REORGANIZATION AGREEMENT
AGREEMENT, dated as of ________ __, 1998, among TIME WARNER COMPANIES,
INC., a Delaware corporation ("TWX"), MEDIAONE GROUP, INC. (formerly U S WEST,
INC.), a Delaware corporation ("MediaOne"), ADVANCE/XXXXXXXX PARTNERSHIP, a New
York general partnership ("A/N"), TIME WARNER ENTERTAINMENT COMPANY, L.P., a
Delaware limited partnership ("TWE"), and TIME WARNER
ENTERTAINMENT-ADVANCE/XXXXXXXX PARTNERSHIP, a New York general partnership
("TWE-A/N").
W I T N E S S E T H:
WHEREAS, TWX, MediaOne and certain of their respective subsidiaries are
parties to the Agreement of Limited Partnership of TWE, dated as of October 29,
1991, as amended (the "TWE Partnership Agreement"), pursuant to which the
parties thereto formed TWE;
WHEREAS, TWE, A/N and PARAGON COMMUNICATIONS, a New York general
partnership all the interests of which are owned by subsidiaries of TWX and by
TWE ("Paragon"), are parties to the Partnership Agreement of TWE-A/N, dated as
of September 9, 1994, as amended (the "TWE-A/N Partnership Agreement"), pursuant
to which the parties thereto formed TWE-A/N;
WHEREAS, TWE and TWE-A/N and TWX, through the Local Operating Entities
(as defined herein), are jointly engaged in a business which provides telephony
services to business customers in markets in which the cable television systems
of TWE, TWE-A/N and TWX are located (the "Time Warner Telecom Business");
WHEREAS, the parties hereto desire to contribute the Time Warner Telecom
Business to a newly formed entity, distribute the equity of such entity to TWX,
MediaOne and A/N and effect a public debt offering and initial public offering
of such entity;
WHEREAS, TWE and MediaOne are parties to the Option Agreement, dated as
of September 15, 1993 (the "Option Agreement"), pursuant to which TWE has
granted to MediaOne an option to increase its partnership interest in TWE in
certain circumstances (the "Option");
WHEREAS, in connection with the transactions contemplated hereby, TWE
and MediaOne desire to provide for certain adjustments to the terms of the
Option; and
WHEREAS, the parties hereto are entering into this Agreement to effect
the foregoing transactions and certain other related transactions described
herein and to make certain representations and warranties and enter into certain
covenants and agreements in connection therewith.
NOW, THEREFORE, in reliance upon the representations and warranties made
herein and in consideration of the mutual agreements herein contained, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1. 1. Definitions. For purposes of this Agreement, the following terms
shall have the meanings set forth below:
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such other Person.
"Agreement" shall mean this Reorganization Agreement, as it may be
amended, restated, modified or supplemented from time to time in accordance with
its terms.
"A Sub-Account" shall have the meaning ascribed to such term in the TWE
Partnership Agreement.
"A Threshold" shall have the meaning ascribed to such term in the TWE
Partnership Agreement.
"B Threshold" shall have the meaning ascribed to such term in the TWE
Partnership Agreement.
"Cable EBITDA" shall have the meaning ascribed to such term in the
Option Agreement.
"Class A Partner" shall have the meaning ascribed to such term in the
TWE Partnership Agreement.
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"Common Partnership Units" shall have the meaning ascribed to such term
in the TWE-A/N Partnership Agreement.
"Common Sub-Account" shall have the meaning ascribed to such term in the
TWE Partnership Agreement.
"Company EBITDA" shall mean, for any period, the net income of the
Company or any successor of the Company, plus the sum of interest expense,
income tax expenses, depreciation and amortization (in each case, to the extent
deducted in determining such net income), determined in a manner consistent with
the calculation of Cable EBITDA. In determining Company EBITDA, the proportional
method of consolidation shall be used for all joint ventures and other interests
held by the Company or such successor.
"Control Termination Date" shall mean the date on which the TW Partners
and the MediaOne Partner cease to collectively hold the right pursuant to the
LLC Agreement, Stockholders' Agreement or any successor agreements to designate
a majority of the Members' Committee or Board of Directors of the Company or any
successor of the Company.
"Executive Committee" shall have the meaning ascribed to such term in
the TWE-A/N Partnership Agreement.
"Gross Option Amount" shall have the meaning ascribed to such term in
the Option Agreement.
"Governmental Authority" shall mean any foreign, Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality.
"HSR Act" shall mean the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended.
"Local Operating Entities" shall mean the partnerships and corporations,
all of the interests of which are directly or indirectly owned by TWE, TWE-A/N
and TWX, through which the Time Warner Telecom Business is currently operated,
other than those specified on Schedule I hereto.
"Long Range Plan" shall mean the long range plan of the Time Warner
Telecom Business attached as Exhibit A hereto.
"Management Committee" shall have the meaning ascribed to such term in
the TWE Partnership Agreement.
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"MediaOne Partner" shall mean MediaOne Group, Inc. (formerly U S WEST
Multimedia Communications, Inc.), a Colorado corporation.
"Option Closing" shall have the meaning ascribed to such term in the
Option Agreement.
"Option Entitlement" shall have the meaning ascribed to such term in the
Option Agreement.
"Participating Percentage Share" shall have the meaning ascribed to such
term in the TWE Partnership Agreement.
"Person" shall mean an individual, corporation, partnership, trust or
unincorporated organization or a government or any agency or political
subdivision thereof.
"SAR Amount" shall have the meaning ascribed thereto in the Option
Agreement.
"SAR Election" shall have the meaning ascribed thereto in the Option
Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Third Party" shall mean a party or parties un-Affiliated with any of
the parties hereto.
"TWE-A/N Share" shall mean 57.5%.
"TWE Initial Equity" shall mean (a) the Interests issued to TWE pursuant
to Section 2.1(c)(i) and 2.2(a)(i), (b) the shares of Class B Common Stock
issued in the Reconstitution in respect of the Interests issued to TWE pursuant
to Section 2.1(c)(i) and 2.2(a)(i), or (c) any equity securities of the Company
or any successor of the Company issued in respect of such Interests or shares of
Class B Common Stock (or Class A Common Stock received upon conversion thereof)
in connection with a merger, reorganization or other corporate transaction
involving the Company.
"TWE Option Share" shall mean, as of any date, the percentage which the
TWE Initial Equity represents of the issued and outstanding common equity of the
Company or any successor to the Company; provided, however, that the TWE
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Option Share shall equal 74.02% as of any date from and after the Control
Termination Date. In calculating the "TWE Option Share" for all purposes of this
Agreement (other than for purposes of Sections 3.2 and 3.3(a) prior to the
Control Termination Date), there shall be excluded from the issued and
outstanding common equity of the Company the shares of Class A Common Stock
issued by the Company in the IPO Transaction.
"TWE Share" shall mean 36.5%.
"TW Partners" shall mean TWX, American Television and Communications
Corporation, a Delaware corporation, Warner Communications Inc., a Delaware
corporation, and TW/TAE Inc., a Delaware corporation.
"TW/KBLCOM" shall mean Fibercomm Holdings L.P., a Delaware limited
partnership that is owned by TW/KBLCOM Inc., a Delaware corporation.
"TWX Company Share" shall mean 6.0%.
1.2 Terms Defined Elsewhere in the Agreement . For purposes of this
Agreement, the following terms shall have the meanings set forth in the sections
indicated:
Term Section
---- -------
Certificate of Incorporation ................ 2.4(b)
Class A Common Stock ........................ 2.4(b)
Class B Common Stock ........................ 2.4(b)
Common Stock ................................ 2.4(b)
Company ..................................... 2.1(a)
Company Indebtedness ........................ 2.1(b)
Contribution ................................ 2.1(a)
Debt Percentage ............................. 3.1(b)
Debt Registration Statement ................. 2.3
Debt Transaction ............................ 2.3
Distribution ................................ 2.2(a)
Interests ................................... 2.1(c)
IPO Transaction ............................. 2.4(a)
Mandatory Prepayment ........................ 3.1(c)
MediaOne .................................... recitals
Option ...................................... recitals
Option Agreement ............................ recitals
Paragon ..................................... recitals
Reconstitution .............................. 2.3(b)
Stockholders' Agreement ..................... 2.3(c)
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Successor Securities ........................ 3.3(a)
Time Warner Telecom Business ................ recitals
Time Warner Telecom Value ................... 3.4
Threshold Telecom Acquisition ............... 3.1(b)
Threshold Telecom Disposition ............... 3.1(c)
TWE ......................................... recitals
TWE Partnership Agreement ................... recitals
TWE-A/N ..................................... recitals
TWE-A/N Partnership Agreement ............... recitals
TWX ......................................... recitals
Value Adjustment ............................ 3.3(a)
1.3 Other Definitional Provisions. (a) The words "hereof", "herein",
and "hereunder" and words of similar import, when used in this Agreement, shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement.
(b) The terms defined in the singular shall have a comparable meaning
when used in the plural, and vice versa.
(c) The terms "dollars" and "$" shall mean United States dollars.
ARTICLE II
THE CONTRIBUTION; THE DISTRIBUTION;
THE DEBT TRANSACTION; THE IPO TRANSACTION
2.1. The Contribution. (a) Immediately prior to the effectiveness of the
Debt Registration Statement, but subject to the conditions specified herein,
TWE, TWE-A/N and TWX shall contribute (the "Contribution") all of the assets and
liabilities of the Time Warner Telecom Business to TIME WARNER TELECOM L.L.C., a
newly formed Delaware limited liability company (the "Company"). The
Contribution shall be effected substantially in accordance with the transaction
steps specified in Exhibit B hereto.
(b) It is agreed that all contributions or advances made by TWE, TWE-A/N
and TWX to the Local Operating Entities prior to July 1, 1997 were made in the
form of equity contributions and that all contributions and advances made (or
being made) by TWE, TWE-A/N and TWX to the Local Operating Entities from and
after July 1, 1997 were made (or are being made) in the form of loans. In
connection with the Contribution, existing indebtedness owed by the Local
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Operating Entities to TWE, TWE-A/N and TWX not exceeding the applicable amount
set forth below (pro-rated on a monthly basis during a quarter) shall remain
outstanding (the "Company Indebtedness"):
End of Fiscal Quarter in Amount of Company
which Contribution Occurs Indebtedness
------------------------- ------------
First Quarter 1998 $150 million
Second Quarter 1998 $180 million
Third Quarter 1998 $215 million
Fourth Quarter 1998 $260 million
If the actual amount of indebtedness owed by the Local Operating Entities to
TWE, TWE-A/N and TWX exceeds the applicable cap set forth above, then such
excess indebtedness shall be funded by TWE, TWE-A/N and TWX on a pro rata basis
based upon the relative participation percentages of their respective Interests.
(c) In connection with the Contribution, the Company shall issue all of
the limited liability interests of the Company (each, an "Interest" and
collectively the "Interests") as follows:
(i) TWE shall be issued an Interest having a participation percentage
equal to the TWE Share.
(ii) TWE-A/N shall be issued an Interest having a participation
percentage equal to the TWE-A/N Share.
(iii) TWI/KBLCOM shall be issued an Interest having a participation
percentage equal to the TWX Company Share.
2.2. The Distribution. (a) Immediately following consummation of the
Contribution, the parties hereto shall cause the following transactions to occur
in the order set forth below (collectively, the "Distribution"):
(i) TWE-A/N shall distribute 33.33% of the Interest which TWE-A/N
receives in connection with the Contribution to A/N, 65.26% of the Interest
which TWE-A/N receives in connection with the Contribution to TWE and 1.41% of
the Interest which TWE-A/N receives in connection with the Contribution to
Paragon. Such distributions shall
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be deemed to have been made in respect of the Common Partnership Units of TWE,
A/N and Paragon.
(ii) TWE shall distribute all of the Interests which TWE receives in
connection with the Contribution and pursuant to the distribution contemplated
by Section 2.2(a)(i) to the MediaOne Partner and the TW Partners in accordance
with their respective Participating Percentage Shares. Such distributions shall
be deemed to have been made in respect of the Common Sub-Accounts of the
MediaOne Partner and the TW Partners. TWX, on behalf of itself and the TW
Partners, and MediaOne, on behalf of itself and the MediaOne Partner,
acknowledge and agree that the distributions contemplated by this Section
2.2(a)(ii) shall not be taken into account in determining whether distributions
to a Class A Partner and its Affiliates equal or exceed the A Threshold or the B
Threshold of such Class A Partner for purposes of Article VIII of the TWE
Partnership Agreement.
(b) In connection with the Distribution the TW Partners, the MediaOne
Partner, A/N, Paragon and TWI/KBLCOM shall execute the LLC Agreement of the
Company, in the form attached as Exhibit D hereto (the "LLC Agreement").
(c) The parties agree that the rights of TWE, TWE-A/N and TWX in
respect of the Company Indebtedness shall not be distributed by TWE-A/N or TWE
to TWX, MediaOne or A/N in connection with the Distribution.
2.3. The Debt Transaction. Following the Distribution, the parties shall
cause the Company to effect an offering of debt securities of the Company (the
"Debt Transaction"). The execution of this Agreement shall be deemed to be an
agreement of the parties to effect the Debt Transaction. The terms of the Debt
Transaction, including, without limitation, the terms of the underwriting
arrangements and the pricing of any securities offered, shall be subject to the
approval of the Management Committee and the Executive Committee, and any such
approval shall bind the TW Partners, the MediaOne Partner, A/N, Paragon and
TWI/KBLCOM. The form and substance of the final version of the Registration
Statement on Form S-1 with respect to the Debt Transaction previously filed
under the Securities Act (the "Debt Registration Statement") shall be subject to
the approval of the Management Committee and the Executive Committee, and any
such approval shall bind the TW Partners, the MediaOne Partner, A/N, Paragon and
TWI/KBLCOM. In
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connection with the Debt Transaction, the Company Indebtedness shall remain
outstanding and shall be recharacterized in the manner determined by the
Management Committee and the Executive Committee, and any such determination
shall bind the TW Partners, the MediaOne Partner, A/N, Paragon and TWI/KBLCOM.
2.4. The IPO Transaction. (a) Following consummation of the Debt
Transaction, at such time as is determined by the Members' Committee of the
Company in the manner required by the LLC Agreement, the parties shall cause the
Company to effect an initial public offering of primary equity of the Company
(the "IPO Transaction"). The terms of the IPO Transaction, including, without
limitation, the terms of the underwriting arrangements and the pricing of any
securities offered, shall be subject to the approval of the Members' Committee
of the Company.
(b) In connection with the IPO Transaction, the parties agree to take
such action as is necessary to cause the Company to be reconstituted as a
corporation organized under the laws of the state of Delaware (the
"Reconstitution"). The Reconstitution shall be effected in accordance with the
terms of the LLC Agreement by the contribution of the Interests of the Company
to a newly formed Delaware corporation in exchange for shares of Class B Common
Stock (as defined below). As used herein, references to the "Company" following
the Reconstitution shall refer to such corporation. The certificate of
incorporation of the Company shall be in the form attached as Exhibit __ to the
LLC Agreement (the "Certificate of Incorporation") and the bylaws of the Company
shall be amended and restated in the form attached as Exhibit __ to the LLC
Agreement. Pursuant to the Certificate of Incorporation, the authorized capital
stock of the Company shall include shares of Class A Common Stock, par value
$.01 per share (the "Class A Common Stock"), and Class B Common Stock, par value
$.01 per share ("Class B Common Stock" and, together with the Class A Common
Stock, "Common Stock"). Shares of the Class A Common Stock shall have one vote
per share and shares of the Class B Common Stock shall have 10 votes per share.
Shares of Class A Common Stock shall be sold by the Company to the public in the
IPO Transaction.
(c) In connection with the Reconstitution, the TW Partners, the MediaOne
Partner, A/N and TWI/KBLCOM shall execute a Stockholders' Agreement, in the form
attached as Exhibit __ to the LLC Agreement (the "Stockholders"
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Agreement"), which shall govern certain matters with respect to the Board of
Directors of the Company and the ownership of shares of Common Stock following
the Reconstitution.
(d) A portion of the proceeds received by the Company pursuant to the
IPO Transaction shall be used to repay the Company Indebtedness.
ARTICLE III
ADJUSTMENTS TO OPTION
3.1. Cable EBITDA Adjustment. From and after the consummation of the
Distribution, Cable EBITDA, for the two calendar years ending immediately prior
to the date of any exercise of the Option, shall be increased by an amount equal
to the sum of:
(i) for the portion of such two year period, if any, commencing on the
date the Distribution is effected, and ending prior to the Control
Termination Date, the product of (x) the TWE Option Share multiplied by (y)
the Company EBITDA for such period; plus
(ii) for the portion of such two year period, if any, beginning on the
Control Termination Date, the product of (x) the TWE Option Share
multiplied by (y) the EBITDA of the Company set forth in the Long Range
Plan for such period; provided, however, that if such period includes a
portion of a calendar year, the EBITDA of the Company set forth in the Long
Range Plan for such calendar year shall be appropriately prorated.
(b) In the event that the Company makes an acquisition that would be
treated as a "Threshold Cable Acquisition" under the Option Agreement if it were
made by the Cable Division of TWE (a "Threshold Telecom Acquisition"), then, for
purposes of Section 3.1(a)(i), Company EBITDA shall be decreased by the
Adjustment Percentage (as defined in the Option Agreement) of any amounts
borrowed or deemed borrowed by the Company prior to or during the two year
period referred to in Section 3.1(a)(i) in order to make such Threshold Telecom
Acquisition; provided, however, that the amount by which Company EBITDA shall be
decreased in accordance with this sentence shall in no event exceed the Debt
Percentage of the
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Company EBITDA generated by the assets or businesses that are the subject of
such Threshold Telecom Acquisition during such two year period. For purposes of
the foregoing, (1) "Debt Percentage" shall mean a fraction, the numerator of
which is the amount borrowed or deemed borrowed by the Company in order to make
the Threshold Telecom Acquisition and the denominator of which is the total
value of the consideration paid in connection with the Threshold Telecom
Acquisition, (2) the total value of the consideration paid in connection with a
Threshold Telecom Acquisition shall mean the sum of (A) the market value on the
date of consummation of such Threshold Telecom Acquisition of any securities or
assets issued or transferred by the Company in connection with such Threshold
Telecom Acquisition, (B) the aggregate amount of any cash paid by the Company in
connection with such Threshold Telecom Acquisition and (C) the aggregate
principal amount of any indebtedness assumed by the Company in connection with
such Threshold Telecom Acquisition and (3) in determining the amount of Company
EBITDA generated by the assets or businesses that are the subject of such
Threshold Telecom Acquisition, incremental corporate overhead of the Company
resulting from such Threshold Telecom Acquisition shall be allocated to such
assets or businesses and, to the extent assets are co-mingled or shared, TWX and
MediaOne shall negotiate in good faith to agree on a methodology to determine
the actual Company EBITDA generated by such assets or businesses. It is
acknowledged and agreed that the provisions of this Section 3.1(b) shall only
apply to the determination of Company EBITDA pursuant to Section 3.1(a)(i) prior
to the Control Termination Date and shall not apply to the adjustments to Cable
EBITDA contemplated by Section 3.1(a)(ii) beginning on the Control Termination
Date.
(c) In the event that the Company makes a disposition (including a
distribution of the stock of a Subsidiary to its stockholders) that would be
treated as a "Threshold Cable Disposition" under the Option Agreement if it were
made by the Cable Division of TWE (a "Threshold Telecom Disposition"), then, for
purposes of Section 3.1(a)(i), Company EBITDA shall be increased by (x) the
Adjustment Percentage of any proceeds of such Threshold Telecom Disposition
occurring prior to or during such two-year period to the extent such proceeds
are used to make a Mandatory Prepayment (as defined below) or are distributed to
the Company's stockholders as a dividend or used to repurchase or redeem shares
of the Company's capital stock or (y) the Adjustment Percentage of the value of
the
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Subsidiary distributed to the Company's stockholders; provided, however, that
the amount by which Company EBITDA shall be increased in accordance with this
sentence shall in no event exceed eight times the actual amount of Company
EBITDA generated by the assets or businesses that are the subject of such
Threshold Telecom Disposition during the last full fiscal quarter completed
prior to the consummation of such Threshold Telecom Disposition (accreted at a
rate equal to the growth rate of the remaining Company EBITDA during the
relevant period). For purposes of the foregoing, (1) a "Mandatory Prepayment"
shall mean amounts used to prepay outstanding indebtedness of the Company or any
of its Subsidiaries required under the terms of any indenture or loan agreement
to which the Company or any of its Subsidiaries is a party and (2) the proceeds
of a Threshold Telecom Disposition shall be deemed to have been distributed to
the Company's stockholders as a dividend or used to repurchase or redeem shares
of the Company's capital stock to the extent the Company declares a dividend (or
announces its intent to declare a dividend) on its capital stock (other than
regular cash dividends in amounts comparable to amounts paid prior to the time
of such Threshold Telecom Disposition) or repurchases or redeems (or announces
its intent to repurchase or redeem) shares of its capital stock within 180 days
following the consummation of such Threshold Telecom Disposition. It is
acknowledged and agreed that the provisions of this Section 3.1(c) shall only
apply to the determination of Company EBITDA pursuant to Section 3.1(a)(i) prior
to the Control Termination Date and shall not apply to the adjustments to Cable
EBITDA contemplated by Section 3.1(a)(ii) beginning on the Control Termination
Date.
3.2. Determination of Gross Option Amount. From and after the
Distribution, the valuation of TWE as a going concern for purposes of
determining the fair market value of the partnership interest represented by the
Gross Option Amount under Section 2 of the Option Agreement shall be increased
by an amount equal to the product of (x) the TWE Option Share multiplied by (y)
the Time Warner Telecom Value (as defined below) as of the date of such
valuation of TWE.
3.3. Additional Value Delivery. (a) From and after the Distribution, the
Option shall be adjusted so that upon each exercise by MediaOne of the Option,
MediaOne shall be entitled to receive at the Option Closing additional value
(the "Value Adjustment") equal to the product of (x) the TWE Option Share
multiplied by (y) the Time Warner
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Telecom Value as of the last day of the immediately preceding calendar year
multiplied by (z) (A) if a SAR Election is not made by MediaOne, the Option
Entitlement (or if a portion of the Option is exercised, such portion of the
Option Entitlement) and (B) if a SAR Election is made by MediaOne, the
Participating Percentage Share represented by the SAR Amount as determined
pursuant to Section 2(e) of the Option Agreement (without giving effect to any
adjustments pursuant to Section 8 of the Option Agreement). The Value Adjustment
shall be payable by TWE, at the option of TWX, (i) in cash, (ii) in Interests or
shares of Class B Common Stock (or equity securities of a successor to the
Company or a Person which purchases the Company ("Successor Securities")) owned
by TWX or (iii) in additional partnership interests in TWE.
(b) If TWX elects that the Value Adjustment be paid in Interests, shares
of Class B Common Stock or Successor Securities, (A) if shares of Class A Common
Stock or such Successor Securities are publicly traded at such time, such shares
of Class B Common Stock or Successor Securities shall be valued based upon the
average of the closing prices of the Class A Common Stock or such Successor
Securities for the ten trading days immediately prior to the Option Closing and
(B) the Interests and, if shares of Common Stock or such Successor Securities
are not publicly traded at such time, such shares of Class B Common Stock or
such Successor Securities, shall be valued as of the 10th day prior to the
Option Closing by an investment banking firm, which shall be selected by two
other investment banking firms, one selected by TWX and one selected by
MediaOne. Each of TWX and MediaOne shall instruct the investment banking firms
so selected to select the third investment banking firm within 30 days following
an exercise by MediaOne of the Option. The investment banking firm selected in
accordance with the foregoing procedure shall submit a written report setting
forth its determination of such value no later than 45 days after the date of
its selection. The fees, costs and expenses of the investment banking firms so
selected shall be borne by TWE.
(c) If TWX elects that the Value Adjustment be paid in additional
partnership interests in TWE, the Common Sub-Account and A Sub-Account of the
MediaOne Partner shall be increased by an amount representing a Participating
Percentage Share equal to the quotient of (x) the Value Adjustment divided by
(y) the fair market value of the portion of TWE represented by the aggregate A
Sub-Accounts
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and Common Sub-Accounts based on a valuation of TWE as a going concern as
determined in accordance with the procedures set forth in Section 2(a) of the
Option Agreement, which amount shall be adjusted in a manner consistent with
Section 8 of the Option Agreement to give effect to the dilution, if any, of the
MediaOne Partner's existing Common Sub-Account and A Sub-Account resulting from
such increase (provided that such dilution adjustment shall be made without
giving effect to any additional partnership interests issued to the MediaOne
Partner upon exercise of the Option). Such issuances of partnership interests in
TWE shall be effected in accordance with Sections 7.2(a) and 8.2(c) of the TWE
Partnership Agreement.
3.4. Determination of Time Warner Telecom Value. As used in this
Agreement, "Time Warner Telecom Value" shall have the following meaning:
(a) If the date of valuation is prior to the Control Termination Date,
"Time Warner Telecom Value" shall equal the private market value of the Company
or a successor to the Company as a going concern as determined by the investment
banking firm selected to determine the valuation of TWE as a going concern for
purposes of determining the Gross Option Amount under Section 2(a) of the Option
Agreement (which value shall equal the price at which all of the outstanding
equity of the Company or such successor could be sold on the date of such
valuation in a private transaction to an unrelated Third Party on an arms-length
basis, taking into account any control premium for the Company or such successor
as a whole).
(b) If the date of valuation is after the Control Termination Date,
"Time Warner Telecom Value" shall equal the private market value of the Company
as a going concern on the date of the closing of the Distribution (which value
shall equal the price at which all of the outstanding equity of the Company
could be sold on the date of the closing of the Distribution in a private
transaction to an unrelated Third Party on an arms-length basis, taking into
account any control premium for the Company as a whole and prior to any "IPO
discount") accreted on a daily basis at a rate of 15% per annum from the closing
of the Distribution (compounded quarterly). Such value shall be as determined in
the following manner. Each of TWX and MediaOne shall select an investment
banking firm and shall instruct the investment banking firms so selected to
select a third investment banking firm within 30 days following the closing of
the
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Distribution. The investment banking firm selected in accordance with the
foregoing procedure shall submit a written report setting forth its
determination of the value of such securities no later than 45 days after the
date of its selection. The fees, costs and expenses of the investment banking
firms so selected shall be borne by TWE.
(c) In the event of a Threshold Telecom Disposition, "Time Warner
Telecom Value" shall in all cases be increased by (i) the value of the proceeds
of such Threshold Telecom Disposition that are used to make a Mandatory
Prepayment or are distributed to the Company's stockholders as a dividend or
used to repurchase or redeem shares of the Company's capital stock or (ii) the
value of the Subsidiary distributed to the Company's stockholders, in each case
accreted on a daily basis at a rate of 15% per annum from the closing of such
payment or distribution (compounded quarterly).
3.5. Certain Procedures for Option Exercise. In the event any dispute
arises as to any determination or calculation required to be made pursuant to
the Option Agreement or this Article III, TWE and MediaOne shall negotiate in
good faith to resolve such dispute as soon as practicable thereafter. In the
event TWE and MediaOne are unable to resolve any such dispute, such dispute
shall be resolved by a nationally recognized accounting firm selected jointly by
MediaOne and TWE which is not an accounting firm regularly employed by MediaOne
or TWE or their respective Affiliates. Such accounting firm shall inform the
disputing parties of its resolution of such dispute by delivering a written
report to TWE and MediaOne within 30 days after its selection. The decision of
such accounting firm with respect to such dispute shall be final and binding
upon TWE and MediaOne.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Each of the parties hereto hereby represents and warrants to the other
parties hereto as follows:
4.1. Organization. Such party is a corporation or partnership duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has all requisite
corporate or
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partnership power and authority to own and operate and to carry on its business
as currently conducted.
4.2. Authorization. Such party has full corporate or partnership power
and authority to execute and deliver this Agreement, and to perform its
obligations hereunder. The execution, delivery and performance by such party of
this Agreement have been duly and validly authorized and no additional corporate
or partnership authorization or consent is required in connection with the
execution, delivery and performance by such party of this Agreement.
4.3. Consents and Approvals. Except as specifically set forth in
Schedule 4.3 or as required by the HSR Act, no consent, approval, waiver or
authorization is required to be obtained by such party from, and no notice or
filing is required to be given by such party to, or made by such party with, any
federal, state, local or other Governmental Authority or other Person in
connection with the execution, delivery and performance by such party of this
Agreement.
4. 4. Non-Contravention. Except as set forth in Schedule 4.4, the
execution, delivery and performance by such party of this Agreement, and the
consummation of the transactions contemplated hereby, does not and will not (i)
violate any provision of the charter and bylaws or partnership agreement or
other organizational documents of such party or (ii) assuming compliance with
the matters set forth in Section 4.3, violate or result in a breach of or
constitute a default under any law of any court or Governmental Authority to
which such party is subject.
4.5. Binding Effect. This Agreement constitutes a valid and legally
binding obligation of such party enforceable in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium and similar laws
of general applicability relating to or affecting creditors' rights and to
general equity principles.
4.6. No Other Representations or Warranties. Except as otherwise
specifically set forth herein, the Company acknowledges and agrees that it has
satisfied itself as to the state and condition of the assets of the Time Warner
Telecom Business. Except as otherwise specifically set forth herein, (i) the
Company accepts the condition of the assets and businesses of the Time Warner
Telecom
16
Business AS IS AND WHERE IS, (ii) none of TWE, TWE-A/N, TWX, MediaOne or A/N
makes any express or implied representations, warranties or guarantees as to
the condition, extent, type or value thereof and (iii) the Company acknowledges
and agrees that TWE, TWE-A/N, TWX, MediaOne and A/N have made no such
representations or warranties. Without limiting the generality of the foregoing
words of exclusion, there are excluded, in particular, representations and
warranties by TWE, TWE-A/N, TWX, MediaOne and A/N as to title, quiet possession,
merchantable quality, fitness for any particular, or any, purpose and as to
description, as regards any asset of the Time Warner Telecom Business or the use
of any such asset by either the Company or any of its Subsidiaries following the
Contribution. The exclusions and limitations of liability in this Section 4.6
shall arise and continue notwithstanding the termination of this Agreement, and
shall operate as waivers by the Company and its Affiliates of any claims in tort
as well as under the law of contract. Such exclusions and limitations shall be
in addition to, not in substitution for, and notwithstanding any, right of
reimbursement or relief otherwise available to TWE, TWE-A/N, TWX, MediaOne or
A/N.(1)
ARTICLE V
CERTAIN COVENANTS AND AGREEMENTS
5.1 Reasonable Best Efforts. Subject to the terms and conditions of this
Agreement, each party shall use all reasonable best efforts to take, or cause to
be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated hereby,
including (i) the obtaining of all necessary actions or nonactions, waivers,
consents and approvals from Governmental Authorities and the making of all
necessary registrations and filings (including filings with Governmental
Authorities), if any and the taking of all reasonable steps as may be necessary
to obtain an approval or waiver from, or to avoid an action or proceeding by,
any Governmental Authorities), (ii) the obtaining of all necessary consents,
------------------------
(1) Need to determine appropriate place for indemnification provisions.
17
approvals or waivers from Third Parties and (iii) the execution and delivery of
any additional instruments necessary to consummate the transactions contemplated
hereby.
(b) Without limiting the foregoing and notwithstanding anything
to the contrary in this Agreement, no party to this Agreement shall be required
to agree to any prohibition, limitation or other requirements, including but not
limited to (i) any prohibition or limitation on the ownership or operation by
such party or any of its Subsidiaries or Affiliates of any portion of the
business or assets of such party or any of its Subsidiaries or Affiliates, or
any prohibition or limitation that would compel such party or any of its
Subsidiaries or Affiliates to dispose of or hold separate any portion of the
business or assets of such party or any of its Subsidiaries or Affiliates, (ii)
any prohibition or limitation on the rights of such party to acquire, own or
enter into any businesses or lines of businesses, (iii) any prohibition or
limitation on the ability of such party to acquire or hold, or exercise full
rights of ownership of, any shares of capital stock of the Company, including
the right to vote the capital stock of the Company acquired by it on all matters
properly presented to the stockholders of the Company, (iv) any prohibition or
limitation on such party or any of its Subsidiaries or Affiliates from
effectively controlling in any material respect the business or operations of
such party or any of its Subsidiaries or Affiliates or (v) any change in any
respect in the governance of the Company from that set forth in the Certificate
of Incorporation, the Company's By-Laws and this Agreement, any change in such
party's rights under the LLC Agreement, Stockholders' Agreement or this
Agreement or any limitations on the ability of such party to exercise any such
rights.
ARTICLE VI
CONDITIONS TO TRANSACTIONS
6.1. Conditions to Transactions. The obligations of TWX, MediaOne, A/N,
TWE and TWE-A/N to consummate the Contribution and the Distribution shall be
subject to the fulfillment of each of the following conditions, any or all of
which may be waived in whole or in part by TWE, MediaOne, A/N, TWE and TWE-A/N:
18
(a) No Injunction. No statute, rule, regulation, injunction,
restraining order or decree of any nature of any court or Governmental
Authority shall be in effect that restrains, prevents or materially changes
the Contribution or the Distribution.
(b) Consents. All material consents, approvals, licenses,
permits, orders or authorizations of, or registrations, declarations,
notices or filings with, any Governmental Authority which are required to
be obtained or made in connection with the Contribution and the
Distribution shall have been obtained or made.
ARTICLE VII
GENERAL PROVISIONS
7.1. Termination. Notwithstanding anything to the contrary contained in
this Agreement, this Agreement may be terminated at any time (i) prior to
consummation of the Contribution and the Distribution, by the mutual written
consent of TWE and TWE-A/N or (ii) if the Contribution and the Distribution are
not consummated by December 31, 1998.
7.2. Amendments. This Agreement may be amended only by a written
instrument executed by all of the parties hereto or their respective successors
or assigns; provided, however, that Article III may be amended by a written
instrument executed by TWE, TWX and MediaOne.
7.3. Expenses. Except as otherwise provided herein, the Company shall
pay all fees and expenses relating to the Contribution and the Distribution,
except that each of the parties hereto shall pay the fees and expenses of its
respective counsel and shall pay all other expenses incurred by it in connection
with the negotiation, preparation and execution of this Agreement.
7.4. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the law of the State of New York without reference to choice
of law principles, including all matters of construction, validity and
performance.
7.5. Notices. Notices, requests, permissions, waivers, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if
19
signed by the respective persons giving them (in the case of any corporation the
signature shall be by an officer thereof) and delivered by hand, mailed by
United States mail (registered, return receipt requested) or reputable overnight
courier service, properly addressed and postage prepaid, or delivered by
telecopy:
If to TWX, TWE or TWE-A/N, to:
TIME WARNER COMPANIES, INC.
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: General Counsel
with a copy to:
Cravath, Swaine & Xxxxx
Worldwide Plaza
000 Xxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx, Xx.
If to MediaOne, to:
MEDIAONE GROUP, INC.
000 Xxxxxxxxx Xxxxx Xxxx
Xxxxxxxxx, Xxxxxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Vice President-Law
with a copy to:
Weil, Gotshal & Xxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxx Xxxxxx, Esq.
20
If to A/N, to:
ADVANCE/XXXXXXXX PARTNERSHIP
0000 Xxxxxxxxxx Xxxxx
Xxxx Xxxxxxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxx X. Xxxxx
with a copy to:
Xxxxx, Xxxxxxx & Xxxxx LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxxxxx
Such names and addresses may be changed by notice given in accordance with this
Section 7.5.
7.6. Entire Agreement. This Agreement (including the Schedules and
Exhibits attached hereto, all of which are a part hereof) contains the entire
understanding of the parties hereto with respect to the subject matter contained
herein and supersedes and cancels all prior agreements, negotiations,
correspondence, undertakings and communications of the parties, oral or written,
respecting such subject matter.
7.7. Headings; References. The article, section and paragraph headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. All references
herein to "Articles", "Sections," "Schedules" or "Exhibits" shall be deemed to
be references to Articles or Sections hereof or Schedules or Exhibits hereto
unless otherwise indicated.
7.8. Counterparts. This Agreement may be executed in one or more
counterparts and each counterpart shall be deemed to be an original.
7.9. Parties in Interest; Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors or assigns. Nothing in this Agreement, express or implied, is
21
intended to confer upon any Person not a party to this Agreement any rights or
remedies under or by reason of this Agreement. No party to this Agreement may
assign or delegate all or any portion of its rights, obligations or liabilities
under this Agreement without the prior written consent of the other parties to
this Agreement.
7.10. Severability; Enforcement. The invalidity of any portion hereof
shall not affect the validity, force or effect of the remaining portions hereof.
If it is ever held that any restriction hereunder is too broad to permit
enforcement of such restriction to its fullest extent, each party agrees that a
court of competent jurisdiction may enforce such restriction to the maximum
extent permitted by law, and each party hereby consents and agrees that such
scope may be judicially modified accordingly in any proceeding brought to
enforce such restriction.
7.11. Arbitration. Any controversy arising under, out of, in connection
with, or relating to, this Agreement, and any amendment hereof, or the breach
hereof or thereof, shall be determined and settled by arbitration in New York,
New York, by a person or persons mutually agreed upon, or in the event of a
disagreement as to the selection of the arbitrator or arbitrators, in accordance
with the rules of the American Arbitration Association. Any award rendered
therein shall specify the findings of fact of the arbitrator or arbitrators and
the reasons of such award, with the reference to and reliance on relevant law.
Any such award shall be final and binding on each and all of the paries thereto
and their personal representatives, and judgment may be entered thereon in any
court having jurisdiction thereof.
22
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
TIME WARNER COMPANIES, INC.
By:
-----------------------------------------
Name:
Title:
MEDIAONE GROUP, INC.
(a Delaware corporation)
By:
-----------------------------------------
Name:
Title:
ADVANCE/XXXXXXXX PARTNERSHIP
By: ADVANCE COMMUNICATIONS CORP.,
General Partner
By:
-------------------------------------
Name:
Title:
By: XXXXXXXX BROADCASTING
CORPORATION, General Partner
By:
-------------------------------------
Name:
Title:
TIME WARNER ENTERTAINMENT
COMPANY, L.P.
By:
-------------------------------------
Name:
Title:
23
TIME WARNER ENTERTAINMENT-
ADVANCE/XXXXXXXX PARTNERSHIP
By: TIME WARNER ENTERTAINMENT
COMPANY, L.P., General Partner
By:
-------------------------------------
Name:
Title:
For the purposes of Section 4.6:
TIME WARNER TELECOM L.L.C.
By:
-------------------------------------
Name:
Title:
24
