Boccucci conducted a feasibility study that led to Knologys
formation in 1996. Prior to such time, Mr. Boccucci worked for GTE Corporation, a telecommunications company, which merged with Contel Corporation in March 1991. From May 1993 to October 1994, he served as a Senior Financial
Analyst for GTE. From 1991 to 1993, Mr. Boccucci served as Financial Director for GTEs Central Area Telephone Operations. From 1987 to 1991, he was the Assistant Vice President Controller in charge of Contels Eastern Region
Telephone Operations comprising 13 companies in 12 states. Mr. Boccucci is a Certified Public Accountant in the Commonwealth of Virginia and holds a BS degree in business Administration with a concentration in Accounting from Shepherd
University.

Weldon A. Feightnerserves as Vice President and Regional General Manager of Regional Operations where he is
responsible for the companys systems in Sioux Falls and Rapid City, South Dakota; Columbus, Georgia; Dothan and Montgomery, Alabama; and Panama City, Florida. His management career with Knology spans more than 10 years, and he has been engaged
in the industry for more than 29 years. Prior to his tenure with Knology, Mr. Feightner was Regional Manager with FrontierVision, a broadband communications cable company responsible for operations in Michigan, Ohio and Kentucky. He has also
worked in Cincinnati as General Manager for United Video Cable Company and as Technical Operations Manager for Time Warner.

Allan H.
Goodson joined Knology in June 2000 and serves as Vice President of Regional Operations, where he is responsible for the Huntsville, Knoxville, Charleston and Augusta divisions, as well as Call Center operations. Prior to joining Knology,
Mr. Goodson was the Executive Vice President and Chief Operating Officer of On Command Corp., an international telecommunications company specializing in commercial hotel in-room television entertainment and Internet products. During his 20
years in the telecommunications industry, Mr. Goodson also held positions with STC Cable Corporation and TCI.

Bruce D. Herman
has served as Vice President, Mergers and Acquisitions, since September 2007, and was Chief Executive Officer of PrairieWave Communications prior to its acquisition by Knology in April 2007. Previous experience included Chief Financial Officer,
Treasurer, and corporate and financial analysis positions at Ford Motor Company, USL Capital Corp, Hexcel Corp, and Martin Group Inc. Mr. Herman was actively involved in over a dozen mergers and acquisitions opportunities at each of his prior
companies, and was responsible for two post-acquisition integration efforts.

Ronald K. Johnson serves as Vice President, Business
Sales and Service for Knology and has over 25 years experience in marketing and selling telecommunications to businesses. Mr. Johnson started in the industry with AT&T and served in various sales and marketing roles, including working with
large multi-national corporations to optimize their use of telecommunications for both voice and data networks. He also established critical sales functions used to propose data networking solutions provided via satellite networks (VSAT). After
leaving AT&T, Mr. Johnson led the marketing efforts of a small video conferencing company and then moved into the newly competitive local telephone service arena to sell telecommunications services to business customers for MediaOne in
Atlanta. After AT&Ts purchase of MediaOne, Mr. Johnson joined BroadRiver Communications as the Vice President of Sales. BroadRiver was one of the first pure IP telephony service providers to target small to medium size businesses.
Mr. Johnson joined Knology in September of 2002 to grow the Knology Business Services organization into a premier provider of leading edge products and service.

Marcus R. Luke, Ph.D. has served as Chief Technology Officer since August 1997. Prior to this he served as our Vice President of Network Construction from November 1995 until August 1997, and
Director of Engineering of Cybernet Holding, L.L.C. from May 1995 until November 1995. Prior to joining us, Dr. Luke served as Southeast Division Construction Manager for TCI from July 1993 to May 1995. From July 1987
to June 1993, he served as Area Technical Manager for TCIs southeast area. Dr. Luke worked for Storer



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Communications Inc. from 1985 to 1987 as Vice President of Engineering. Prior to 1985, he spent 12 years in various engineering and management positions
with Storer Communications Inc.

Bret T. McCants has served as our Senior Vice President of Operations since January 2007. In his 10
years with Knology, Mr. McCants has also served as Vice President and Regional General Manager and Vice President of Network Construction. Prior to joining Knology, Mr. McCants spent 16 years in the electric utility industry with
experience in operations, engineering, communications and sales and marketing.

Anthony J. Palermo rejoined the Knology Broadband
Services Management team as Vice President of Marketing in 2007. In this role, he will be responsible for Knologys Marketing, Marketing Communications, Product Development and Management. Previous to rejoining Knology, Mr. Palermo led
Scientific-Atlantas SciCare Broadband Services business as Vice President of Business Development and Emerging Markets. In his role at Scientific-Atlanta, he was responsible for SciCares product management, sales and marketing support,
consulting, and training activities. Mr. Palermo served as Corporate Vice President for Operations, Sales and Marketing at broadband provider Knology, Inc. from 1999 through 2004. He has held operations and marketing positions with several
other software and telecommunications firms such as Brock Control Systems, Interactive Financial Services and AT&T Long Lines.

Richard D. Perkins has served as Knologys Vice President of Information Technology and Billing since January 2003. Mr. Perkins has over 20 years experience directing the development and deployment of management systems
spanning a variety of industries, mostly manufacturing and telecommunications. Prior to joining Knology, he held various leadership roles during his 10 years with Perot Systems, a leading Dallas Texas IT consulting firm.

Andrew M. Sivell has served as Vice President of Network Operations since October 2000 where he is responsible for switching, digital
transport, network provisioning, video services and the Network Operation Centers functions. From May 1998 to June 2003, Mr. Sivell served as our Director of Network Operations. Mr. Sivell has 28 years experience in the
communications industry, having held technical management positions with Interstate Fibernet, Intercel, MCI, Telecom USA and Southern Net.

Brad M. Vanacorehas served as the Corporate Vice President of Human Resources for Knology since October 2005. He has worked for the ITC Holding Company since 1995 and previously served as the Senior Vice President Human Resources
for ITC Financial Services and PRE Holdings, Inc. His current responsibilities include compensation and benefits, employee relations, recruitment, training, payroll and several legal compliance duties. Mr. Vanacore was also the Corporate Vice
President of Human Resources and Administration at Powertel, Inc., a regional wireless phone service provider, from 1995-2001. Mr. Vanacore has prior work experience as the Vice President of Human Resources at another start-up company, Cott
Beverages, USA, a national soft drink manufacturer. He began his career with United Technologies Corporation, where he spent 15 years working in labor relations, negotiations, arbitrations and various Human Resources generalist capacities.

Chad S. Wachter has served as Vice President since October 1999 and as General Counsel and Secretary since August 1998.
From April 1997 to August 1998, Mr. Wachter served as Assistant General Counsel of Powertel, Inc., which was a provider of wireless communications services. From May 1990 until April 1997, Mr. Wachter was an associate
and then a partner with Capell, Howard, Knabe & Cobbs, P.A. in Montgomery, Alabama.

Campbell B. Lanier, III has been a
director since November 1995 and has served as our Chairman of the Board since September 1998. Since July 2003, Mr. Lanier has served as Chairman and Chief Executive Officer of Magnolia Holding Company, LLC and ITC Holding
Company, LLC; Magnolia Holding Company, LLC operates a promotional goods business, a transaction processing business and a consulting business. Mr. Lanier served as Chairman of the Board and Chief Executive Officer of ITC Holding until
May 2003 and served as a director of the company from its inception in May 1989 until its sale to West Corporation on May 9, 2003. In



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addition, Mr. Lanier was also an officer and director of several former subsidiaries of ITC Holding Company. In conjunction with the transaction with
the West Corporation, the ITC Holding Company name was transferred to an entity owned by Mr. Lanier and is currently organized as ITC Holding Company, LLC. Mr. Lanier has served as a Managing Director of South Atlantic Private Equity Fund,
IV, Limited Partnership since July 1997. He has also served as board member of Interactive Communications, Inc. (InComm), since May, 2005.

Alan A. Burgess has been one of our directors since January 1999. From 1967 until his retirement in 1997, Mr. Burgess was a partner with Accenture (formerly Andersen Consulting). Over his 30-year career he held a number of
positions with Accenture, including Managing Partner of Regulated Industries from 1974 to 1989. In 1989, he assumed the role of Managing Partner of the Communications Industry Group. In addition, he served on Accentures Global Management
council and was a member of the Partner Income Committee.

Donald W. Burton has been one of our directors since January 1996.
Since December 1983, he has served as Managing General Partner of South Atlantic Venture Funds. Mr. Burton also has been the General Partner of the Burton partnerships since October 1979. He has served as President and Chairman of
South Atlantic Capital Corporation since 1997 and South Atlantic Capital, Inc. since 1997. Mr. Burton is a Director of BlackRock Investment Managers (ClusterA), Capital Southwest Corporation and several private companies. Mr. Burton also
serves as a member of the Investment Advisory Council of the Florida State Board of Administration until December 31, 2007.

Eugene
I. Davis has been one of our directors since November 2002. Mr. Davis is Chairman and Chief Executive Officer of Pirinate Consulting Group, L.L.C., a privately held consulting firm, and of RBX Industries, Inc., a manufacturer and
distributor of rubber and plastic products. From May 1999 to June 2001, he served as Chief Executive Officer of SmarTalk Teleservices Corp., an independent provider of prepaid calling cards. Mr. Davis was Chief Operating Officer of
Total-Tel Communications, Inc., a long-distance telecommunications provider from October 1998 to March 1999. Mr. Davis currently serves as the chairman of the board of Atlas Air Worldwide Holdings, Inc. Mr. Davis was elected to
our board of directors pursuant to our stockholders agreement, which permitted certain holders of the Series D preferred stock to designate a nominee to serve as director for a three-year term.

O. Gene Gabbard has been one of our directors since September 2003. Mr. Gabbard has worked independently as an entrepreneur and
consultant since February 1993. From August 1990 to January 1993, Mr. Gabbard served as Executive Vice President and Chief Financial Officer of MCI Communications Corporation. Mr. Gabbard also served from June 1998 to
June 2002 on the board of ClearSource, Inc. (now Grande Communications Inc.), a provider of broadband communications services. In January 2005, Mr. Gabbard was appointed to the Board of Directors of COLT Telecom Group SA, Luxembourg, a
provider of telecommunications service to businesses throughout Europe. Since June 2006, he has also been a member of the board and audit committee of Hughes Communications, Inc., Germantown, Maryland, the leading provider of satellite based data
communications systems and services. He is currently a Special Limited Partner in Ballast Point Ventures, a venture capital fund based in St. Petersburg, Florida. Mr. Gabbard is nominee for Class I Director.

William H. Scott, III has been one of our directors since November 1995. He served as President of ITC Holding Company from
December 1991 and was a director of that company until its sale in May 2003. Mr. Scott is an investor in and director of several private companies.

The remaining information required by this Item 10 will be contained in our definitive proxy statement for our 2008 Annual Meeting of Stockholders to be filed with the SEC (the Proxy Statement) in the sections
entitled Information About Our Executive Officers, Directors and Nominees, Meetings and Committees of the Board, Section 16(a) Beneficial Ownership Reporting Compliance and possibly elsewhere therein, and
such information is incorporated in this Annual Report on Form 10-K by this reference.



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We have adopted a code of ethics that applies to our employees, officers and directors, including our
chief executive officer, chief financial officer, principal accounting officer and controller. This code of ethics is posted on our website located at www.knology.com. The code of ethics may be found as follows: from our main web page, first click
on About Us at the bottom of the page and then on Investor Relations. Next, click on Corporate Governance. Finally, click on Standards of Conduct. We intend to satisfy the disclosure requirement under
Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of this code of ethics by posting such information on our website, at the address and location specified above.



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

The information required by
this Item 11 will be contained in the section entitled Executive Compensation, Compensation Committee Interlocks and Insider Participation and Meetings and Committees of the Board of our Proxy Statement and
possibly elsewhere therein, and such information is incorporated in this Annual Report on Form 10-K by this reference.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

The information required by this Item 12 will be contained in the sections entitled Principal Stockholders of our Proxy Statement and
possibly elsewhere therein, and such information is incorporated in this Annual Report on Form 10-K by this reference.



|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|-------- | -------------------------------------------------------------------------

The information required by this Item 13 will be contained in the section entitled Transactions with Related Persons of our Proxy Statement and possibly elsewhere therein, and such information is
incorporated in this Annual Report on Form 10-K by this reference.



|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

The
information required by this Item 14 will be contained in the section entitled Fees Paid to Independent Registered Public Accounting Firms of our Proxy Statement and possibly elsewhere therein, and such information is incorporated
in this Annual Report on Form 10-K by this reference.



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PART IV



|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|-------- | ------------------------------------------

(a)(1)
The following Consolidated Financial Statements of the Company and independent auditors reports are included in Item 8 of this Form 10-K.

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

Reports of Independent
Registered Public Accounting Firms.

Consolidated Balance Sheets as of December 31, 2006 and 2007.

Consolidated Statements of Operations for the Years Ended December 31, 2005, 2006 and 2007.

Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2005, 2006 and 2007.

Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2006 and 2007.

Notes to Consolidated Financial Statements.

(a)(2) All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission either have been included in the Consolidated Financial Statements of the Company or the notes thereto, are
not required under the related instructions or are inapplicable, and therefore have been omitted.

(a)(3) The following exhibits are either
provided with this Form 10-K or are incorporated herein by reference:



|            |  |                                                                                                                                                                                                                                                                                                                                                                                          
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                      
|2.1         |  | Agreement and Plan of Merger, dated January 8, 2007, among Knology, Inc., PrairieWave Holdings, Ins., Knology Acquisition Sub, Inc., ALTA Communications VIII, L.P. and certain equity holders of
PrairieWave Holdings, Inc. (Incorporated herein by reference to Exhibit 2.1 to Knology, Inc.s Quarterly Report on Form 10-Q for the period ended March 31, 2007 (File No. 000-32647)).
|            | 
|2.2         |  | Share Purchase Agreement, dated November 2, 2007, by and among Graceba Total Communications, Inc., C. Christopher Dupree, Knology, Inc., and Knology of Alabama, Inc.                                                                                                                                                                                                                    
|            | 
|3.1         |  | Amended and Restated Certificate of Incorporation of Knology, Inc. (Incorporated herein by reference to Exhibit 3.1 to Knology, Inc.s Quarterly Report Form 10-Q for the period
ended June 30, 2004 (File No. 000-32647)).                                                                                                                                                              
|            | 
|3.2         |  | Certificate of Designations of Powers, Preferences, Rights, Qualifications, Limitations and Restrictions of Series X Junior Participating Preferred Stock of Knology, Inc. (Incorporated herein by
reference to Exhibit 3.1 to Knology, Inc.s Current Report on Form 8-K filed July 29, 2005 (File No. 000-32647)).                                                                     
|            | 
|3.3         |  | Bylaws of Knology, Inc. (Incorporated herein by reference to Exhibit 3.2 to Knology Inc. Registration Statement on Form S-1 (File No. 333-89179)).                                                                                                                                                                                                                                       
|            | 
|4.1         |  | Stockholder Protection Rights Agreement, dated as of July 27, 2005, by and between Knology, Inc. and Wachovia Bank, N.A., acting as Rights Agent (which includes as Exhibit A thereto the Form of
Rights Certificate) (Incorporated herein by reference to Exhibit 4.1 to Knology, Inc.s Current Report on Form 8-K filed July 29, 2005 (File No. 000-32647)).                          
|            | 
|10.1.1      |  | Stockholders Agreement dated February 7, 2000 among Knology, Inc., certain holders of the Series A preferred stock, the holders of Series B Preferred stock, certain management
holders and certain additional stockholders (Incorporated herein by reference to Exhibit 10.84 to Knology, Inc.s Post-Effective Amendment No. 2 to Form S-1 (File No. 333-89179)).                      



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                                                               
|10.1.2      |  | Amendment No. 1 to Stockholders Agreement, dated as of February 7, 2000, by and among Knology, Inc. and the other signatories thereto, dated as of January 12, 2001, by and among
Knology, Inc. and the other signatories thereto (Incorporated herein by reference to Exhibit 10.2 to Knology, Inc.s Current Report on Form 8-K filed January 26, 2001 (File No. 000-32647)).                                                   
|            | 
|10.1.3      |  | Amendment No. 2 to Stockholders Agreement, dated as of February 7, 2000, by and among Knology, Inc. and the other signatories thereto, as amended as of January 12, 2001, dated as
of October 18, 2002, by and among Knology, Inc. and the other signatories thereto (Incorporated herein by reference to Exhibit 10.1.3 to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 2002 (File
No. 000-32647)).
|            | 
|10.2        |  | Lease, dated June 1, 2003 by and between D. L. Jordan, L.L.P. Family Partnership and Knology, Inc. (Incorporated herein by reference to Exhibit 10.62 to Knology, Inc.s Annual
Report on Form 10-K for the year ended December 31, 2003 (File No. 000-32647)).                                                                                                                                                                   
|            | 
|10.3        |  | Pole Attachment Agreement dated January 1, 1998 by and between Gulf Power Company and Beach Cable, Inc. (Incorporated herein by reference to Exhibit 10.7 to Knology Broadband,
Inc.s Registration Statement on Form S-4 (File No. 333-43339)).                                                                                                                                                                                  
|            | 
|10.4        |  | Telecommunications Facility Lease and Capacity Agreement, dated September 10, 1996, by and between Troup EMC Communications, Inc. and Cybernet Holding, Inc. (Incorporated herein by
reference to Exhibit 10.16 to Knology Broadband, Inc.s Registration Statement on Form S-4 (File No. 333-43339)).                                                                                                                            
|            | 
|10.5        |  | Master Pole Attachment agreement dated January 12, 1998 by and between South Carolina Electric and Gas and Knology Holdings, Inc. d/b/a/ Knology of Charleston (Incorporated herein by
reference to Exhibit 10.17 to Knology Broadband, Inc.s Registration Statement on Form S-4 (File No. 333-43339)).                                                                                                                          
|            | 
|10.6        |  | Lease Agreement, dated December 5, 1997 by and between The Hilton Company and Knology of Panama City, Inc. (Incorporated herein by reference to Exhibit 10.25 to Knology Broadband,
Inc.s Registration Statement on Form S-4 (File No. 333-43339)).                                                                                                                                                                              
|            | 
|10.7        |  | Certificate of Membership with National Cable Television Cooperative, dated January 29, 1996, of Cybernet Holding, Inc. (Incorporated herein by reference to Exhibit 10.34 to Knology
Broadband, Inc.s Registration Statement on Form S-4 (File No. 333-43339)).                                                                                                                                                                 
|            | 
|10.8        |  | Ordinance No. 99-16 effective March 16, 1999 between Columbus consolidated Government and Knology of Columbus Inc. (Incorporated herein by reference to Exhibit 10.18 to Knology
Broadband, Inc.s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).                                                                                                                                         
|            | 
|10.9        |  | Ordinance No. 16-90 (Montgomery, Alabama) dated March 6, 1990 (Incorporated herein by reference to Exhibit 10.44 to Knology Broadband, Inc.s Registration Statement on
Form S-4 (File No. 333-43339)).                                                                                                                                                                                                                           
|            | 
|10.10       |  | Ordinance No. 50-76 (Montgomery, Alabama) (Incorporated herein by reference to Exhibit 10.45 to Knology Broadband, Inc.s Registration Statement on Form S-4 (File
No. 333-43339)).                                                                                                                                                                                                                                               
|            | 
|10.11       |  | Ordinance No. 9-90 (Montgomery, Alabama) dated January 16, 1990 (Incorporated herein by reference to Exhibit 10.45.1 to Knology Broadband, Inc.s Registration Statement on
Form S-4 (File No. 333-43339)).                                                                                                                                                                                                                       
|            | 
|10.12       |  | Resolution No. 58-95 (Montgomery, Alabama) dated April 6, 1995 (Incorporated herein by reference to Exhibit 10.46 to Knology Broadband, Inc.s Registration Statement on
Form S-4 (File No. 333-43339)).                                                                                                                                                                                                                          



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|            |  |                                                                                                                                                                                                                                                                                                                                     
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Description                                                                                                                                                                                                                                                                                                                 
|10.13       |  | Ordinance No. 78-2007 (Montgomery, Alabama), dated November 5, 2007.                                                                                                                                                                                                                                                                
|            | 
|10.14       |  | Resolution No. 97-22 (Panama City Beach, Florida) dated December 3, 1997 (Incorporated herein by reference to Exhibit 10.49 to Knology Broadband, Inc.s Registration
Statement on Form S-4 (File No. 333-43339)).                                                                                                                  
|            | 
|10.15       |  | Ordinance No. 5999 (Augusta, Georgia) dated January 20, 1998 (Incorporated herein by reference to Exhibit 10.53 to Knology Broadband, Inc.s Annual Report on Form 10-K for
the year ended December 31, 1997 (File No. 333-43339)).                                                                                                 
|            | 
|10.16       |  | Ordinance No. 1723 (Panama City, Florida) dated March 10, 1998 (Incorporated herein by reference to Exhibit 10.54 to Knology Broadband, Inc.s Annual Report on Form 10-K for
the year ended December 31, 1997 (File No. 333-43339)).                                                                                               
|            | 
|10.17       |  | Franchise Agreement (Charleston County, South Carolina) dated December 15, 1998 (Incorporated herein by reference to Exhibit 10.31 to Knology Broadband, Inc.s Annual Report on
Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).                                                                              
|            | 
|10.18       |  | Ordinance No. 1998-47 (North Charleston, South Carolina) dated May 28, 1998 (Incorporated herein by reference to Exhibit 10.32 to Knology Broadband, Inc.s Annual Report on
Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).                                                                                  
|            | 
|10.19       |  | Ordinance No. 1998-77 (Charleston, South Carolina) dated April 28, 1998 (Incorporated herein by reference to Exhibit 10.33 to Knology Broadband, Inc.s Annual Report on
Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).                                                                                      
|            | 
|10.20       |  | Ordinance No. 98-5 (Columbia County, Georgia) dated August 18, 1998 (Incorporated herein by reference to Exhibit 10.34 to Knology Broadband Inc.s Annual Report on
Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).                                                                                           
|            | 
|10.21       |  | Network Access Agreement dated July 1, 1998 between SCANA Communications, Inc., f/k/a MPX Systems, Inc. and Knology Holdings, Inc. (Incorporated herein by reference to Exhibit 10.36 to
Knology Broadband, Inc.s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).                           
|            | 
|10.22*      |  | Master Agreement for Internet Access Services dated January 2, 2002, by and between ITC/\DeltaCom, Inc. and Knology, Inc. (Incorporated herein by reference to Exhibit 10.21 to Knology,
Inc.s Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 000-32647)).                                              
|            | 
|10.23*      |  | Collocation Agreement for Multiple Sites dated on or about June 1998 between Interstate FiberNet, Inc. and Knology Holdings, Inc. (Incorporated herein by reference to Exhibit 10.38 to
Knology Broadband, Inc.s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).                            
|            | 
|10.240*     |  | Lease Agreement dated October 12, 1998 between Southern Company Services, Inc. and Knology Holdings, Inc. (Incorporated herein by reference to Exhibit 10.39 to Knology Broadband,
Inc.s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).                                                    
|            | 
|10.25       |  | Facilities Transfer Agreement dated February 11, 1998 between South Carolina Electric and Gas Company and Knology Holdings, Inc., d/b/a Knology of Charleston (Incorporated herein by
reference to Exhibit 10.40 to Knology Broadband, Inc.s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).
|            | 
|10.26       |  | License Agreement dated March 3, 1998 between BellSouth Telecommunications, Inc. and Knology Holdings, Inc. (Incorporated herein by reference to Exhibit 10.41 to Knology Broadband,
Inc.s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).                                                  



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##### Index to Financial Statements

|            |  |                                                                                                                                                                                                                                                                                                  
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Description                                                                                                                                                                                                                                                                              
|10.27       |  | Pole Attachment Agreement dated February 18, 1998 between Knology Holdings, Inc. and Georgia Power Company (Incorporated herein by reference to Exhibit 10.44 to Knology Broadband,
Inc.s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).                
|            | 
|10.28       |  | Assignment Agreement dated March 4, 1998 between Gulf Power Company and Knology of Panama City, Inc. (Incorporated herein by reference to Exhibit 10.46 to Knology Broadband,
Inc.s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).                      
|            | 
|10.29       |  | Pole Attachment Agreement, dated April 12, 2007, between PrairieWave Black Hills, LLC and Black Hills Power, Inc.                                                                                                                                                                                
|            | 
|10.30       |  | Carrier Services Agreement dated July 16, 2001, between Business Telecom, Inc. and Knology, Inc. (Incorporated herein by reference to Exhibit 10.2 to Knology, Inc.s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2001 (File No. 000-32647)).                              
|            | 
|10.31*      |  | Reseller Services Agreement dated September 9, 1998 between Business Telecom, Inc. and Knology Holdings, Inc. (Incorporated herein by reference to Exhibit 10.51 to Knology Broadband,
Inc.s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).             
|            | 
|10.32*      |  | Private Line Services Agreement dated September 10, 1998 between BTI Communications Corporation and Knology Holdings, Inc. (Incorporated herein by reference to Exhibit 10.52 to Knology
Broadband, Inc.s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 333-43339)).
|            | 
|10.33       |  | Right of First Refusal and Option Agreement, Dated November 19, 1999 by and between Knology of Columbus, Inc. and ITC Service Company, Inc. (Incorporated herein by reference to
Exhibit 10.60 to Knology, Inc.s Registration Statement on Form S-1 (File No. 333-89179)).                      
|            | 
|10.34       |  | Services Agreement dated November 2, 1999 between Knology, Inc. and ITC Service Company, Inc. (Incorporated herein by reference to Exhibit 10.61 to Knology, Inc.s Registration
Statement on Form S-1 (File No. 333-89179)).                                                                    
|            | 
|10.35       |  | Support Agreement, dated November 2, 1999 between Interstate Telephone Company, Inc. and ITC Service Company, Inc. (Incorporated herein by reference to Exhibit 10.62 to Knology,
Inc.s Registration Statement on Form S-1 (File No. 333-89179)).                                               
|            | 
|10.36**     |  | Knology, Inc. Amended and Restated 2002 Long Term Incentive Plan (Incorporated by reference to Exhibit B to Knology, Inc.s Proxy Statement for the 2004 Annual Meeting of Shareholders
(File No. 000-32647)).                                                                                   
|            | 
|10.37       |  | Warrant Agreement, dated as of December 3, 1999, between Knology, Inc. and United States Trust Company of New York (including form of Warrant Certificate) (Incorporated herein by reference
to Exhibit 10.65 to Knology, Inc.s Registration Statement on Form S-1 (File No. 333-89179)).       
|            | 
|10.38       |  | Warrant Registration Rights Agreement, dated as of December 3, 1999, between Knology, Inc. and United States Trust Company of New York (Incorporated herein by reference to
Exhibit 10.66 to Knology, Inc.s Registration Statement on Form S-1 (File No. 333-89179)).                           
|            | 
|10.39       |  | Knology, Inc. Spin-Off Plan (Incorporated herein by reference to Exhibit 10.71 to Knology, Inc.s Registration Statement on Form S-1 (File No. 333-89179)).                                                                                                                                      
|            | 
|10.40       |  | Residual Note from Knology, Inc. to ITC Holding Company, Inc. (Incorporated herein by reference to Exhibit 10.74 to Knology, Inc.s Registration Statement on Form S-1 (File
No. 333-89179)).                                                                                                    



70



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##### Index to Financial Statements

|            |  |                                                                                                                                                                                                                                                                                                                                                                          
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                      
|10.41       |  | Joint Ownership Agreement dated as of December 8, 1998, among ITC Service Company, Powertel, Inc., ITC/\DeltaCom Communications, Inc. and Knology Holdings, Inc. (Incorporated herein by
reference to Exhibit 10.48 to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 000-32647)).                                            
|            | 
|10.42*      |  | On/Line Operating and License Agreement dated March 18, 1998 between Knology Holdings, Inc. and CableData, Inc. (Incorporated herein by reference to Exhibit 10.49 to Knology,
Inc.s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 000-32647)).                                                                                             
|            | 
|10.43*      |  | Dedicated Capacity Agreement between DeltaCom and Knology Holdings, Inc. dated August 22, 1997. (Incorporated herein by reference to Exhibit 10.50 to Knology, Inc.s Annual Report
on Form 10-K for the year ended December 31, 1999 (File No. 000-32647)).                                                                                                             
|            | 
|10.44*      |  | Agreement for Telecommunications Services dated April 28, 1999 between ITC/\DeltaCom Communications, Inc. and Knology Holdings, Inc. (Incorporated herein by reference to Exhibit 10.51
to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 000-32647)).                                                                        
|            | 
|10.45*      |  | Amendment to Master Capacity Lease dated November 1, 1999 between Interstate Fibernet, Inc. and Knology Holdings, Inc. (Incorporated herein by reference to Exhibit 10.52 to Knology,
Inc.s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 000-32647)).                                                                                      
|            | 
|10.46       |  | Duct Sharing Agreement dated July 27, 1999 between Knology Holdings, Inc. and Interstate Fiber Network. (Incorporated herein by reference to Exhibit 10.53 to Knology, Inc.s
Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 000-32647)).                                                                                                     
|            | 
|10.47       |  | Assumption of Lease Agreement dated November 9, 1999 between Knology Holdings, Inc. ITC Holding Company, Inc. and J. Smith Lanier II. (Incorporated herein by reference to Exhibit 10.54
to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 000-32647)).                                                                       
|            | 
|10.48       |  | Assumption of Lease Agreement dated November 9, 1999 among Knology Holdings, Inc. ITC Holding Company, Inc. and Midtown Realty, Inc. (Incorporated herein by reference to Exhibit 10.55
to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 000-32647)).                                                                        
|            | 
|10.49*      |  | Contract for Centrex Switching Services dated January 4, 1999 between Interstate Telephone Company and InterCall, Inc. (Incorporated herein by reference to Exhibit 10.56 to Knology,
Inc.s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 000-32647)).                                                                                      
|            | 
|10.50       |  | Sublease Agreement, dated as of December 30, 2003, by and between Verizon Media Ventures, Inc. and Knology Broadband of Florida, Inc. (Incorporated herein by reference to Exhibit 10.53
to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 2003 (File No. 000-32647)).                                                                       
|            | 
|10.51       |  | Transfer Agreement, dated January 7, 2004, by and between Pinellas County, Florida, Verizon Media Ventures Inc., Knology Broadband of Florida, Inc. and Knology New Media, Inc. (Incorporated
herein by reference to Exhibit 10.56 to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 2003 (File No. 000-32647)).                             
|            | 
|10.52       |  | City of St. Petersburg Ordinance No. 643-G, dated November 20, 2003, Approving an Extension of the Knology Broadband of Florida, Inc. Cable Television Franchise from September 9,
2006 to September 9, 2009 (Incorporated herein by reference to Exhibit 10.57 to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 2003 (File No. 000-32647)).
|            | 
|10.53       |  | Transfer Agreement, dated December 16, 2003, by and between the City of Clearwater and Verizon Media Ventures Inc., Knology, Inc., Knology Broadband of Florida, Inc. and Knology New Media,
Inc. (Incorporated herein by reference to Exhibit 10.58 to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 2003 (File No. 000-32647)).           



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.54       |  | MCI Internet Dedicated OC12 Burstable Agreement, dated June 11, 2003, by and between Knology, Inc. and MCI WORLDCOM Communications, Inc. (Incorporated herein by reference to
Exhibit 10.59 to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 2003 (File No. 000-32647)).                                                                                                                                                                                                                                                                                                    
|            | 
|10.55       |  | Consent to Assignment and Assumption, dated December 17, 2003, among Verizon Media Ventures Inc., Progress Energy Florida, Inc. and Knology Broadband of Florida, Inc. (Incorporated herein
by reference to Exhibit 10.60 to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 2003 (File No. 000-32647)).                                                                                                                                                                                                                                                                      
|            | 
|10.56       |  | Lease, dated March 5, 2004, by and between Ted Alford and Knology, Inc. (Incorporated herein by reference to Exhibit 10.61 to Knology, Inc.s Annual Report on Form 10-K for
the year ended December 31, 2003 (File No. 000-32647)).                                                                                                                                                                                                                                                                                                                                                                     
|            | 
|10.57**     |  | Form of Stock Option Agreement (Incorporated herein by reference to Exhibit 10.62 to Knology, Inc.s Annual Report on Form 10-K for the year ended December 31, 2004 (File No. 000-32647)).                                                                                                                                                                                                                                                                                                                                                                                                              
|            | 
|10.58**     |  | Description of Named Executive Officer and Director Compensation Arrangements (Incorporated herein by reference to Exhibit 10.57 to Knology, Inc.s Annual Report on Form 10-K for the year
ended December 31, 2005 (File No. 000-32647)).                                                                                                                                                                                                                                                                                                                                                               
|            | 
|10.59       |  | Amended and Restated Credit Agreement, dated as of March 14, 2007, among Knology, Inc., as Borrower and the Lenders and Issuers Party thereto and Credit Suisse, as Administrative Agent and
Collateral Agent and Jefferies & company, Inc., as Syndication Agent, Royal Bank of Canada and CIT Lending Services Corporation, as Co-Documentation Agents, and Credit Suisse Securities (USA) LLC, as Sole Bookrunner and Sole Lead Arranger
(Incorporated herein by reference to Exhibit 10.1 to Knology, Inc.s Quarterly Report on Form 10-Q for the period ended March 31, 2007 (File No. 000-32647)).
|            | 
|10.60       |  | Amended and Restated Pledge and Security Agreement, dated as of April 3, 2007, by and among Knology, Inc. as a Grantor and Each Other Grantor From Time to Time Party Thereto and Credit Suisse,
Cayman Islands Branch, as Collateral Agent (Incorporated herein by reference to Exhibit 10.4 to Knology, Inc.s Quarterly Report on Form 10-Q for the period ended June 30, 2007 (File No. 000-32647)).                                                                                                                                                                                                 
|            | 
|10.61       |  | Amended and Restated Trademark Security Agreement, dated as of April 3, 2007, by and among Knology, Inc., Knology Broadband, Inc., Valley Telephone Co., LLC, Black Hills FiberCom, LLC and
PrairieWave Communications, Inc., each as a Grantor and Each Other Grantor From Time to Time Party Thereto and Credit Suisse, Cayman Islands Branch, as Collateral Agent (Incorporated herein by reference to Exhibit 10.5 to Knology, Inc.s
Quarterly Report on Form 10-Q for the period ended June 30, 2007 (File No. 000-32647)).                                                                        
|            | 
|10.62       |  | Amended and Restated Guaranty, dated as of April 3, 2007, executed by each Guarantor From Time to Time Party Thereto in Favor of the Administrative Agent, the Collateral Agent, each Lender, each
Issuer and Each Other Holder of an Obligation (Incorporated herein by reference to Exhibit 10.6 to Knology, Inc.s Quarterly Report on Form 10-Q for the period ended June 30, 2005 (File No. 000-32647)).                                                                                                                                                                                            
|            | 
|10.63       |  | Revolving Note, dated as of April 3, 2007, in favor of Royal Bank of Canada (Incorporated herein by reference to Exhibit 10.2 to Knology, Inc.s Quarterly Report on Form 10-Q for the period
ended June 30, 2005 (File No. 000-32647)).                                                                                                                                                                                                                                                                                                                                                                 
|            | 
|10.64       |  | Revolving Note, dated as of April 3, 2007, in favor of CoBank, ACB (Incorporated herein by reference to Exhibit 10.3 to Knology, Inc.s Quarterly Report on Form 10-Q for the period ended
June 30, 2005 (File No. 000-32647)).                                                                                                                                                                                                                                                                                                                                                                          



72



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##### Index to Financial Statements

|            |  |                                                                                                                                                                             
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Description                                                                                                                                                         
|10.65**     |  | Knology, Inc. 2006 Incentive Plan (Incorporated herein by reference to Exhibit 99.1 to Knology Inc.s Current Report on Form 8-K filed on May 9, 2006 (File No. 000-32647)).
|            | 
|10.66       |  | Amended and Restated Credit Agreement                                                                                                                                       
|            | 
|21.1        |  | Subsidiaries of Knology, Inc.                                                                                                                                               
|            | 
|23.1        |  | Consent of BDO Seidman, LLP.                                                                                                                                                
|            | 
|23.2        |  | Consent of Deloitte & Touche LLP.                                                                                                                                           
|            | 
|31.1        |  | Certification of the Chief Executive Officer of Knology, Inc. pursuant to Securities Exchange Act Rule 13a-14.                                                              
|            | 
|31.2        |  | Certification of the Chief Financial Officer of Knology, Inc. pursuant to Securities Exchange Act Rule 13a-14.                                                              
|            | 
|32.1        |  | Statement of the Chief Executive Officer of Knology, Inc. pursuant to §18 U.S.C. S. 1350.                                                                                   
|            | 
|32.2        |  | Statement of the Chief Financial Officer of Knology, Inc. pursuant to §18 U.S.C. S. 1350.                                                                                   



|* | Confidential treatment has been requested pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. The copy on file as an exhibit omits the information
subject to the confidentiality request. Such omitted information has been filed separately with the Commission.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** | Compensatory plan or arrangement.
|-- | ---------------------------------



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



KNOLOGY, INC.By:

/s/    RODGER L.
JOHNSONRodger L. JohnsonPresident and Chief Executive Officer




March 14, 2008(Date)


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities indicated and on the dates indicated.



|                                                       |  |                                                                                                                                                                                            |  |               
|------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------
|SIGNATURE                                              |  | TITLE                                                                                                                                                                                      |  | DATE          
|                                                       |  |                                                                                                                                                                                           
|/s/    CAMPBELL B. LANIER,
III Campbell B. Lanier, III |  | Chairman of the Board    and Director                                                                                                                                                      |  | March 14, 2008
|                                                       |  |                                                                                                                                                                                           
|/s/    RODGER L.
JOHNSON Rodger L. Johnson             |  | President, Chief Executive Officer     and Director    (Principal executive officer)                                                                                                       |  | March 14, 2008
|                                                       |  |                                                                                                                                                                                           
|/s/    M. TODD
HOLT M. Todd Holt                       |  | Chief Financial Officer,    Vice President of Finance and     Administration, Treasurer and     Corporate
Controller    (Principal financial officer and     principal accounting officer) |  | March 14, 2008
|                                                       |  |                                                                                                                                                                                           
|/s/    ALAN A.
BURGESS Alan A. Burgess                 |  | Director                                                                                                                                                                                   |  | March 14, 2008
|                                                       |  |                                                                                                                                                                                           
|/s/    DONALD W.
BURTON Donald W. Burton               |  | Director                                                                                                                                                                                   |  | March 14, 2008
|                                                       |  |                                                                                                                                                                                           
|/s/    EUGENE I.
DAVIS Eugene I. Davis                 |  | Director                                                                                                                                                                                   |  | March 14, 2008
|                                                       |  |                                                                                                                                                                                           
|/s/    O. GENE
GABBARD O. Gene Gabbard                 |  | Director                                                                                                                                                                                   |  | March 14, 2008
|                                                       |  |                                                                                                                                                                                           
|/s/    WILLIAM H. SCOTT
III William H. Scott III       |  | Director                                                                                                                                                                                   |  | March 14, 2008



74



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##### Index to Financial Statements

I
ndex to Consolidated Financial Statements



|                                                                                                      |  |     
|----------------------------------------------------------------------------------------------------- |  | ----
|Knology, Inc.                                                                                         |  |     
|Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting  |  | F-2 
|Reports of Independent Registered Public Accounting Firms                                             |  | F-3 
|Consolidated Balance Sheets as of December 31, 2006 and 2007                                          |  | F-5 
|Consolidated Statements of Operations for the Years Ended December 31, 2005, 2006, and 2007           |  | F-6 
|Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2005, 2006, and 2007 |  | F-7 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2006, and 2007           |  | F-8 
|Notes to Consolidated Financial Statements                                                            |  | F-10



F-1



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##### Table of Contents

##### Index to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Board of Directors and Stockholders

Knology, Inc.

West Point, Georgia

We have audited Knology, Inc.s
internal control over financial reporting as of December 31, 2007, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). Knology, Inc.s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Item 9A, Managements Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the companys internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Because of its
inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As indicated in the accompanying
Item 9A. Managements Report on Internal Control over Financial Reporting, managements assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of
PrairieWave Holdings, Inc., which was acquired on April 3, 2007, and which is included in the consolidated balance sheets of Knology, Inc. as of December 31, 2007, and the related consolidated statements of income, stockholders equity, and
cash flows for the year then ended. PrairieWave Holdings, Inc. constituted 43% and (20)% of total assets and net assets, respectively, as of December 31, 2007, and 19% and (16)% of revenues and net income (loss), respectively, for the year then
ended. Management did not assess the effectiveness of internal control over financial reporting of PrairieWave Holdings, Inc. because of the timing of the acquisition which was completed on April 3, 2007. Our audit of internal control over financial
reporting of Knology, Inc. also did not include an evaluation of the internal control over financial reporting of PrairieWave Holdings, Inc.

In our opinion, Knology, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets
of Knology, Inc. as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders equity, and cash flows for each of the two years in the period ended December 31, 2007 and our report dated
March 14, 2008 expressed an unqualified opinion thereon.

/s/ BDO Seidman, LLP

Atlanta, Georgia

March 14, 2008



F-2



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##### Index to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Knology, Inc.

West Point, Georgia

We have audited the accompanying consolidated balance sheets of Knology, Inc. as of December 31, 2007 and 2006 and the related consolidated
statements of operations, stockholders equity, and cash flows for each of the two years in the period ended December 31, 2007. These financial statements are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial position of Knology, Inc. at December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the two years in the period ended
December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

We also have
audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Knology, Inc.s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal
ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 14, 2008 expressed an unqualified opinion thereon.

/s/ BDO Seidman, LLP

Atlanta, Georgia

March 14, 2008



F-3



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##### Index to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Knology, Inc.:

We have audited the accompanying consolidated statements of operations, stockholders equity and cash flows for the year ended December 31, 2005 of Knology, Inc. and subsidiaries (the Company). These consolidated
financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the results of operations and cash flows
of the Company for the year ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Atlanta, Georgia

March 20, 2006



F-4



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##### Table of Contents

##### Index to Financial Statements

KNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)



|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ---- | - | -------- | -
|                                                                                                                                                                           |  | DECEMBER 31, |         
|                                                                                                                                                                           |  | 2006         |          |   | 2007 |  
|ASSETS                                                                                                                                                                     |  |              |          |   |      |   |          |  
|CURRENT ASSETS:                                                                                                                                                            |  |              |          |   |      |   |          |  
|Cash and cash equivalents                                                                                                                                                  |  | $            | 11,577   |   |      | $ | 46,448   |  
|Restricted cash                                                                                                                                                            |  |              | 1,620    |   |      |   | 1,459    |  
|Accounts receivable, net of allowance for doubtful accounts of $687 and $975 as of December 31, 2006 and 2007,
respectively                                                |  |              | 22,511   |   |      |   | 30,154   |  
|Prepaid expenses and other                                                                                                                                                 |  |              | 2,509    |   |      |   | 2,198    |  
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|Total current assets                                                                                                                                                       |  |              | 38,217   |   |      |   | 80,259   |  
|                                                                                                                                                                           |  |             
|PROPERTY, PLANT AND EQUIPMENT, NET:                                                                                                                                        |  |              |          |   |      |   |          |  
|System and installation equipment                                                                                                                                          |  |              | 614,422  |   |      |   | 796,922  |  
|Test and office equipment                                                                                                                                                  |  |              | 53,182   |   |      |   | 62,537   |  
|Automobiles and trucks                                                                                                                                                     |  |              | 8,442    |   |      |   | 9,707    |  
|Production equipment                                                                                                                                                       |  |              | 781      |   |      |   | 781      |  
|Land                                                                                                                                                                       |  |              | 4,281    |   |      |   | 6,108    |  
|Buildings                                                                                                                                                                  |  |              | 17,608   |   |      |   | 35,734   |  
|Construction and premise inventory                                                                                                                                         |  |              | 7,613    |   |      |   | 8,329    |  
|Leasehold improvements                                                                                                                                                     |  |              | 2,340    |   |      |   | 2,368    |  
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|                                                                                                                                                                           |  |              | 708,669  |   |      |   | 922,486  |  
|Less accumulated depreciation and amortization                                                                                                                             |  |              | (464,838 | ) |      |   | (519,010 | )
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|Property, plant, and equipment, net                                                                                                                                        |  |              | 243,831  |   |      |   | 403,476  |  
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|OTHER LONG-TERM ASSETS:                                                                                                                                                    |  |              |          |   |      |   |          |  
|Goodwill                                                                                                                                                                   |  |              | 40,834   |   |      |   | 98,638   |  
|Deferred debt issuance costs, net                                                                                                                                          |  |              | 9,912    |   |      |   | 11,092   |  
|Interest rate hedge instrument                                                                                                                                             |  |              | 1,474    |   |      |   | 0        |  
|Investments                                                                                                                                                                |  |              | 1,243    |   |      |   | 2,536    |  
|Intangible and other assets, net                                                                                                                                           |  |              | 1,050    |   |      |   | 5,436    |  
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|Total assets                                                                                                                                                               |  | $            | 336,561  |   |      | $ | 601,437  |  
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                       |  |              |          |   |      |   |          |  
|CURRENT LIABILITIES:                                                                                                                                                       |  |              |          |   |      |   |          |  
|Current portion of long-term debt                                                                                                                                          |  | $            | 2,302    |   |      | $ | 6,162    |  
|Accounts payable                                                                                                                                                           |  |              | 19,076   |   |      |   | 26,834   |  
|Accrued liabilities                                                                                                                                                        |  |              | 15,525   |   |      |   | 25,865   |  
|Unearned revenue                                                                                                                                                           |  |              | 10,984   |   |      |   | 14,588   |  
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|Total current liabilities                                                                                                                                                  |  |              | 47,887   |   |      |   | 73,449   |  
|NONCURRENT LIABILITIES:                                                                                                                                                    |  |              |          |   |      |   |          |  
|Long-term debt, net of current portion                                                                                                                                     |  |              | 270,711  |   |      |   | 549,156  |  
|Interest rate hedge instrument                                                                                                                                             |  |              | 0        |   |      |   | 13,782   |  
|Warrants                                                                                                                                                                   |  |              | 590      |   |      |   | 0        |  
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|Total noncurrent liabilities                                                                                                                                               |  |              | 271,301  |   |      |   | 562,938  |  
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|Total liabilities                                                                                                                                                          |  |              | 319,188  |   |      |   | 636,387  |  
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|COMMITMENTS AND CONTINGENCIES (NOTE 6)                                                                                                                                     |  |              |          |   |      |   |          |  
|                                                                                                                                                                           |  |             
|STOCKHOLDERS EQUITY:                                                                                                                                                      |  |              |          |   |      |   |          |  
|Preferred stock, $.01 par value per share; 199,000,000 shares authorized, 0 shares issued and outstanding at December 31, 2006 and 2007,
respectively                      |  |              | 0        |   |      |   | 0        |  
|Non-voting common stock, $.01 par value per share; 25,000,000 shares authorized, none outstanding                                                                          |  |              | 0        |   |      |   | 0        |  
|Common stock, $.01 par value per share; 200,000,000 shares authorized, 34,780,896 and 35,310,012 shares issued and outstanding at
December 31, 2006 and 2007, respectively |  |              | 348      |   |      |   | 353      |  
|Additional paid-in capital                                                                                                                                                 |  |              | 584,017  |   |      |   | 589,389  |  
|Accumulated other comprehensive loss                                                                                                                                       |  |              | 0        |   |      |   | (13,782  | )
|Accumulated deficit                                                                                                                                                        |  |              | (566,992 | ) |      |   | (610,910 | )
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|Total stockholders equity (deficit)                                                                                                                                       |  |              | 17,373   |   |      |   | (34,950  | )
|                                                                                                                                                                           |  |              |          |   |      |   |          |  
|Total liabilities and stockholders equity                                                                                                                                 |  | $            | 336,561  |   |      | $ | 601,437  |  
|                                                                                                                                                                           |  |              |          |   |      |   |          |  

See notes to consolidated financial statements.



F-5



---

##### Table of Contents

##### Index to Financial Statements

KNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)



|                                                                                                                              |  |                         |            |   |      |   |            |      |  |   |            |  
|----------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                                                              |  | YEAR ENDED DECEMBER 31, |           
|                                                                                                                              |  | 2005                    |            |   | 2006 |   |            | 2007 | 
|OPERATING REVENUES:                                                                                                           |  |                         |            |   |      |   |            |      |  |   |            |  
|Video                                                                                                                         |  | $                       | 103,039    |   |      | $ | 114,884    |      |  | $ | 146,457    |  
|Voice                                                                                                                         |  |                         | 77,602     |   |      |   | 82,434     |      |  |   | 117,316    |  
|Data                                                                                                                          |  |                         | 48,453     |   |      |   | 58,599     |      |  |   | 78,986     |  
|Other                                                                                                                         |  |                         | 1,763      |   |      |   | 3,074      |      |  |   | 4,893      |  
|                                                                                                                              |  |                         |            |   |      |   |            |      |  |   |            |  
|Total operating revenues                                                                                                      |  |                         | 230,857    |   |      |   | 258,991    |      |  |   | 347,652    |  
|                                                                                                                              |  |                         |            |   |      |   |            |      |  |   |            |  
|OPERATING EXPENSES:                                                                                                           |  |                         |            |   |      |   |            |      |  |   |            |  
|Direct costs (excluding depreciation and amortization)                                                                        |  |                         | 69,616     |   |      |   | 75,497     |      |  |   | 104,060    |  
|Selling, general and administrative expenses                                                                                  |  |                         | 116,010    |   |      |   | 118,216    |      |  |   | 141,308    |  
|Depreciation and amortization                                                                                                 |  |                         | 74,490     |   |      |   | 68,189     |      |  |   | 85,776     |  
|Capital markets activity and other                                                                                            |  |                         | 606        |   |      |   | 1,623      |      |  |   | 219        |  
|                                                                                                                              |  |                         |            |   |      |   |            |      |  |   |            |  
|Total operating expenses                                                                                                      |  |                         | 260,722    |   |      |   | 263,525    |      |  |   | 331,363    |  
|                                                                                                                              |  |                         |            |   |      |   |            |      |  |   |            |  
|OPERATING INCOME (LOSS)                                                                                                       |  |                         | (29,865    | ) |      |   | (4,534     | )    |  |   | 16,289     |  
|                                                                                                                              |  |                         |            |   |      |   |            |      |  |   |            |  
|OTHER INCOME (EXPENSE):                                                                                                       |  |                         |            |   |      |   |            |      |  |   |            |  
|Interest income                                                                                                               |  |                         | 1,074      |   |      |   | 365        |      |  |   | 784        |  
|Interest expense                                                                                                              |  |                         | (34,719    | ) |      |   | (34,087    | )    |  |   | (41,406    | )
|Loss on debt extinguishment                                                                                                   |  |                         | 0          |   |      |   | 0          |      |  |   | (27,375    | )
|Gain (loss) on interest rate derivative instrument                                                                            |  |                         | 267        |   |      |   | (63        | )    |  |   | (758       | )
|Gain (loss) on adjustment of warrants to market                                                                               |  |                         | 37         |   |      |   | (464       | )    |  |   | (262       | )
|Other income (expense), net                                                                                                   |  |                         | (12        | ) |      |   | 25         |      |  |   | (53        | )
|                                                                                                                              |  |                         |            |   |      |   |            |      |  |   |            |  
|Total other expense                                                                                                           |  |                         | (33,353    | ) |      |   | (34,224    | )    |  |   | (69,070    | )
|                                                                                                                              |  |                         |            |   |      |   |            |      |  |   |            |  
|LOSS FROM CONTINUING OPERATIONS                                                                                               |  |                         | (63,218    | ) |      |   | (38,758    | )    |  |   | (52,781    | )
|INCOME FROM DISCONTINUED OPERATIONS(includes gains on disposal of $8,320 and $8,251 in 2005 and 2007, respectively) (Note
10) |  |                         | 8,404      |   |      |   | 0          |      |  |   | 8,863      |  
|                                                                                                                              |  |                         |            |   |      |   |            |      |  |   |            |  
|NET LOSS                                                                                                                      |  |                         | (54,814    | ) |      |   | (38,758    | )    |  |   | (43,918    | )
|PREFERRED STOCK DIVIDENDS                                                                                                     |  |                         | (588       | ) |      |   | (747       | )    |  |   | 0          |  
|                                                                                                                              |  |                         |            |   |      |   |            |      |  |   |            |  
|NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS                                                                                  |  | $                       | (55,402    | ) |      | $ | (39,505    | )    |  | $ | (43,918    | )
|                                                                                                                              |  |                         |            |   |      |   |            |      |  |   |            |  
|LOSS FROM CONTINUING OPERATIONS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS                                                 |  | $                       | (2.69      | ) |      | $ | (1.41      | )    |  | $ | (1.51      | )
|                                                                                                                              |  |                         |           
|INCOME FROM DISCONTINUED OPERATIONS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS                                             |  |                         | 0.35       |   |      |   | 0.00       |      |  |   | 0.25       |  
|                                                                                                                              |  |                         |            |   |      |   |            |      |  |   |            |  
|BASIC AND DILUTED NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS                                                      |  | $                       | (2.33      | ) |      | $ | (1.41      | )    |  | $ | (1.25      | )
|                                                                                                                              |  |                         |            |   |      |   |            |      |  |   |            |  
|BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                                                        |  |                         | 23,751,085 |   |      |   | 27,931,470 |      |  |   | 35,064,110 |  
|                                                                                                                              |  |                         |            |   |      |   |            |      |  |   |            |  

See notes to consolidated financial statements.



F-6



---

##### Table of Contents

##### Index to Financial Statements

KNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(DOLLARS IN THOUSANDS)



|                                              |  |              |  |                          |     |  |                                   |         |   |                    |   |         |                                   |  |   |          |   |  |   |         |  
|--------------------------------------------- |  | ------------ |  | ------------------------ | --- |  | --------------------------------- | ------- | - | ------------------ | - | ------- | --------------------------------- |  | - | -------- | - |  | - | ------- | -
|                                              |  | COMMON STOCK |  | ADDITIONALPAID-INCAPITAL |     |  | ACCUMULATEDOTHERCOMPREHENSIVELOSS |         |   | ACCUMULATEDDEFICIT |   |         | TOTALSTOCKHOLDERSEQUITY(DEFICIT) | 
|                                              |  | SHARES       |  | AMOUNT                   |     |  |                                   |        
|BALANCE, December 31, 2004                    |  | 23,697,787   |  | $                        | 237 |  | $                                 | 559,452 |   |                    | $ | 0       |                                   |  | $ | (473,420 | ) |  | $ | 86,269  |  
|                                              |  |              |  |                          |     | 
|Net loss                                      |  |              |  |                          |     |  |                                   |         |   |                    |   |         |                                   |  |   | (54,814  | ) |  |   | (54,814 | )
|Exercise of stock options                     |  | 71,183       |  |                          | 1   |  |                                   | 121     |   |                    |   |         |                                   |  |   |          |   |  |   | 122     |  
|Non-cash stock option compensation            |  |              |  |                          |     |  |                                   | 2,101   |   |                    |   |         |                                   |  |   |          |   |  |   | 2,101   |  
|Preferred stock offering costs                |  |              |  |                          |     |  |                                   | (348    | ) |                    |   |         |                                   |  |   |          |   |  |   | (348    | )
|Preferred stock dividends                     |  |              |  |                          |     |  |                                   | (588    | ) |                    |   |         |                                   |  |   |          |   |  |   | (588    | )
|Exercise of warrants                          |  | 16,512       |  |                          | 1   |  |                                   | 33      |   |                    |   |         |                                   |  |   |          |   |  |   | 34      |  
|Conversion of preferred stock to common stock |  | 367,719      |  |                          | 3   |  |                                   | 732     |   |                    |   |         |                                   |  |   |          |   |  |   | 735     |  
|                                              |  |              |  |                          |     |  |                                   |         |   |                    |   |         |                                   |  |   |          |   |  |   |         |  
|BALANCE, December 31, 2005                    |  | 24,153,201   |  | $                        | 242 |  | $                                 | 561,503 |   |                    | $ | 0       |                                   |  | $ | (528,234 | ) |  | $ | 33,511  |  
|                                              |  |              |  |                          |     | 
|Net loss                                      |  |              |  |                          |     |  |                                   |         |   |                    |   |         |                                   |  |   | (38,758  | ) |  |   | (38,758 | )
|Exercise of stock options                     |  | 201,295      |  |                          | 2   |  |                                   | 582     |   |                    |   |         |                                   |  |   |          |   |  |   | 584     |  
|Non-cash stock option compensation            |  | 105,495      |  |                          | 1   |  |                                   | 2,024   |   |                    |   |         |                                   |  |   |          |   |  |   | 2,025   |  
|Preferred stock dividends                     |  |              |  |                          |     |  |                                   | (747    | ) |                    |   |         |                                   |  |   |          |   |  |   | (747    | )
|Exercise of warrants                          |  | 18,777       |  |                          |     |  |                                   | 161     |   |                    |   |         |                                   |  |   |          |   |  |   | 161     |  
|Conversion of preferred stock to common stock |  | 10,302,128   |  |                          | 103 |  |                                   | 20,494  |   |                    |   |         |                                   |  |   |          |   |  |   | 20,597  |  
|                                              |  |              |  |                          |     |  |                                   |         |   |                    |   |         |                                   |  |   |          |   |  |   |         |  
|BALANCE, December 31, 2006                    |  | 34,780,896   |  | $                        | 348 |  | $                                 | 584,017 |   |                    | $ | 0       |                                   |  | $ | (566,992 | ) |  | $ | 17,373  |  
|                                              |  |              |  |                          |     | 
|Net loss                                      |  |              |  |                          |     |  |                                   |         |   |                    |   |         |                                   |  |   | (43,918  | ) |  |   | (43,918 | )
|Change in fair value of interest rate swap    |  |              |  |                          |     |  |                                   |         |   |                    |   | (13,782 | )                                 |  |   |          |   |  |   | (13,782 | )
|Exercise of stock options                     |  | 478,178      |  |                          | 4   |  |                                   | 1,720   |   |                    |   |         |                                   |  |   |          |   |  |   | 1,724   |  
|Non-cash stock option compensation            |  |              |  |                          |     |  |                                   | 2,799   |   |                    |   |         |                                   |  |   |          |   |  |   | 2,799   |  
|Exercise of warrants                          |  | 50,938       |  |                          | 1   |  |                                   | 853     |   |                    |   |         |                                   |  |   |          |   |  |   | 854     |  
|                                              |  |              |  |                          |     |  |                                   |         |   |                    |   |         |                                   |  |   |          |   |  |   |         |  
|BALANCE, December 31, 2007                    |  | 35,310,012   |  | $                        | 353 |  | $                                 | 589,389 |   |                    | $ | (13,782 | )                                 |  | $ | (610,910 | ) |  | $ | (34,950 | )
|                                              |  |              |  |                          |     |  |                                   |         |   |                    |   |         |                                   |  |   |          |   |  |   |         |  

See notes to consolidated financial statements.



F-7



---

##### Table of Contents

##### Index to Financial Statements

KNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)



|                                                                                 |  |                         |         |   |      |   |         |      |  |   |          |  
|-------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                                                                 |  | YEAR ENDED DECEMBER 31, |        
|                                                                                 |  | 2005                    |         |   | 2006 |   |         | 2007 | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                            |  |                         |         |   |      |   |         |      |  |   |          |  
|Net loss                                                                         |  | $                       | (54,814 | ) |      | $ | (38,758 | )    |  | $ | (43,918  | )
|Income and gain on discontinued operations                                       |  |                         | 8,404   |   |      |   | 0       |      |  |   | 8,863    |  
|                                                                                 |  |                         |         |   |      |   |         |      |  |   |          |  
|Loss from continuing operations                                                  |  |                         | (63,218 | ) |      |   | (38,758 | )    |  |   | (52,781  | )
|Adjustments to reconcile net loss to net cash provided by operating activities:  |  |                         |         |   |      |   |         |      |  |   |          |  
|Depreciation and amortization                                                    |  |                         | 74,490  |   |      |   | 68,189  |      |  |   | 85,776   |  
|Loss on debt extinguishment                                                      |  |                         | 544     |   |      |   | 0       |      |  |   | 9,251    |  
|Non-cash stock option compensation                                               |  |                         | 2,101   |   |      |   | 2,025   |      |  |   | 2,799    |  
|Accretion of second lien term loan                                               |  |                         | 332     |   |      |   | 660     |      |  |   | 169      |  
|Non-cash bank loan interest expense                                              |  |                         | 1,226   |   |      |   | 3,841   |      |  |   | 3,077    |  
|Non-cash (gain) loss on interest rate derivative instrument                      |  |                         | (267    | ) |      |   | 63      |      |  |   | 758      |  
|Provision for bad debt                                                           |  |                         | 4,080   |   |      |   | 3,449   |      |  |   | 5,004    |  
|Loss on disposition of assets                                                    |  |                         | 25      |   |      |   | 333     |      |  |   | 67       |  
|(Gain) loss on adjustment of warrants to market                                  |  |                         | (37     | ) |      |   | 464     |      |  |   | 262      |  
|Changes in operating assets and liabilities:                                     |  |                         |         |   |      |   |         |      |  |   |          |  
|Accounts receivable                                                              |  |                         | (4,439  | ) |      |   | (6,677  | )    |  |   | (6,592   | )
|Prepaid expenses and other                                                       |  |                         | 91      |   |      |   | (637    | )    |  |   | 1,427    |  
|Accounts payable                                                                 |  |                         | (419    | ) |      |   | (934    | )    |  |   | 344      |  
|Accrued liabilities                                                              |  |                         | 6,420   |   |      |   | (2,325  | )    |  |   | 7,316    |  
|Unearned revenue                                                                 |  |                         | (1,706  | ) |      |   | 850     |      |  |   | 133      |  
|                                                                                 |  |                         |         |   |      |   |         |      |  |   |          |  
|Total adjustments                                                                |  |                         | 82,441  |   |      |   | 69,301  |      |  |   | 109,791  |  
|                                                                                 |  |                         |         |   |      |   |         |      |  |   |          |  
|Net cash provided by operating activities from continuing operations             |  |                         | 19,223  |   |      |   | 30,543  |      |  |   | 57,010   |  
|                                                                                 |  |                         |         |   |      |   |         |      |  |   |          |  
|Net cash provided by (used in) operating activities from discontinued operations |  |                         | (405    | ) |      |   | 0       |      |  |   | 497      |  
|                                                                                 |  |                         |         |   |      |   |         |      |  |   |          |  
|Net cash provided by operating activities                                        |  |                         | 18,818  |   |      |   | 30,543  |      |  |   | 57,507   |  
|                                                                                 |  |                         |         |   |      |   |         |      |  |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                            |  |                         |         |   |      |   |         |      |  |   |          |  
|Capital expenditures                                                             |  |                         | (31,613 | ) |      |   | (27,821 | )    |  |   | (45,792  | )
|Purchase of short term investments                                               |  |                         | (4,000  | ) |      |   | 0       |      |  |   | 0        |  
|Proceeds from sale of short term investments                                     |  |                         | 16,625  |   |      |   | 0       |      |  |   | 0        |  
|Purchase of PrairieWave, net of cash acquired                                    |  |                         | 0       |   |      |   | 0       |      |  |   | (256,162 | )
|Franchise and other intangible expenditures                                      |  |                         | (295    | ) |      |   | (246    | )    |  |   | (377     | )
|Proceeds from sale of property                                                   |  |                         | 170     |   |      |   | 122     |      |  |   | 498      |  
|Change in restricted cash                                                        |  |                         | 3,828   |   |      |   | 1,917   |      |  |   | 161      |  
|                                                                                 |  |                         |         |   |      |   |         |      |  |   |          |  
|Net cash used in investing activities from continuing operations                 |  |                         | (15,285 | ) |      |   | (26,028 | )    |  |   | (301,672 | )
|                                                                                 |  |                         |         |   |      |   |         |      |  |   |          |  
|Net cash provided by investing activities from discontinued operations           |  |                         | 9,730   |   |      |   | 0       |      |  |   | 8,599    |  
|                                                                                 |  |                         |         |   |      |   |         |      |  |   |          |  
|Net cash used in investing activities                                            |  |                         | (5,555  | ) |      |   | (26,028 | )    |  |   | (293,073 | )
|                                                                                 |  |                         |         |   |      |   |         |      |  |   |          |  



F-8



---

##### Table of Contents

##### Index to Financial Statements

KNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS(Continued)

(DOLLARS IN THOUSANDS)

|                                                                                      |  |                         |          |   |      |   |        |      |  |   |          |  
|------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | ------ | ---- |  | - | -------- | -
|                                                                                      |  | YEAR ENDED DECEMBER 31, |         
|                                                                                      |  | 2005                    |          |   | 2006 |   |        | 2007 | 
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                 |  |                         |          |   |      |   |        |      |  |   |          |  
|Proceeds from long term debt                                                          |  |                         | 280,000  |   |      |   | 0      |      |  |   | 555,000  |  
|Principal payments on debt and short-term borrowings                                  |  |                         | (295,992 | ) |      |   | (2,243 | )    |  |   | (273,688 | )
|Expenditures related to issuance of long term debt                                    |  |                         | (9,675   | ) |      |   | (3,464 | )    |  |   | (13,316  | )
|Proceeds from issuance of convertible preferred stock                                 |  |                         | 20,000   |   |      |   | 0      |      |  |   | 0        |  
|Expenditures related to issuance of convertible preferred stock                       |  |                         | (348     | ) |      |   | 0      |      |  |   | 0        |  
|Stock options exercised                                                               |  |                         | 122      |   |      |   | 584    |      |  |   | 1,724    |  
|Proceeds from unwind of interest rate derivative instrument                           |  |                         | (1,270   | ) |      |   | 0      |      |  |   | 716      |  
|Proceeds from exercised warrants                                                      |  |                         | 1        |   |      |   | 2      |      |  |   | 1        |  
|                                                                                      |  |                         |          |   |      |   |        |      |  |   |          |  
|Net cash provided by (used in) financing activities                                   |  |                         | (7,162   | ) |      |   | (5,121 | )    |  |   | 270,437  |  
|                                                                                      |  |                         |          |   |      |   |        |      |  |   |          |  
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                  |  |                         | 6,101    |   |      |   | (606   | )    |  |   | 34,871   |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                        |  |                         | 6,082    |   |      |   | 12,183 |      |  |   | 11,577   |  
|                                                                                      |  |                         |          |   |      |   |        |      |  |   |          |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                              |  | $                       | 12,183   |   |      | $ | 11,577 |      |  | $ | 46,448   |  
|                                                                                      |  |                         |          |   |      |   |        |      |  |   |          |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                    |  |                         |          |   |      |   |        |      |  |   |          |  
|Cash paid during the year for interest                                                |  | $                       | 30,906   |   |      | $ | 30,186 |      |  | $ | 32,679   |  
|                                                                                      |  |                         |          |   |      |   |        |      |  |   |          |  
|Non-cash financing activities: Debt acquired (adjusted) in capital lease transactions |  | $                       | 1,303    |   |      | $ | (52    | )    |  | $ | 682      |  
|                                                                                      |  |                         |          |   |      |   |        |      |  |   |          |  
|Preferred stock dividend paid in kind                                                 |  | $                       | 588      |   |      | $ | 747    |      |  | $ | 0        |  
|                                                                                      |  |                         |          |   |      |   |        |      |  |   |          |  
|Preferred stock conversion to common                                                  |  | $                       | 0        |   |      | $ | 19,285 |      |  | $ | 0        |  
|                                                                                      |  |                         |          |   |      |   |        |      |  |   |          |  
|Detail of acquisition:                                                                |  |                         |          |   |      |   |        |      |  |   |          |  
|Accounts receivables, net                                                             |  |                         | 0        |   |      |   | 0      |      |  |   | 6,287    |  
|Prepaid expenses                                                                      |  |                         | 0        |   |      |   | 0      |      |  |   | 1,322    |  
|Property, plant and equipment                                                         |  |                         | 0        |   |      |   | 0      |      |  |   | 197,726  |  
|Goodwill                                                                              |  |                         | 0        |   |      |   | 0      |      |  |   | 57,804   |  
|Customer base                                                                         |  |                         | 0        |   |      |   | 0      |      |  |   | 4,402    |  
|Intangible and other assets                                                           |  |                         | 0        |   |      |   | 0      |      |  |   | 1,234    |  
|Investments                                                                           |  |                         | 0        |   |      |   | 0      |      |  |   | 1,293    |  
|Accounts payable                                                                      |  |                         | 0        |   |      |   | 0      |      |  |   | (7,414   | )
|Accrued liabilities                                                                   |  |                         | 0        |   |      |   | 0      |      |  |   | (3,022   | )
|Unearned revenue                                                                      |  |                         | 0        |   |      |   | 0      |      |  |   | (3,470   | )
|                                                                                      |  |                         |          |   |      |   |        |      |  |   |          |  
|Cash paid for acquisition, net of cash acquired of $2,680                             |  | $                       | 0        |   |      | $ | 0      |      |  | $ | 256,162  |  
|                                                                                      |  |                         |          |   |      |   |        |      |  |   |          |  

See notes to consolidated financial statements



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##### Table of Contents

##### Index to Financial Statements

Notes to Consolidated Financial Statements

December 31, 2005, 2006 and 2007

(dollars in thousands, except share data)

1.
Organization, Nature of Business, and Basis of Presentation

Organization and Nature of Business

Knology, Inc. and its subsidiaries (Knology or the Company) is a publicly traded company incorporated under the laws of the State
of Delaware in September 1998.

Knology and its subsidiaries own and operate an advanced interactive broadband network and provide
residential and business customers broadband communications services, including analog and digital cable television, local and long-distance telephone, high-speed Internet access, and broadband carrier services to various markets in the southeastern
and midwestern United States. Certain subsidiaries are subject to regulation by state public service commissions of applicable states for intrastate telecommunications services. For applicable interstate matters related to telephone service, certain
subsidiaries are subject to regulation by the Federal Communications Commission.

Basis of presentation

The consolidated financial statements of Knology have been prepared in accordance with accounting principles generally accepted in the United States of
America (GAAP). The statements include the accounts of the Companys wholly owned subsidiaries. All intercompany transactions and balances have been eliminated. Investments in which the Company does not exercise significant
influence are accounted for using the cost method of accounting.

The Company operates as one operating segment.

Certain prior year amounts have been reclassified to conform to current year presentation. Corresponding changes have been made to the Companys
Consolidated Balance Sheet, Statements of Operations and Statements of Cash Flows as appropriate.

On April 3, 2007, the Company
completed its acquisition of PrairieWave Holdings, Inc. (PrairieWave), a voice, video and high-speed Internet broadband services provider in the Rapid City and Sioux Falls, South Dakota regions, as well as portions of Minnesota and Iowa.
The financial position and results of operations for PrairieWave Holdings, Inc. are included in the Companys consolidated financial statements since the date of acquisition.

On January 4, 2008, the Company completed its acquisition of Graceba Total Communications Group, Inc. (Graceba), a voice, video and
high-speed Internet broadband services provider in Dothan, Alabama. The Companys presented consolidated financial statements do not include Graceba Total Communications Group, Inc. financial condition or results of operations.

2. Summary of Significant Accounting Policies

Accounting
estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an on-going basis, the
Company evaluates its estimates, including those related to collectibility of accounts receivable, valuation of inventories and investments, useful lives of property, plant and



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##### Table of Contents

##### Index to Financial Statements

equipment, recoverability of goodwill and intangible assets, income taxes and contingencies. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions. These changes in estimates are recognized in the period they are realized.

Cash and cash equivalents

Cash and cash equivalents are highly liquid investments with a maturity of
three months or less at the date of purchase and consist of time deposits and investment in money market funds with commercial banks and financial institutions.

Restricted cash

Restricted cash is presented as a current asset since the associated maturity dates expire within one year
of the balance sheet date. As of December 31, 2006, the Company had $1,620 of cash that is restricted in use, all of which is pledged as collateral for amounts potentially payable under certain insurance, lease, franchise and surety bond
agreements. As of December 31, 2007, the Company had $1,459 of cash that is restricted in use, $590 of which the Company has pledged as collateral related to certain insurance, franchise and surety bond agreements. The remaining $869 is in
escrow in connection with the sale of discontinued operations (see Note 10).

Allowance for doubtful accounts

The allowance for doubtful accounts represents the Companys best estimate of probable losses in the accounts receivable balance. The allowance is
based on known troubled accounts, historical experience and other currently available evidence. The Company writes off and sends to collections any accounts receivable 110 days past due. Activity in the allowance for doubtful accounts is as follows:



|                       |  |                              |     |                             |   |                             |  |                        |       |  |   |    
|---------------------- |  | ---------------------------- | --- | --------------------------- | - | --------------------------- |  | ---------------------- | ----- |  | - | ---
|Year ended December 31 |  | Balance atbeginningof period |     | Charged tooperatingexpenses |   | Write-offs,net ofrecoveries |  | Balance atend ofperiod
|2005                   |  | $                            | 724 |                             | $ | 4,080                       |  | $                      | 3,918 |  | $ | 886
|2006                   |  | $                            | 886 |                             | $ | 3,449                       |  | $                      | 3,648 |  | $ | 687
|2007                   |  | $                            | 687 |                             | $ | 5,004                       |  | $                      | 4,716 |  | $ | 975

Property, plant, and equipment

Property, plant, and equipment are stated at cost. Depreciation and amortization are calculated using the straight-line method over the estimated useful
lives of the assets, commencing when the asset is installed or placed in service. Maintenance, repairs, and renewals are charged to expense as incurred. The cost and accumulated depreciation of property and equipment disposed of are removed from the
related accounts, and any gain or loss is included in or deducted from income. Depreciation and amortization (excluding telephone plant which is depreciated by composite rates regulated by the Public Service Commission), are provided over the
estimated useful lives as follows:



|                                  |  |      
|--------------------------------- |  | -----
|                                  |  | Years
|Buildings                         |  | 25   
|System and installation equipment |  | 3-10 
|Production equipment              |  | 9    
|Test and office equipment         |  | 3-7  
|Automobiles and trucks            |  | 5    
|Leasehold improvements            |  | 5-25 



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##### Table of Contents

##### Index to Financial Statements

Depreciation expense for the years ended December 31, 2005, 2006 and 2007 was $73,581, $68,351 and
$83,989, respectively. Inventories are valued at the lower of cost (determined on a weighted average basis) or market and include customer premise equipment and certain plant construction materials. These items are transferred to system and
installation equipment when installed.

Goodwill and intangible assets

The Company constructs and operates its cable systems under non-exclusive cable franchises that are granted by state or local governmental authorities for varying lengths of time. As of December 31, 2007, the
Company has obtained these franchises through acquisitions of cable systems accounted for as purchase business combinations and construction of new cable systems.

Summarized below are the carrying values and accumulated amortization of intangible assets that will continue to be amortized under FASB Statement No. 142, Accounting for Goodwill and Other Intangible
Assets (SFAS No. 142), as well as the carrying value of goodwill.



|                                                                  |  |      |        |      |   |                           |  |     
|----------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------------------------- |  | ----
|                                                                  |  | 2006 |        | 2007 |   | AmortizationPeriod(Years)
|Customer base                                                     |  | $    | 460    |      | $ | 4,862                     |  | 2-3 
|Other                                                             |  |      | 914    |      |   | 2,517                     |  | 1-10
|                                                                  |  |      |        |      |   |                           |  |     
|Gross carrying value of intangible assets subject to amortization |  |      | 1,374  |      |   | 7,379                     |  |     
|Less accumulated amortization                                     |  |      | 742    |      |   | 2,528                     |  |     
|                                                                  |  |      |        |      |   |                           |  |     
|Net carrying value                                                |  |      | 632    |      |   | 4,851                     |  |     
|Goodwill                                                          |  |      | 40,834 |      |   | 98,638                    |  |     
|                                                                  |  |      |        |      |   |                           |  |     
|Total goodwill and intangibles                                    |  | $    | 41,466 |      | $ | 103,489                   |  |     
|                                                                  |  |      |        |      |   |                           |  |     

Goodwill represents the excess of the cost of businesses acquired over fair value or net
identifiable assets at the date of acquisition. Goodwill is subject to a periodic impairment assessment by applying a fair value test based upon a two-step method. The first step of the process compares the fair value of the reporting unit with the
carrying value of the reporting unit, including any goodwill. The Company utilizes a discounted cash flow valuation methodology to determine the fair value of the reporting unit. If the fair value of the reporting unit exceeds the carrying amount of
the reporting unit, goodwill is deemed not to be impaired in which case the second step in the process is unnecessary. If the carrying amount exceeds fair value, the Company performs the second step to measure the amount of impairment loss. Any
impairment loss is measured by comparing the implied fair value of goodwill, calculated per SFAS No. 142, with the carrying amount of goodwill at the reporting unit, with the excess of the carrying amount over the fair value recognized as an
impairment loss. The Company has adopted January 1 as the calculation date and has evaluated these assets as of January 1, 2006, 2007 and 2008, and no impairment was identified.

Amortization expense related to intangible assets was $378, $(162) and $1,787 for the years ended December 31, 2005, 2006 and 2007, respectively. In
April 2006, the Company adjusted amortization of multiple dwelling unit signing bonuses over the life of the contract instead of the one year policy which resulted in a negative expense of $370.



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##### Table of Contents

##### Index to Financial Statements

Scheduled amortization of intangible assets for the next five years as of December 31, 2007 is as
follows:



|           |  |   |      
|---------- |  | - | -----
|2008       |  | $ | 1,532
|2009       |  |   | 1,143
|2010       |  |   | 1,123
|2011       |  |   | 856  
|2012       |  |   | 89   
|Thereafter |  |   | 108  
|           |  |   |      
|           |  | $ | 4,851
|           |  |   |      

Deferred debt issuance costs

Deferred debt issuance costs include costs associated with the issuance and refinancing of debt and credit facilities (Note 4). Deferred debt issuance costs are amortized to interest expense over the contractual term
of the debt using the effective interest method. Deferred debt issuance costs and the related useful lives and accumulated amortization at December 31, 2006 and 2007 are as follows:



|                                     |  |      |        |   |      |   |        |                           |  |    
|------------------------------------ |  | ---- | ------ | - | ---- | - | ------ | ------------------------- |  | ---
|                                     |  | 2006 |        |   | 2007 |   |        | AmortizationPeriod(Years)
|Previous deferred issuance costs     |  | $    | 8,764  |   |      | $ | 9,912  |                           |  | 4-6
|Expenditures related to bank loan    |  |      | 3,464  |   |      |   | 13,316 |                           |  | 4-6
|Accumulated amortization             |  |      | (2,316 | ) |      |   | (2,934 | )                         |  |    
|Loss on early extinguishment of debt |  |      | 0      |   |      |   | (9,202 | )                         |  |    
|                                     |  |      |        |   |      |   |        |                           |  |    
|Deferred issuance costs, net         |  | $    | 9,912  |   |      | $ | 11,092 |                           |  | 4-6
|                                     |  |      |        |   |      |   |        |                           |  |    

Derivative Financial Instruments

The Company uses interest rate swap and interest rate cap contracts to manage the impact of interest rate changes on earnings and operating cash flows.
Interest rate swaps involve the receipt of variable-rate amounts in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying principal amount. Interest rate caps involve the receipt of variable-rate amounts
beyond a specified strike price over the life of the agreements without exchange of the underlying principal amount. The Company believes these agreements are with counter-parties who are creditworthy financial institutions.

The Company has adopted FASB Statement No. 133 (subsequently amended by SFAS Nos. 137 and 138), Accounting for Derivative Instruments and
Hedging Activities (SFAS No. 133). This statement requires that all derivatives be recorded in the balance sheet as either an asset or liability measured at fair value, and that changes in fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. For derivatives designated as qualifying cash flow hedges, the effective portion of changes in fair value of the derivatives is initially recognized in other comprehensive income and
subsequently reclassified as an increase or decrease to interest expense in the same periods in which the related interest on the variable-rate debt affects earnings. The ineffective portions are recognized directly in earnings. Upon early
termination of a derivative instrument that has been designated as a hedge, the resulting gains or losses are deferred and amortized as adjustments to interest expense of the related debt over the remaining period covered by the terminated
instrument. The Company has formally documented, designated and assessed at inception of the derivative instruments. Based on criteria listed in SFAS No. 133 pertaining to cash flow derivative instruments that are interest rate swaps, the
Company has assessed that the swap agreements are completely effective and therefore there are no ineffectiveness. The Company assesses for ineffectiveness on a quarterly basis. The Company uses derivative instruments as risk management tools and
not for trading purposes.



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##### Table of Contents

##### Index to Financial Statements

In July 2005, the Company entered into an interest rate cap agreement with Credit Suisse First Boston
International with a notional amount of $280,000 to cap its adjustable LIBOR rate at 5%, mitigating interest rate risk on the first and second lien term loans. The Company paid $1,270 for this cap agreement, which became effective July 29, 2005
and terminated July 29, 2008. The Company did not designate the cap agreement as an accounting hedge under SFAS No. 133. Accordingly changes in fair value of the cap agreement were recorded through earnings as derivative gains/(losses).
Gain (loss) on interest rate derivative instrument was $267, $(63) and $(758) for the years ended December 31, 2005, 2006 and 2007, respectively. On April 18, 2007, the Company unwound its existing interest rate cap agreement
for $716 cash proceeds.

On April 18, 2007, the Company entered into a new interest rate swap contract to mitigate interest rate risk on a
notional amount of $555,000 amortizing 1% annually. The swap agreement fixes 100% of the floating rate debt at 4.977% until July 3, 2010. The interest rate hedge instrument is designated as a hedge under SFAS No. 133. Changes in the fair
value of the swap agreement are initially recorded as Accumulated Other Comprehensive Loss in the equity section of the balance sheet and subsequently reclassified to Interest Expense on the statement of operations. The swap
agreement has an estimated fair value of $(13,474) as of December 31, 2007, which approximates the cost to settle the outstanding contract based on dealer quote considering current market rates.

On December 19, 2007, the Company entered into an interest rate swap contract to mitigate interest rate risk on a notional amount of $59,000
amortizing 1% annually, in connection with the first amendment debt associated with the acquisition of Graceba Total Communications. The swap agreement fixes 100% of the floating rate debt at 3.995% until September 30, 2010. The interest rate
hedge instrument is designated as a hedge under SFAS No. 133. Changes in the fair value of the swap agreement are recorded as Accumulated Other Comprehensive Loss in the equity section of the balance sheet. The swap agreement has an
estimated fair value of $(308) as of December 31, 2007, which approximates the cost to settle the outstanding contract based on dealer quote considering current market rates.

Valuation of long-lived assets

Under FASB Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS No. 144), the Company reviews long-lived assets for impairment when circumstances indicate the carrying amount of an asset may not be recoverable based on the undiscounted
future cash flows of the asset. If the carrying amount of the asset is determined not to be recoverable, a write-down to fair value is recorded. The Company has evaluated these assets as of December 31, 2007, and no impairment was identified.

Direct Costs

Cost of services related
to video consists primarily of monthly fees to the National Cable Television Cooperative and other programming providers and is generally based on the average number of subscribers to each program. Cost of services related to voice and data services
and other consists primarily of transport cost and network access fees specifically associated with each of these revenue streams. Pole attachment and other network rental expenses consist primarily of pole attachments rents paid to utility
companies for space on their utility poles to deliver the Companys various services and network hub rents.

Stock based compensation

In December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based Compensation-Transition and Disclosure,
which amended FASB Statement No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amended the disclosure
requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Finally, this
Statement amended APB Opinion No. 28, Interim Financial Reporting, to require disclosure about those effects in interim



F-14



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##### Table of Contents

##### Index to Financial Statements

financial information. In December 2002, the Company elected to adopt the recognition provisions of SFAS No. 123 which was considered the preferable
accounting method for stock-based employee compensation. The Company also elected to report the change in accounting principle using the prospective method in accordance with SFAS No. 148. Under the prospective method, the recognition of
compensation costs is applied to all employee awards granted, modified, vested or settled after the beginning of the fiscal year in which the recognition provisions are first applied. As a result, the Company recorded $2,101, $2,025 and $2,799 of
non-cash stock option compensation expense for the years ended December 31, 2005, 2006 and 2007, respectively.

Investments

Investments and equity ownership in associated companies consisted of the following at December 31, 2006 and 2007:



|                                                                                   |  |      |       |      |   |      
|---------------------------------------------------------------------------------- |  | ---- | ----- | ---- | - | -----
|                                                                                   |  | 2006 |       | 2007
|Grande Communications (Grande) common stock, 10,946,556 shares in 2006 and 2007. |  | $    | 1,243 |      | $ | 1,243
|PrairieWave Condominium Association (PWCA)                                       |  |      | 0     |      |   | 1,293
|                                                                                   |  |      |       |      |   |      
|Investments                                                                        |  | $    | 1,243 |      | $ | 2,536
|                                                                                   |  |      |       |      |   |      

At December 31, 2007, the Company, through its wholly owned subsidiaries, owned approximately
1.5% of Grande. The Companys investment in Grande is accounted for under the cost method of accounting adjusted for impairment write downs.

As part of the PrairieWave acquisition, the Company acquired an investment in PWCA. In 2003, PrairieWave formed PWCA to which it contributed land with a book value of $1,207 and other assets of $86. On June 10, 2003, PrairieWave and a
real estate developer entered into a Condominium Unit Purchase Agreement, whereby the developer committed to construct a building connected to PrairieWaves headquarters building. The real estate developer paid PrairieWave one dollar and
granted them the option to acquire its condominium interest in PWCA and the building to be constructed for approximately $5,200. The option is exercisable from June 1, 2012 to May 31, 2013. PrairieWave appoints two members and the real
estate developer appoints one member to PWCAs three-member board. The Companys investment in PWCA is accounted for under the equity method of accounting.

Accrued liabilities

Accrued liabilities at December 31, 2006 and 2007 consist of the following:



|                       |  |      |        |      |   |       
|---------------------- |  | ---- | ------ | ---- | - | ------
|                       |  | 2006 |        | 2007
|Accrued trade expenses |  | $    | 3,639  |      | $ | 8,022 
|Accrued property taxes |  |      | 2,453  |      |   | 2,612 
|Accrued compensation   |  |      | 4,901  |      |   | 5,268 
|Accrued interest       |  |      | 4,532  |      |   | 9,963 
|                       |  |      |        |      |   |       
|Total                  |  | $    | 15,525 |      | $ | 25,865
|                       |  |      |        |      |   |       

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are reasonable estimates of their fair
values due to the short maturity of these financial instruments.



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##### Table of Contents

##### Index to Financial Statements

Revenue recognition

Knology accounts for the revenue, costs and expense related to residential cable services (including video, voice, data and other services) in accordance with SFAS No. 51 Financial Reporting by Cable
Television Companies. Installation revenue for residential cable services is recognized to the extent of direct selling costs incurred. Direct selling costs have exceeded installation revenue in all reported periods. Credit risk is managed by
disconnecting services to customers who are delinquent.

All other revenue is accounted for in accordance with Staff Accounting Bulletin
(SAB) No. 104 Revenue Recognition. In accordance with SAB No. 104, revenue from advertising sales is recognized as the advertising is transmitted over the Companys broadband network. Revenue derived from other sources,
including commercial data and other services, is recognized as services are provided, as persuasive evidence of an arrangement exists, the price to the customer is fixed and determinable and collectibility is reasonably assured.

The Company generates recurring revenues for its broadband offerings of video, voice and data and other services. Revenues generated from these services
primarily consists of a fixed monthly fee for access to cable programming, local phone services and enhanced services and access to the Internet. Additional fees are charged for services including pay-per-view movies, events such as boxing matches
and concerts, long distance service and cable modem rental. Revenues are recognized as services are provided and advance billings or cash payments received in advance of services performed are recorded as unearned revenue.

Advertising costs

The Company expenses all
advertising costs as incurred. Approximately $5,189, $5,228 and $6,803 of advertising expense are recorded in the Companys consolidated statements of operations for the years ended December 31, 2005, 2006, and 2007, respectively.

Sources of supplies

The Company
purchases customer premise equipment and plant materials from outside vendors. Although numerous suppliers market and sell customer premise equipment and plant materials, the Company currently purchases each customer premise component from a single
vendor and has several suppliers for plant materials. If the suppliers are unable to meet the Companys needs as it continues to operate its business, it could adversely affect operating results.

Credit risk

The Companys accounts receivable
potentially subject the Company to credit risk, as collateral is generally not required. The Companys risk of loss is limited due to advance billings to customers for services and the ability to terminate access on delinquent accounts. The
potential for material credit loss is mitigated by the large number of customers with relatively small receivable balances. The carrying amounts of the Companys receivables approximate their fair values.

Income taxes

The Company utilizes the liability
method of accounting for income taxes, as set forth in SFAS No. 109, Accounting for Income Taxes. Under the liability method, deferred taxes are determined based on the difference between the financial and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred tax benefit represents the change in the deferred tax asset and liability balances (Note 7).

On January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes
(FIN 48). The Interpretation addresses the determination of whether tax benefits



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##### Table of Contents

##### Index to Financial Statements

claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company may recognize the tax benefit
from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial
statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on derecognition, classification, interest and
penalties on income taxes, accounting in interim periods and requires increased disclosures. At the date of adoption, and as of December 31, 2007, the Company did not have a liability for unrecognized tax benefits.

Net loss per share

The Company follows SFAS
No. 128, Earnings Per Share, which requires the disclosure of basic net loss per share and diluted net loss per share. Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted net loss per share gives effect to all potentially dilutive securities. The effect of the Companys warrants (1,074,221, 1,055,444 and 1,000,000 in 2005, 2006 and 2007,
respectively), stock options (3,026,117, 3,145,617 and 3,080,892 shares in 2005, 2006 and 2007, respectively using the treasury stock method) and preferred stock (1,985,081, zero and zero shares in 2005, 2006 and 2007, respectively) were not
included in the computation of diluted EPS as their effect was antidilutive. The warrants expire December 2013 and each warrant is a right to buy one common stock at an exercise price of $9.00 per share.

New accounting pronouncements

In December 2007, the
FASB issued SFAS No. 141R , Business Combinations (SFAS No. 141R) and SFAS No. 160, Consolidations (SFAS No. 160). These statements establish principles and requirements for how an
acquirer in a business combination recognizes and measures the assets acquired, liabilities assumed, and any noncontrolling interest (previously referred to as minority interest) in the acquiree. SFAS No. 141R and SFAS No. 160 are
effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited.

In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115 (SFAS No. 159). SFAS No. 159 allows
companies to measure certain financial instruments at fair value without having to apply complex hedge accounting provisions and to report unrealized gains and losses on items elected items in earnings. This Statement is effective for financial
statements issued for fiscal years beginning after November 15, 2007. The Company does not expect that the adoption of SFAS No. 159 will have a material impact on its results of operations or financial position.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 establishes
a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements providing a single definition of fair value, which should result in increased consistency and comparability in
fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FSP 157-2 Partial Deferral of the Effective Date of Statement
157 (FSP 157-2). FSP 157-2 delays the effective date of SFAS No. 157 for all nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at
least annually) to fiscal years beginning after November 15, 2008. The Company does not expect that the adoption of SFAS No. 157 will have a material impact on its results of operations or financial position.

3. Employee Benefit Plan

The Company has a 401(k)
Profit Sharing Plan (the Plan) for the benefit of eligible employees and their beneficiaries. All employees are eligible to participate in the Plan on the first day of employment. The Plan



F-17



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##### Table of Contents

##### Index to Financial Statements

provides for a matching contribution at the discretion of the board up to 8% of eligible contributions. The Company contributions for the years ended
December 31, 2005, 2006, and 2007 were $1,006, $1,101 and $1,450, respectively.

4. Long-Term Debt

On June 29, 2005, the Company entered into a First Lien Credit Agreement and Second Lien Credit Agreement providing the Company with aggregate cash
proceeds of $280,000. These proceeds, together with cash on hand, were used to repay all amounts outstanding under the Companys then existing credit facilities and to redeem our 12% senior notes due 2009, which were redeemed on July 29,
2005. The second lien was issued at a discount of 4% for $95,000, which accreted up to a face amount of $99,000 on June 29, 2011.

In
2005, the Company entered into an interest rate cap agreement for a notional amount of $280,000 to cap its variable LIBOR rate at 5%, mitigating interest rate risk on its first and second lien term loans. On April 18, 2007, the Company unwound
its existing interest rate cap agreement for $716 cash proceeds. The Company has recorded a loss of $758 for year ended December 31, 2007. The changes in the fair value of the cap agreement were recorded as a Gain (loss) on interest rate
derivative instrument in other income (expense) since the cap rate agreement was not designated as a hedge under SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities.

On June 30, 2006, Amendment No. 1 to the First Lien Credit Agreement became effective. The Amendment reduced the interest rate on the
Companys first lien term loan from LIBOR plus 5.5% to LIBOR plus 2.5%. The provisions of the First Lien Credit Agreement required a 2% pre-payment premium of $3,455 for the amendment.

On March 14, 2007, the Company entered into an Amended and Restated Credit Agreement that provides for a $580,000 credit facility, consisting of a
$555,000 term loan and a $25,000 revolving credit facility. On April 3, 2007, the Company received proceeds of $555,000 to fund the $255,000 PrairieWave Holdings, Inc. acquisition purchase price, refinance the Companys first and second
lien agreements, and pay transaction costs associated with the transactions. The term loan bears interest at LIBOR plus 2.25% and amortizes at a rate of 1% per annum, payable quarterly, with a June 30, 2012 maturity date.

On April 18, 2007, the Company entered into a new interest rate swap contract to mitigate interest rate risk on a notional amount of $555,000
amortizing 1% annually. The swap agreement fixes 100% of the floating rate debt at 4.977% until July 3, 2010. The interest rate hedge instrument is designated as a hedge under SFAS No. 133. Changes in the fair value of the swap agreement
are initially recorded as Accumulated Other Comprehensive Loss in the equity section of the balance sheet and subsequently reclassified to Interest Expense on the statement of operations.

On January 4, 2008 the Company entered into a First Amendment to the Amended and Restated Credit Agreement (the Credit Agreement) which
provides for a $59,000 incremental term loan used to fund the $75,000 Graceba Total Communications Group, Inc. acquisition purchase price. The term loan bears interest at LIBOR plus 2.75% and amortizes at a rate of 1% per annum, payable
quarterly, with a June 30, 2012 maturity date. In December 2007, the Company entered into a new interest rate swap contract to mitigate interest rate risk on a notional amount of $59,000 amortizing 1% annually. The swap agreement, which became
effective January 4, 2008, fixes 100% of the floating rate debt at 3.995% until September 30, 2010. The interest rate hedge instrument is designated as a hedge under SFAS No. 133 Accounting for Derivative Instruments and Hedging
Activities. Changes in the fair value of the swap agreement are initially recorded as Accumulated Other Comprehensive Loss in the equity section of the balance sheet and subsequently reclassified to Interest Expense on
the statement of operations.



F-18



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##### Table of Contents

##### Index to Financial Statements

Long-term debt at December 31, 2006 and 2007 consists of the following:



|                                                                                                                                                                                                                                                                |  |      |         |      |   |        
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | -------
|                                                                                                                                                                                                                                                                |  | 2006 |         | 2007
|First Lien term loan, at a rate of LIBOR plus 2.25% (7.48% at December 31, 2007), with $5,550 annual principal amortization paid
quarterly ($2,775 for 2007), interest payable quarterly with final principal and any unpaid interest due June 30, 2012         |  | $    | 0       |      | $ | 552,225
|First Lien term loan, at a rate of LIBOR plus 2.5% (7.88% at December 31, 2006), with $1,850 annual principal amortization paid quarterly
($1,850 for 2006 and 2007), interest payable quarterly with final principal and any unpaid interest due June 29, 2010 |  |      | 171,825 |      |   | 0      
|Second Lien term loan, with a face amount of $99,000, at a rate of LIBOR plus 10% (13.88% at December 31, 2006, 8.5% cash and 1.5% PIK,
$1,521 for 2006, $387 for 2007), interest payable quarterly, with principal and any unpaid interest due June 29, 2011   |  |      | 98,286  |      |   | 0      
|Capitalized lease obligations, at rates between 7% and 8%, with monthly principal and interest payments through December 2012                                                                                                                                   |  |      | 2,902   |      |   | 3,093  
|                                                                                                                                                                                                                                                                |  |      |         |      |   |        
|                                                                                                                                                                                                                                                                |  |      | 273,013 |      |   | 555,318
|Less current maturities                                                                                                                                                                                                                                         |  |      | 2,302   |      |   | 6,162  
|                                                                                                                                                                                                                                                                |  |      |         |      |   |        
|                                                                                                                                                                                                                                                                |  | $    | 270,711 |      | $ | 549,156
|                                                                                                                                                                                                                                                                |  |      |         |      |   |        

Following are maturities of long-term debt for each of the next five years as of December 31,
2007



|           |  |   |        
|---------- |  | - | -------
|2008       |  | $ | 6,162  
|2009       |  |   | 6,215  
|2010       |  |   | 6,274  
|2011       |  |   | 6,443  
|2012       |  |   | 530,224
|Thereafter |  |   | 0      
|           |  |   |        
|Total      |  | $ | 555,318
|           |  |   |        

The first lien and incremental term loans are guaranteed by all of the Companys
subsidiaries. The term loans are also secured by first liens on all of the Companys assets and the assets of its guarantor subsidiaries.

The Credit Agreement contains customary representations and warranties and various affirmative and negative covenants, including:



| |  |  | limitations on the incurrence of additional debt;
| | - |  | -------------------------------------------------



| |  |  | limitations on the incurrence of liens;
| | - |  | ---------------------------------------



| |  |  | restrictions on investments;
| | - |  | ----------------------------



| |  |  | restrictions on the sale of assets;
| | - |  | -----------------------------------



| |  |  | restrictions on the payment of cash dividends on and the redemption or repurchase of capital stock;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | mandatory prepayment of amounts outstanding, as applicable, with excess cash flow, proceeds from asset sales, proceeds from the issuance of debt obligations,
proceeds from any equity offerings, and proceeds from casualty losses;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | restrictions on mergers and acquisitions, sale/leaseback transactions and fundamental changes in the nature of our business;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | limitations on capital expenditures; and
| | - |  | ----------------------------------------



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##### Table of Contents

##### Index to Financial Statements

| |  |  | maintenance of minimum ratios of debt to EBITDA (as defined in the credit agreements) and EBITDA to cash interest.
| | - |  | ------------------------------------------------------------------------------------------------------------------

The Credit Agreement also includes customary events of default, including but not limited to:



| |  |  | nonpayment of principal, interest or other fees or amounts;
| | - |  | -----------------------------------------------------------



| |  |  | incorrectness of representations and warranties in any material respect;
| | - |  | ------------------------------------------------------------------------



| |  |  | violations of covenants;
| | - |  | ------------------------



| |  |  | cross defaults and cross acceleration;
| | - |  | --------------------------------------



| |  |  | bankruptcy;
| | - |  | -----------



| |  |  | material judgments;
| | - |  | -------------------



| |  |  | ERISA events;
| | - |  | -------------



| |  |  | actual or asserted invalidity of provisions of or liens created under guarantees or security documents;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | material violations of environmental laws;
| | - |  | ------------------------------------------



| |  |  | defaults under material contractual obligations; and
| | - |  | ----------------------------------------------------



| |  |  | the failure to maintain licenses and franchises if such failure would have a material adverse effect.
| | - |  | -----------------------------------------------------------------------------------------------------

As of December 31, 2007, the Company was in compliance with its debt covenants.

The estimated fair value of the Companys variable-rate debt is subject to the effects of interest rate risk. On December 31, 2007, the
estimated fair value of that debt, based on dealer quote considering current market rates, was approximately $530,000, compared to a carrying value of $552,000.

5. Operating and Capital Leases

The Company leases office space, utility poles, and other assets for varying periods, some
of which have renewal or purchase options and escalation clauses. Leases that expire are generally expected to be renewed or replaced by other leases. Total rental expense for all operating leases was approximately $2,724, $4,132 and $4,435 for the
years ended December 31, 2005, 2006, and 2007, respectively. Future minimum rental payments required under the operating and capital leases that have initial or remaining non-cancelable lease terms, in excess of one year as of December 31,
2007 are as follows:



|                                                    |  |                   |       |                 |   |       
|--------------------------------------------------- |  | ----------------- | ----- | --------------- | - | ------
|                                                    |  | CapitalizedLeases |       | OperatingLeases
|2008                                                |  | $                 | 838   |                 | $ | 4,391 
|2009                                                |  |                   | 840   |                 |   | 3,328 
|2010                                                |  |                   | 842   |                 |   | 2,674 
|2011                                                |  |                   | 1,333 |                 |   | 2,000 
|2012                                                |  |                   | 205   |                 |   | 1,642 
|Thereafter                                          |  |                   | 0     |                 |   | 5,067 
|                                                    |  |                   |       |                 |   |       
|Total minimum lease payments                        |  | $                 | 4,058 |                 | $ | 19,102
|                                                    |  |                   |       |                 |   |       
|Less imputed interest                               |  |                   | 965   |                 |   |       
|                                                    |  |                   |       |                 |   |       
|Present value of minimum capitalized lease payments |  |                   | 3,093 |                 |   |       
|Less current portion                                |  |                   | 612   |                 |   |       
|                                                    |  |                   |       |                 |   |       
|Long-term capitalized lease obligations             |  | $                 | 2,481 |                 |   |       
|                                                    |  |                   |       |                 |   |       



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##### Table of Contents

##### Index to Financial Statements

The Company has recorded $3,604, $3,552 and $4,233 for the years ended December 31, 2005, 2006 and
2007, respectively, as property, plant and equipment due to capital lease transactions for land, Video on Demand equipment, and for the buildout of various multiple dwelling units. The amortization of the capital leases is recorded in Depreciation
and Amortization with other property, plant and equipment. The base rentals recorded to the multiple dwelling unit capital leases are contingent upon the Company acquiring subscribers. The Company has agreed to pay various amounts per subscriber to
the lessors as the base monthly rentals. The lease terms are seven years. In accordance with FASB No. 13, Accounting for Leases, the Company has projected the number of subscribers to record the capital asset and liability and will
update the projections to actual subscribers on a quarterly basis.

6. Commitments and Contingencies

Purchase commitments

The Company has entered into
contracts with various entities to provide programming to be aired by the Company. The Company pays a monthly fee for the programming services, generally based on the number of average video subscribers to the program, although some fees are
adjusted based on the total number of video subscribers to the system and/or the system penetration percentage. Total programming fees were approximately $48,649, $52,612 and $71,412 for the years ended December 31, 2005, 2006, and 2007,
respectively. The Company estimates that it will pay approximately $80,773, $81,000 and $81,000 in programming fees under these contracts in 2008, 2009 and 2010, respectively.

Legal proceedings

The Company is subject to litigation in the normal course of its business.
However, in the Companys opinion, there is no legal proceeding pending against it that would have a material adverse effect on its financial position, results of operations or liquidity. The Company is also a party to regulatory proceedings
affecting the segments of the communications industry generally in which it engages in business.

Unused Letters of Credit

The Companys unused letters of credit for vendors and suppliers was $1,526 as of December 31, 2007, which reduces the funds available under the
$25,000 five year senior secured revolving loan and letter of credit facility.

7. Income Taxes

The benefit/(provision) for income taxes from continuing operations consisted of the following for the years ended December 31, 2006 and 2007:



|                                           |  |      |        |   |      |   |         |  
|------------------------------------------ |  | ---- | ------ | - | ---- | - | ------- | -
|                                           |  | 2006 |        |   | 2007 |  
|Current                                    |  | $    | 0      |   |      | $ | 0       |  
|Deferred                                   |  |      | 2,673  |   |      |   | 26,988  |  
|(Increase) decrease in valuation allowance |  |      | (2,673 | ) |      |   | (26,988 | )
|                                           |  |      |        |   |      |   |         |  
|Income tax benefit (provision)             |  | $    | 0      |   |      | $ | 0       |  
|                                           |  |      |        |   |      |   |         |  

The Company had a net increase in deferred tax liabilities of $5,997 as a result of the
PrairieWave acquisition. Accordingly, there is a $5,997 decrease in the valuation allowance attributable to the acquisition of PrairieWave.



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##### Table of Contents

##### Index to Financial Statements

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of deferred tax assets and liabilities as of December 31, 2006 and 2007 are as follows:



|                                                    |  |      |         |   |      |   |         |  
|--------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                    |  | 2006 |         |   | 2007 |  
|Current deferred tax assets:                        |  |      |         |   |      |   |         |  
|Inventory reserve                                   |  | $    | 351     |   |      | $ | 11      |  
|Allowance for doubtful accounts                     |  |      | 255     |   |      |   | 356     |  
|Other                                               |  |      | 1,012   |   |      |   | 1,748   |  
|Valuation allowance                                 |  |      | (1,618  | ) |      |   | (2,115  | )
|                                                    |  |      |         |   |      |   |         |  
|Total current deferred taxes                        |  |      | 0       |   |      |   | 0       |  
|                                                    |  |     
|Non-current deferred tax assets:                    |  |      |         |   |      |   |         |  
|Net operating loss & other attributes carryforwards |  |      | 58,644  |   |      |   | 83,016  |  
|Deferred loan interest                              |  |      | 587     |   |      |   | 0       |  
|Deferred revenues                                   |  |      | 252     |   |      |   | 188     |  
|Depreciation and amortization                       |  |      | (29,650 | ) |      |   | (35,542 | )
|Investment marked to market                         |  |      | 4,626   |   |      |   | 4,626   |  
|Compensation and benefits                           |  |      | 656     |   |      |   | 1,036   |  
|Gain on discontinued operations                     |  |      | (2,753  | ) |      |   | 0       |  
|Other                                               |  |      | 1,145   |   |      |   | 677     |  
|Valuation allowance                                 |  |      | (33,507 | ) |      |   | (54,001 | )
|                                                    |  |      |         |   |      |   |         |  
|Total non-current deferred tax assets               |  |      | 0       |   |      |   | 0       |  
|                                                    |  |      |         |   |      |   |         |  
|Net deferred income taxes                           |  | $    | 0       |   |      | $ | 0       |  
|                                                    |  |      |         |   |      |   |         |  

The $6,426 Other deferred tax asset from 2006 has been broken out to give more detail and is now
reported as Investment mark to market, Compensation and benefits, and Other.

At December 31, 2007, the Company had available federal
net operating loss carryforwards of approximately $228,000, of which $42,000 relate to the PrairieWave acquisition, that expire from 2008 to 2027. Approximately $74,000 of this carryforward is subject to annual limitations due to a change in
ownership of the Company, as defined in the Internal Revenue Code. In addition, the Company had approximately $2,200 in federal net operating losses from share-based payment awards for which it has not recorded a financial statement benefit as per
SFAS No. 123R. The Company also had various state net operating loss carryforwards totaling approximately $494,000. Unless utilized, the state net operating loss carryforwards expire from 2008 to 2026. For 2007, management has recorded a total
valuation allowance of $51,000 against its deferred tax assets including the operating loss carryforwards.

A reconciliation of the income
tax provision computed at statutory tax rates to the income tax provision for the years ended December 31, 2006 and 2007 is as follows:



|                                           |  |      |    |  |      |   
|------------------------------------------ |  | ---- | -- |  | ---- | --
|                                           |  | 2006 |    |  | 2007 |   
|Income tax benefit at statutory rate       |  | 34   | %  |  | 34   | % 
|State income taxes, net of federal benefit |  | 4    | %  |  | 5    | % 
|Interesthigh yield debt                   |  | (3   | )% |  | (1   | )%
|Disqualifying Dispositions of ISOs        |  | 0    | %  |  | 3    | % 
|(Increase) decrease in valuation allowance |  | (35  | )% |  | (41  | )%
|                                           |  |      |    |  |      |   
|Income tax benefit (provision)             |  | 0    | %  |  | 0    | % 
|                                           |  |      |    |  |      |   

On January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (FIN 48). The Interpretation addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.
Under FIN 48,



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##### Table of Contents

##### Index to Financial Statements

the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. At the date of adoption,
and as of December 31, 2007, the Company did not have a liability for unrecognized tax benefits.

The Company recognizes interest and
penalties related to uncertain tax positions in income tax expense. As of December 31, 2007, the Company made no provisions for interest or penalties related to uncertain tax positions.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. For federal tax purposes, the
Companys 2004 through 2007 tax years remain open for examination by the tax authorities under the normal three year statute of limitations. Generally, for state tax purposes, the Companys 2004 through 2007 tax years remain open for
examination by the tax authorities under a four year statute of limitations.

8. Equity Interests

Capital transactions

The Company has authorized
200,000,000 shares of $0.01 par value common stock, 199,000,000 shares of $0.01 par value preferred stock, and 25,000,000 shares of $0.01 par value non-voting common stock.

Knology, Inc. stock option plans

In 2006, the board of directors and stockholders approved the
Knology, Inc. 2006 Incentive Plan (the 2006 Plan). The 2006 Plan authorizes the issuance of up to 2 million shares of common stock pursuant to stock option awards. The maximum number of shares of common stock that may be granted
under the 2006 Plan to any one person during any one calendar year is 300,000. The aggregate dollar value of any option-based award that may be paid to any one participant during any one calendar year under the 2006 Plan is $1,000. The 2006 Plan is
administered by the compensation and stock option committee of the board of directors. Options granted under the plans are intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as
amended. The exercise price shall be determined by the board of directors, provided that the exercise price shall not be less than the fair value of the common stock at the dates of grant. The options expire 10 years from the date of grant.

Statement of Financial Accounting Standards No. 123 and 123R

In 2002, the Company elected to adopt the fair value recognition of compensation cost provisions of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). The Company
also elected to report the change in accounting principle from APB No. 25 using the prospective method in accordance with SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure. Under the
prospective method, the recognition of compensation cost is applied to all employee awards granted, modified, vested, or settled after the beginning of the fiscal year in which the recognition provisions are first applied. In December 2002, the
Company canceled all outstanding awards for common stock as of December 31, 2002 and granted an equal number of replacement options at the current fair market value with the same expiration date as the related canceled option. The replacement
options, as well as all other awards granted and settled during 2002, were included in the calculation of compensation cost in accordance with SFAS No. 123 and SFAS No. 148. In



F-23



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##### Table of Contents

##### Index to Financial Statements

January 2006, FAS 123R was adopted with no impact to the Companys financial statements. The following represent the expected stock option compensation
expense for the next five years assuming no additional grants.



|     |  |   |      
|---- |  | - | -----
|2008 |  | $ | 2,042
|2009 |  |   | 1,987
|2010 |  |   | 631  
|2011 |  |   | 155  
|2012 |  |   | 0    
|     |  |   |      
|     |  | $ | 4,815
|     |  |   |      

The fair value of stock options was estimated at the date of grant using a
Black-Scholes option pricing model and the following weighted average assumptions in 2005, 2006, and 2007:



|                         |  |            |   |  |            |   |  |            |  
|------------------------ |  | ---------- | - |  | ---------- | - |  | ---------- | -
|Common                   |  | 2005       |   |  | 2006       |   |  | 2007       |  
|Risk-free interest rate  |  | 3.64-4.13  | % |  | 4.53-5.07  | % |  | 3.49-5.03  | %
|Expected dividend yield  |  | 0          | % |  | 0          | % |  | 0          | %
|Expected lives           |  | Four years |   |  | Four years |   |  | Four years |  
|Expected forfeiture rate |  | 0          | % |  | 23         | % |  | 12         | %
|Expected volatility      |  | 68         | % |  | 46         | % |  | 46         | %

A summary of the status of the Companys stock options at December 31, 2007 is presented
in the following table:



|                                        |  |              |   |  |                                       |       |                                         |   |                                         |  |                |  |   |       
|--------------------------------------- |  | ------------ | - |  | ------------------------------------- | ----- | --------------------------------------- | - | --------------------------------------- |  | -------------- |  | - | ------
|                                        |  | Commonshares |   |  | Weightedaverageexerciseprice pershare |       | Weightedaveragefair valueprice pershare |   | Weightedaverageremainingcontractuallife |  | IntrinsicValue
|Outstanding at December 31, 2004        |  | 2,026,285    |   |  | $                                     | 8.94  |                                         |   |                                         |  |                |  |   |       
|                                        |  |              |   |  |                                      
|Granted                                 |  | 1,722,521    |   |  |                                       | 1.83  |                                         | $ | 1.01                                    |  |                |  |   |       
|Forfeited                               |  | (651,506     | ) |  |                                       | 7.19  |                                         |   |                                         |  |                |  |   |       
|Exercised                               |  | (71,183      | ) |  |                                       | 1.71  |                                         |   |                                         |  |                |  | $ | 25    
|                                        |  |              |   |  |                                       |       |                                         |   |                                         |  |                |  |   |       
|Outstanding at December 31, 2005        |  | 3,026,117    |   |  | $                                     | 5.41  |                                         |   |                                         |  | 7.98           |  | $ | 3,192 
|                                        |  |              |   |  |                                      
|Granted                                 |  | 1,019,899    |   |  |                                       | 6.07  |                                         | $ | 2.53                                    |  |                |  |   |       
|Forfeited                               |  | (279,463     | ) |  |                                       | 7.45  |                                         |   |                                         |  |                |  |   |       
|Expired                                 |  | (419,641     | ) |  |                                       | 8.28  |                                         |   |                                         |  |                |  |   |       
|Exercised                               |  | (201,295     | ) |  |                                       | 3.39  |                                         |   |                                         |  |                |  | $ | 1,193 
|                                        |  |              |   |  |                                       |       |                                         |   |                                         |  |                |  |   |       
|Outstanding at December 31, 2006        |  | 3,145,617    |   |  | $                                     | 5.19  |                                         |   |                                         |  | 7.77           |  | $ | 19,061
|                                        |  |              |   |  |                                      
|Granted                                 |  | 508,820      |   |  |                                       | 14.98 |                                         | $ | 5.83                                    |  |                |  |   |       
|Forfeited                               |  | (97,902      | ) |  |                                       | 7.25  |                                         |   |                                         |  |                |  |   |       
|Expired                                 |  | (50,215      | ) |  |                                       | 6.69  |                                         |   |                                         |  |                |  |   |       
|Exercised                               |  | (425,428     | ) |  |                                       | 4.27  |                                         |   |                                         |  |                |  | $ | 5,069 
|                                        |  |              |   |  |                                       |       |                                         |   |                                         |  |                |  |   |       
|Outstanding at December 31, 2007        |  | 3,080,892    |   |  | $                                     | 6.84  |                                         |   |                                         |  | 7.29           |  | $ | 21,001
|                                        |  |              |   |  |                                       |       |                                         |   |                                         |  |                |  |   |       
|Exercisable shares at December 31, 2007 |  | 1,649,904    |   |  | $                                     | 5.50  |                                         |   |                                         |  | 6.36           |  | $ | 13,639
|                                        |  |              |   |  |                                       |       |                                         |   |                                         |  |                |  |   |       

Cash received from option exercises under all share-based payment arrangements was $122, $584 and
$1,724 for the years ended December 31, 2005, 2006 and 2007, respectively. There were no actual tax benefits realized for the tax deductions from option exercises of the share-based payment arrangements for the years ended December 31,
2005, 2006 and 2007.



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##### Table of Contents

##### Index to Financial Statements

The following table sets forth the exercise price range, number of shares, weighted average exercise
price, and remaining contractual lives by groups of similar price and grant date:

Common shares



|                         |  |                            |  |                                         |  |                              |       |                            |         |                              |   |      
|------------------------ |  | -------------------------- |  | --------------------------------------- |  | ---------------------------- | ----- | -------------------------- | ------- | ---------------------------- | - | -----
|Range of exercise prices |  | Outstandingas of12/31/2007 |  | Weightedaverageremainingcontractuallife |  | Weightedaverageexerciseprice |       | Exercisableas of12/31/2007 |         | Weightedaverageexerciseprice
|$1.70-$1.70              |  | 839,646                    |  | 7.34                                    |  | $                            | 1.70  |                            | 619,784 |                              | $ | 1.70 
|$1.75-$3.70              |  | 621,933                    |  | 7.81                                    |  | $                            | 2.84  |                            | 339,022 |                              | $ | 2.31 
|$3.75-$7.94              |  | 900,645                    |  | 6.85                                    |  | $                            | 7.06  |                            | 481,620 |                              | $ | 6.67 
|$7.96-$17.35             |  | 620,407                    |  | 8.28                                    |  | $                            | 14.07 |                            | 112,897 |                              | $ | 10.99
|$17.93-$35.68            |  | 98,261                     |  | 1.47                                    |  | $                            | 28.62 |                            | 96,581  |                              | $ | 28.80

At December 31, 2007, 1,649,904 options for the Companys common shares with a weighted
average of $5.50 per share were exercisable by employees of the Company. At December 31, 2006, 1,584,969 options for the Companys common shares with a weighted average of $5.64 per share were exercisable by employees of the Company. At
December 31, 2005, 1,830,610 options for the Companys common shares with a weighted average price of $6.50 per share were exercisable by employees of the Company.

Restricted Stock

On January 26, 2006, the Company granted 210,980 shares of performance-based
restricted shares with a market value of $781 to certain officers. On the grant date, 50% of the shares immediately vested. On the anniversary date, the remaining shares vested 25% each in 2007 and 2008.

On January 30, 2007, the Company granted 244,800 shares of performance-based restricted shares with a market value of $3,192 to certain officers.
The shares vest equally on each of the three anniversaries following the grant date.

Warrants

The Company had outstanding warrants issued in connection with the 1997 high-yield debt offering with a fair value of $590 and $0 at December 31,
2006 and 2007, respectively. The warrants to purchase shares of common stock for an exercise price of $.10 per share expired in October 2007. The Company has received $1 for the exercise of 16,512 warrants, $2 for the exercise of 18,777 warrants,
and $1 for the exercise of 50,938 warrants for the years ended December 31, 2005, 2006 and 2007, respectively. The Company adjusted the carrying value of the warrants based on the closing price of the Companys common stock at the end of
each reporting period. For the years ended December 31, 2005, 2006 and 2007 the company recorded gain (loss) of $37, $(464) and $(262), respectively.

9. Related Party Transactions

Relatives of the chairman of the Companys board of directors are stockholders and
employees of one of the Companys insurance providers. The commission costs charged to the Company for insurance services were approximately $248, $250 and $275 for the years ended December 31, 2005, 2006, and 2007, respectively.

10. Disposal of Discontinued Operations

On September 12, 2005, the Company sold its cable assets in Cerritos, California to WaveDivision Holdings, LLC for $10,000 in cash, subject to customary closing adjustments of $235. Cash proceeds of $1,000 were placed in escrow, of
which $500 was paid out on March 20, 2006 and the remaining $500 was paid out on



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##### Table of Contents

##### Index to Financial Statements

September 12, 2006. After recording transaction costs of $836 and writing off net assets of $609, the Company recorded a gain of $8,300. The income
associated with the Cerritos cable system is presented separately in the statement of operations as income from discontinued operations ($84 for 2005). The Cerritos cable system generated approximately $2,259 of revenue for the year ended
December 31, 2005.

On September 7, 2007, the Company sold its telephone directory business to Yellow Book USA for $8,600. The
directory serves communities in Rapid City and the Northern Black Hills, South Dakota; and in Northeastern Wyoming. This business was included in the PrairieWave acquisition in April 2007, but is a non-core business outside of the
Companys strategic video, voice and data products and services. The Company has received cash proceeds of $8,600, of which $860 was placed in escrow, and will be paid out in September 2008, subject to any indemnification claims by Yellow Book.
After recording transaction costs of $139 and disposing of net assets of $210, the company recorded a gain of $8,251, which is included in income from discontinued operations. Net income of $612 associated with the directory business since the
April 3, 2007 acquisition is also included as income from discontinued operations in the statement of operations.

11. Redeemable Convertible
Preferred Stock

In May 2005, the Company issued 920,000 shares of a newly created series of preferred stock, the Series AA
convertible preferred stock (the Preferred Stock), in a private offering to certain new and existing investors at a purchase price of $10.00 per share, for aggregate gross proceeds before expenses of $9.2 million. In October
2005, the Company received gross offering proceeds of $10.8 million and certain selling stockholders received proceeds of $1.9 million for the resale of a portion of their shares issued in May 2005. In November 2005, the Company used net
offering proceeds to pay down principal of $10.4 million on the first lien debt. Dividends accrued on the Preferred Stock at an 8% annual rate, which could have been paid in cash or additional shares of the Preferred Stock. However, pursuant to the
restrictions of the Companys credit agreements, the Company is prohibited from paying dividends in cash other than cash in lieu of fractional shares. For the years ended December 31, 2005 and 2006, respectively, 58,742 and 216,621 shares
of Preferred Stock were issued as dividends. Dividends paid on Preferred stock were $588 and $747 for the years ended December 31, 2005 and 2006, respectively. The shares of the Preferred Stock were: (i) immediately convertible upon the
request of the stockholder of record, (ii) mandatorily convertible at a future date when the common stock is traded at a quoted price of $8.00 or higher for a certain period of time, and (iii) redeemable beginning December 31, 2011.
Each share of the Preferred Stock was convertible into a number of shares of Common Stock equal to the quotient of the Liquidation Value of the Preferred Stock divided by $2.00, subject to proportional anti-dilution adjustments for stock dividends,
stock splits and similar transactions affecting the Common Stock as well as institutional weighted average adjustments for issuances of Common Stock and Common Stock equivalents. The Companys Preferred Stock was not classified as a
liability since the redemption was contingent upon the holders not exercising its option to convert into a fixed number of shares, five shares of common for each share of preferred. The Company follows the guidance in Accounting
Series Release 268, Presentation in Financial Statements of Redeemable Preferred Stocks (ASR 268). ASR 268 highlights the redemption obligation of the securities and the fact that amounts attributable to these securities are
not part of permanent capital. Accordingly, it has classified its preferred shares in the accompanying consolidated balance sheet between liabilities and permanent equity in the caption Redeemable Convertible Preferred Stock.

On June 22, 2006, the volume weighted average sales price of the Companys Common Stock exceeded $8.00 for the 20th consecutive trading day,
and each of the outstanding 1,928,538 shares of the Preferred Stock mandatorily converted into, including accrued dividends, 5.0921 shares of the Companys common stock without any further action by the holders. The Company paid cash in lieu of
issuing fractional shares based on the closing price of $8.94.

12. Acquisition

On April 3, 2007, the Company completed its acquisition of PrairieWave Holdings, Inc., a voice, video and high-speed internet broadband services
provider in the Rapid City and Sioux Falls, South Dakota regions, as well



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##### Table of Contents

##### Index to Financial Statements

as portions of Minnesota and Iowa. The Companys purchase of PrairieWave Holdings, Inc. is a strategic acquisition that combines companies with similar
business models and philosophies such as:



| |  |  | operating in secondary and tertiary markets
| | - |  | -------------------------------------------



| |  |  | servicing bundled customers
| | - |  | ---------------------------



| |  |  | providing solid financial margins
| | - |  | ---------------------------------



| |  |  | delivering industry-leading customer service
| | - |  | --------------------------------------------

The Company used the proceeds of the Amended and Restated Credit Agreement to fund the $255,000 purchase price and related transaction costs of the PrairieWave acquisition, as well as refinance all amounts outstanding under the
Companys existing first and second lien credit facilities dated June 29, 2005. The financial position and results of operations for PrairieWave Holdings, Inc. are included in the Companys presented consolidated financial statements
since the date of acquisition. The total purchase price for the assets acquired, net of liabilities assumed and including direct acquisition costs was $256,162. Goodwill represents the excess of the cost of the business acquired over fair value or
net identifiable assets at the date of acquisition. Since the Company purchased 100% of the outstanding stock of PrairieWave, none of the Goodwill is deductible for tax purposes.

The following table summarizes the allocation of purchase price to the fair values of the assets acquired, net of liabilities and direct acquisition
costs as of December 31, 2007.



|                                               |  |                  |        
|---------------------------------------------- |  | ---------------- | -------
|                                               |  | December 31,2007
|Assets acquired:                               |  |                  |        
|Accounts receivable, net                       |  | $                | 6,287  
|Prepaid expenses                               |  |                  | 1,322  
|Property, plant and equipment                  |  |                  | 197,726
|Investments                                    |  |                  | 1,293  
|Goodwill                                       |  |                  | 57,804 
|Customer base                                  |  |                  | 4,402  
|Intangible and other assets                    |  |                  | 1,234  
|                                               |  |                  |        
|Total assets acquired                          |  |                  | 270,068
|Liabilities assumed:                           |  |                  |        
|Accounts payable                               |  |                  | 7,414  
|Accrued liabilities                            |  |                  | 3,022  
|Unearned revenue                               |  |                  | 3,470  
|                                               |  |                  |        
|Total liabilities assumed                      |  |                  | 13,906 
|                                               |  |                  |        
|Purchase price, net of cash acquired of $2,680 |  | $                | 256,162
|                                               |  |                  |        

The amounts reflected above include costs associated with the Companys restructuring plan
which was formed upon completion of the acquisition. The restructuring plan includes involuntary employee termination costs for severance pay and stay bonuses and marketing costs associated with rebranding. The following table summarizes the costs
associated with the restructuring plan.



|                                     |  |                            |      |   |                 |   |     |  
|------------------------------------ |  | -------------------------- | ---- | - | --------------- | - | --- | -
|                                     |  | Severancepay and staybonus |      |   | Rebrandingcosts |  
|Acquisition accrual                  |  | $                          | 803  |   |                 | $ | 778 |  
|Payments                             |  |                            | (629 | ) |                 |   | (25 | )
|                                     |  |                            |      |   |                 |   |     |  
|Accrual Balance at December 31, 2007 |  | $                          | 174  |   |                 | $ | 753 |  
|                                     |  |                            |      |   |                 |   |     |  



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##### Table of Contents

##### Index to Financial Statements

13. Unaudited Pro Forma Results of Operations

The following unaudited pro forma consolidated results of operations for the years ended December 31, 2006 and 2007 assume that the acquisition of
PrairieWave occurred on January 1, 2006. The unaudited pro forma information is presented for informational purposes only and may not be indicative of the actual results of the operations had the acquisition occurred on the assumed date, nor is
the information necessarily indicative of future results of operations.



|                                              |  |                            |         |   |                            |   |         |  
|--------------------------------------------- |  | -------------------------- | ------- | - | -------------------------- | - | ------- | -
|                                              |  | Year endedDecember 31,2006 |         |   | Year endedDecember 31,2007 |  
|Operating revenues                            |  | $                          | 347,257 |   |                            | $ | 371,392 |  
|Loss before extraordinary items               |  |                            | (42,313 | ) |                            |   | (16,999 | )
|Net loss from continuing operations           |  |                            | (42,313 | ) |                            |   | (16,999 | )
|Net loss per share from continuing operations |  |                            | (1.51   | ) |                            |   | (.48    | )

14. Subsequent Events (unaudited)

On January 4, 2008, the Company completed its stock acquisition of Graceba Total Communications Group, Inc., a voice, video, and high-speed Internet
broadband services provider in Dothan, Alabama. In 2007, Graceba had revenues totaling $19,725 and as of December 31, 2007 had approximately 25,712 business and residential connections. The Companys purchase of Graceba is a strategic
acquisition that fits well in its concentrated Southeastern footprint and combines companies with similar business models and philosophies such as:



| |  |  | operating in secondary and tertiary markets
| | - |  | -------------------------------------------



| |  |  | servicing bundled customers
| | - |  | ---------------------------



| |  |  | providing solid financial margins
| | - |  | ---------------------------------



| |  |  | delivering industry-leading customer service
| | - |  | --------------------------------------------

The Company used the $59,000 proceeds of the First Amendment to the Amended and Restated Credit Agreement and cash on hand to fund the $75,000 purchase price. The incremental term loan bears interest at LIBOR plus 2.75% and amortizes at a
rate of 1% per annum, payable quarterly, with a June 30, 2012 maturity date. In December 2007, the Company entered into a new interest rate swap contract to mitigate interest rate risk on a notional amount of $59,000 amortizing 1%
annually. The swap agreement which became effective January 4, 2008, fixes 100% of the floating rate debt at 3.995% until September 30, 2010.



F-28