SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
October 27, 1997
TIME WARNER INC.
(Exact name of registrant as specified in its charter)
Delaware 1-12259 13-3527249
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
75 Rockefeller Plaza, New York, NY 10019
(Address of principal executive offices) (zip code)
(212) 484-8000
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
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Item 5. Other Events.
Time Warner Inc. ("Time Warner") and Time Warner Entertainment
Company, L.P. ("TWE"), a partnership in which Time Warner and certain
of its wholly owned subsidiaries own general and limited partnership
interests representing 74.49% of each of the pro rata priority capital
("Series A Capital") and residual equity capital ("Residual Capital")
and 100% of each of the senior priority capital ("Senior Capital") and
junior priority capital ("Series B Capital") have completed, or have
entered into, the transactions described below:
(i) On October 27, 1997, a wholly owned subsidiary of Time
Warner entered into an agreement (the "Transfer Agreement") with
the Time Warner Entertainment-Advance/Newhouse Partnership (the
"TWE-Advance/Newhouse Partnership") and each of its partners, pur-
suant to which, (a) (i) a wholly owned subsidiary of Time Warner
will contribute cable television systems serving approximately
640,000 subscribers formerly held by Cablevision Industries
Corporation and related companies ("CVI", now known as TWI Cable
Inc., or "TWI Cable", a wholly owned subsidiary of Time Warner)
(the "CVI Transferred Systems") into Paragon Communications
("Paragon", an entity currently owned by subsidiaries of Time Warner,
with 50% beneficially owned in the aggregate by TWE and the
TWE-Advance/Newhouse Partnership) in exchange for partnership interests
therein, (ii) Paragon will assume approximately $1.021 billion of
indebtedness from CVI, and (iii) Paragon, in turn, will contribute
the CVI Transferred Systems, subject to $985 million of the assumed
indebtedness, to the TWE-Advance/Newhouse Partnership in exchange
for a 1.15% common partnership interest and a $147 million preferred
partnership interest therein (collectively, the "CVI Transfers"),
(b) Paragon will contribute certain of its own cable television systems
serving approximately 27,000 subscribers, subject to $36 million of
the assumed indebtedness, to the TWE-Advance/Newhouse Partnership, in
exchange for an additional .04% common partnership interest and a $5
million preferred partnership interest therein (the "Time Warner/
Paragon Transferred Systems") and (c) (i) TWE will exchange
substantially all of its beneficial interest in Paragon for
an equivalent share of Paragon's cable television systems serving
approximately 515,000 subscribers and (ii) TWE, in turn, will similarly
transfer such systems (and certain related assets) to the
TWE-Advance/Newhouse Partnership in exchange for the TWE-Advance/
Newhouse Partnership's beneficial interest in Paragon and
in satisfaction of certain pre-existing obligations to the
TWE-Advance/Newhouse Partnership (the "TWE/Paragon Transferred
Systems", and when taken together with the Time Warner/Paragon
Transferred Systems, the "Paragon Transfers"). As a result of the
Paragon Transfers, substantially all of the pre-existing beneficial
ownership interests in Paragon owned by TWE and the TWE-Advance/
Newhouse Partnership will be redeemed by Paragon, which,
in effect, will result in wholly owned subsidiaries of Time Warner
owning substantially all of the remaining cable television systems
of Paragon. In addition, in connection with the TWE-A/N Transfers,
Advance/Newhouse will contribute an approximate $76 million note
receivable to the TWE-Advance/Newhouse Partnership in order to
maintain its 33.3% common equity interest therein. The CVI
Transfers and the Paragon Transfers are referred to herein as the
"TWE-A/N Transfers". The TWE-A/N Transfers are not subject to
bondholder approval. However, the TWE-A/N Transfers are subject
to the receipt of franchise and other required regulatory consents
and the aggregate consideration is subject to adjustment pursuant
to the terms of the Transfer Agreement.
(ii) On October 10, 1996, Time Warner acquired the remaining
80% interest in Turner Broadcasting System, Inc. ("TBS") that it
did not already own (the "TBS Transaction"). As a result of this
transaction, a new parent company with the name "Time Warner Inc."
replaced the old parent company of the same name (now known as
Time Warner Companies, Inc., "TW Companies"), and TW Companies and
TBS became separate, wholly owned subsidiaries of the new parent
company. References herein to "Time Warner" refer to TW Companies
prior to October 10, 1996 and Time Warner Inc. thereafter.
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As part of the TBS Transaction, each of TW Companies and TBS
became separate, wholly owned subsidiaries of Time Warner, which
combines, for financial reporting purposes, the consolidated net
assets and operating results of TW Companies and TBS. Each issued
and outstanding share of each class of capital stock of TW
Companies was converted into one share of a substantially
identical class of capital stock of Time Warner.
In connection with the TBS Transaction, Time Warner issued
(i) approximately 179.8 million shares of common stock (including
57 million shares of a special class of non-redeemable common
stock having 1/100th of a vote per share on certain limited
matters ("Series LMCN-V Common Stock") to affiliates of Liberty
Media Corporation ("LMC"), a subsidiary of Tele-Communications,
Inc.) and (ii) approximately 14 million stock options. Time Warner
also assumed approximately $2.8 billion of indebtedness.
(iii) on April 11, 1996, Time Warner issued 1.6 million
shares of 10-1/4% exchangeable preferred stock for approximately
$1.55 billion of net proceeds. Such proceeds were used by Time
Warner to redeem all $250 million principal amount of its
outstanding 8.75% Debentures due 2017 (the "8.75% Debentures") for
approximately $265 million (including redemption premiums and
accrued interest thereon) and to reduce indebtedness of TWI Cable
under its five-year revolving credit facility (the "1995 Credit
Agreement") by approximately $1.3 billion. This issuance and the
use of the proceeds therefrom to reduce outstanding indebtedness
of Time Warner are referred to herein as the "Preferred Stock
Refinancing". As part of the TBS Transaction, these privately-
placed preferred shares were converted into registered shares of
Series M exchangeable preferred stock with substantially identical
terms ("Series M Preferred Stock"); and
(iv) on February 1, 1996, Time Warner redeemed all $1.2
billion principal amount of 8.75% Convertible Subordinated
Debentures due 2015 (the "8.75% Convertible Debentures") for $1.28
billion, including redemption premiums and accrued interest
thereon (the "February 1996 Redemption"). The February 1996
Redemption was financed with (1) $557 million of net proceeds
raised in December 1995 from the issuance of Time Warner-obligated
mandatorily redeemable preferred securities of a subsidiary
("Preferred Trust Securities") and (2) proceeds raised from the
$750 million issuance in January 1996 of (i) $400 million
principal amount of 6.85% debentures due 2026, which are
redeemable at the option of the holders thereof in 2003, (ii) $200
million principal amount of 8.3% discount debentures due 2036,
which do not pay cash interest until 2016, (iii) $166 million
principal amount of 7.48% debentures due 2008 and (iv) $150
million principal amount of 8.05% debentures due 2016 (collectively
referred to herein as the "January 1996 Debentures"). The
issuance of the Preferred Trust Securities and the January 1996
Debentures, together with the February 1996 Redemption, are
collectively referred to herein as the "Convertible Debt Refinancing".
The Preferred Stock Refinancing and the Convertible Debt
Refinancing are referred to herein as the "Debt Refinancings" and
the TWE-A/N Transfers, the TBS Transaction and the Debt
Refinancings are referred to herein as the "Transactions".
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Item 7. Financial Statements and Exhibits
(a) Pro Forma Consolidated Condensed Financial Statements
The following pro forma consolidated condensed financial
statements of Time Warner and the Time Warner Entertainment Group (the
"Entertainment Group"), principally consisting of TWE, as of and for the
six months ended June 30, 1997 give effect to the TWE-A/N Transfers as
if such transaction occurred at such date, with respect to the balance
sheet, and at the beginning of such period, with respect to the
statement of operations. The TBS Transaction and the Debt Refinancings
are already reflected in the historical financial statements of Time
Warner as of and for the six months ended June 30, 1997. The pro forma
consolidated condensed statements of operations of Time Warner and the
Entertainment Group for the year ended December 31, 1996 give effect to
the TWE-A/N Transfers and, with respect to Time Warner only, the TBS
Transaction and the Debt Refinancings, as if the transactions occurred
at the beginning of such period.
The pro forma consolidated condensed financial statements should
be read in conjunction with the historical financial statements of Time
Warner and TWE, including the notes thereto, which are contained in the
Time Warner Quarterly Report on Form 10-Q for the six months ended June
30, 1997 and the Time Warner Annual Report on Form 10-K for the year
ended December 31, 1996, as well as the historical financial statements
of TBS for the nine months ended September 30, 1996, which are
incorporated herein by reference from TBS's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1996.
The pro forma consolidated condensed financial statements are
presented for informational purposes only and are not necessarily
indicative of the financial position or operating results that would
have occurred if the Transactions had been consummated as of the dates
indicated, nor are they necessarily indicative of future financial
conditions or operating results.
TWE-A/N Transfers
In April 1995, TWE and the Advance/Newhouse Partnership ("Advance/
Newhouse") formed the TWE-Advance/Newhouse Partnership. Upon formation
of the TWE-Advance/Newhouse Partnership, TWE, which is the managing
partner, owned a 66.7% common partnership interest in the TWE-Advance/
Newhouse Partnership and Advance/Newhouse owned a 33.3% common
partnership interest. TWE consolidates the TWE-Advance/Newhouse
Partnership. As such, the common partnership interest owned by
Advance/Newhouse and the common and preferred partnership interests
that will be owned by Paragon as a result of the TWE-A/N Transfers
are reflected in the Entertainment Group's pro forma financial
statements as minority interest.
Subject to receipt of franchise and other required regulatory
consents, Time Warner has agreed to transfer certain cable television
systems serving an aggregate of approximately 667,000 subscribers to the
TWE-Advance/Newhouse Partnership, subject to approximately $1.021
billion of debt, thereby reducing the financial leverage of Time Warner
and increasing the under-leveraged capitalization of the
TWE-Advance/Newhouse Partnership and consequently, TWE. In addition,
as discussed more fully below, as part of the TWE-A/N Transfers, TWE
and the TWE-Advance/Newhouse Partnership will exchange substantially
all of their respective beneficial interests in Paragon (and certain
related assets) for an equivalent share of Paragon's cable
television systems, serving approximately 515,000 subscribers.
Pro forma adjustments for the CVI Transfers reflect the
contribution by Time Warner, through Paragon, of cable television
systems serving approximately 640,000 subscribers formerly held by CVI to
the TWE-Advance/
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Newhouse Partnership, subject to approximately $985 million of debt in
exchange for a 1.15% common partnership interest and a $147 million
preferred partnership interest therein to be held by Paragon.
Pro forma adjustments for the Paragon Transfers reflect (i) the
contribution by Paragon of certain of its own cable television systems
serving approximately 27,000 subscribers, subject to approximately
$36 million of debt, to the TWE-Advance/Newhouse Partnership in
exchange for an additional .04% common partnership interest and a
$5 million preferred partnership interest therein, (ii) (a) the
exchange by TWE of substantially all of its beneficial interest in Paragon
for an equivalent share of Paragon's cable television systems serving
approximately 515,000 subscribers and (b) the transfer by
TWE, in turn, of such systems (and certain related assets) to the
TWE-Advance/Newhouse Partnership in exchange for the TWE-Advance/Newhouse
Partnership's beneficial interest in Paragon and in satisfaction of
certain pre-existing obligations to the TWE-Advance/Newhouse Partnership
and (iii) the consolidation of Paragon by Time Warner (and the
related deconsolidation of Paragon by TWE) as a result of the redemption
by Paragon of substantially all of the pre-existing beneficial ownership
interests therein owned by TWE and the TWE-Advance/Newhouse Partnership
which, in effect, will result in wholly owned subsidiaries of Time
Warner owning substantially all of the remaining cable television
systems of Paragon.
Because the fair value of the consideration to be received from
the TWE-Advance/Newhouse Partnership approximates the carrying value of
the net assets of the CVI Transferred Systems and the Time
Warner/Paragon Transferred Systems, Time Warner is not expected to
recognize a gain or loss on the transaction and the net assets to be
received by the TWE-Advance/Newhouse Partnership will be recorded at
Time Warner's historical cost basis of accounting. Similarly, TWE will
not recognize a gain or loss on its transfer of the TWE/Paragon
Transferred Systems (and such net assets will be recorded by the
TWE-Advance/Newhouse Partnership at TWE's historical cost basis of
accounting), since such entities belong to a common consolidated
control group.
In order to maintain its 33.3% common partnership interest in the
TWE-Advance/Newhouse Partnership, Advance/Newhouse will make a capital
contribution in the form of a $76 million note, payable to the
partnership no later than the fourth anniversary of the closing date of
the transaction. Such contribution has no material effect on the
accompanying pro forma financial statements and accordingly, has not
been given pro forma effect therein.
Upon consummation of the TWE-A/N Transfers, the TWE-Advance/Newhouse
Partnership will be owned approximately 65.5% by TWE, 33.3% by
Advance/Newhouse and 1.2% by Paragon. In addition, Paragon will own an
approximate $152 million preferred partnership interest in the TWE-
Advance/Newhouse Partnership, which will entitle it to receive priority
allocations of partnership income and distributions therefrom. Under the
terms of the partnership agreement, partnership income is generally
allocated first to the preferred partnership interest at a rate of
10-1/4% per annum, and then to the partners in proportion to their
respective common equity interests. Distributions on such preferred
interests are payable each quarter in cash, to the extent available, in
accordance with the terms of the partnership agreement. The preferred
partnership interests are required to be redeemed by the TWE-Advance/
Newhouse Partnership in three equal annual installments beginning on the
sixth anniversary of the TWE-A/N Transfer closing.
TWE will continue to consolidate the TWE-Advance/Newhouse
Partnership and Paragon will account for its interest therein under the
equity method of accounting.
TBS Transaction
Pro forma adjustments for the TBS Transaction reflect (1) the
issuance of approximately 179.8 million shares of common stock,
including 57 million shares of Series LMCN-V Common Stock which were
received by
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affiliates of LMC, (2) the issuance of approximately 14 million stock
options, (3) the assumption of approximately $2.8 billion of
indebtedness and (4) the payment of approximately $95 million for
transaction costs and other related liabilities of Time Warner and TBS.
The TBS Transaction has been accounted for by the purchase method
of accounting for business combinations and, accordingly, the cost to
acquire TBS of approximately $6.2 billion has been preliminarily
allocated to the net assets acquired in proportion to estimates of their
respective fair values.
Debt Refinancings
Pro forma adjustments for the Debt Refinancings in the year ended
December 31, 1996 reflect proceeds of (1) $1.55 billion received from
the issuance of preferred stock as part of the Preferred Stock
Refinancing and (2) approximately $750 million received from the
issuance of the January 1996 Debentures, which have a weighted average
interest rate of 7.3%, and the use of (1) $721 million of such proceeds,
together with $557 million of net proceeds received from the issuance
of the Preferred Trust Securities (8-7/8% yield) in December 1995, to
finance the Convertible Debt Refinancing ($1.226 billion principal
amount, plus redemption premiums and accrued interest thereon of $52
million), (2) $265 million to redeem all of Time Warner's outstanding
8.75% Debentures ($250 million principal amount, plus redemption
premiums and accrued interest thereon of $15 million) and (3)
approximately $1.285 billion to reduce outstanding indebtedness
of TWI Cable under the 1995 Credit Agreement.
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TIME WARNER INC.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
June 30, 1997
(millions, unaudited)
Time Time
Warner CVI Paragon Warner
Historical Transfers(a) Transfers(b) Pro Forma
A S S E T S
Cash and equivalents $ 470 $ $ 166 $ 636
Other current assets 3,974 (8) 9 3,975
Total current assets 4,444 (8) 175 4,611
Noncurrent inventories 1,757 - - 1,757
Investments in and amounts
due to and from
Entertainment Group 6,050 635 22 6,707
Other investments 1,903 - (967) 936
Property, plant and
equipment, net 2,032 (213) 216 2,035
Cable television and
sports franchises 4,089 (1,084) 569 3,574
Goodwill 12,332 (341) (12) 11,979
Other assets 2,048 (2) 5 2,051
Total assets $34,655 $(1,013) $ 8 $33,650
LIABILITIES AND SHAREHOLDERS' EQUITY
Total current liabilities $ 3,709 $ (24) $ 41 $ 3,726
Long-term debt 12,711 (985) (36) 11,690
Borrowings against future
stock option proceeds 402 - - 402
Deferred income taxes 4,057 - - 4,057
Other liabilities 1,641 (4) 3 1,640
Company-obligated mandatorily
redeemable preferred securities of subsidiaries holding solely
subordinated notes and debentures of subsidiaries of the
Company (1) 949 - - 949
Series M exchangeable
preferred stock 1,763 - - 1,763
Shareholders' equity:
Preferred stock 4 - - 4
Series LMCN-V common stock 1 - - 1
Common stock 5 - - 5
Paid-in capital 12,447 - - 12,447
Accumulated deficit (3,034) - - (3,034)
Total shareholders' equity 9,423 - - 9,423
Total liabilities and
shareholders' equity $34,655 $(1,013) $ 8 $33,650
_______________
(1) Includes $374 million of preferred securities that are redeemable for
cash or, at Time Warner's option, approximately 18.1 million shares of
Hasbro, Inc. common stock owned by Time Warner.
See accompanying notes.
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TIME WARNER INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Six Months Ended June 30, 1997
(millions, except per share amounts; unaudited)
Time Time
Warner CVI Paragon Warner
Historical Transfers(c) Transfers(d) Pro Forma
Revenues $6,227 $(130) $ 100 $ 6,197
Cost of revenues* 3,453 (91) 89 3,451
Selling, general and
administrative* 2,235 (18) 19 2,236
Operating expenses 5,688 (109) 108 5,687
Business segment operating
income (loss) 539 (21) (8) 510
Equity in pretax income (loss)
of Entertainment Group 426 (5) 3 424
Interest and other, net (595) 34 5 (556)
Corporate expenses (43) - - (43)
Income before income taxes 327 8 - 335
Income tax provision (245) (3) - (248)
Income before extraordinary
item 82 5 - 87
Preferred dividend requirements (157) - - (157)
Income (loss) before extraordinary
item applicable to common shares
$ (75) $ 5 $ - $ (70)
Loss before extraordinary
item per common share $ (.13) $ (.13)
Average common shares 559.9 559.9
_______________
* Includes depreciation and
amortization expense of: $ 615 $ (47) $ 19 $ 587
See accompanying notes.
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TIME WARNER INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1996
(millions, except per share amounts; unaudited)
TBS Transaction
Time Warner TBS Pro Forma Debt
Historical Historical(e) Adjustments(f) Refinancings(g)
Revenues $10,064 $2,735 $ - $ -
Cost of revenues* 5,922 1,887 150 -
Selling, general and
administrative* 3,176 725 - -
Operating expenses 9,098 2,612 150 -
Business segment operating
income (loss) 966 123 (150) -
Equity in pretax income (loss)
of Entertainment Group 290 - - -
Interest and other, net (1,174) (143) 11 38
Corporate expenses (78) (22) - -
Income (loss) before
income taxes 4 (42) (139) 38
Income tax (provision)
benefit (160) 22 11 (16)
Income (loss) before
extraordinary item (156) (20) (128) 22
Preferred dividend
requirements (257) - - (51)
Income (loss) before extraordinary
item applicable to
common shares $ (413) $ (20) $(128) $ (29)
Loss before extraordinary item per
common share $(0.95)
Average common shares 431.2
_______________
* Includes depreciation and
amortization
expense of: $ 988 $ 141 $ 116 $ -
(Cont'd)
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Subtotal TWE-A/N
Time Warner CVI Paragon Transfers
Pro Forma Transfers(c) Transfers(d) Pro Forma
Revenues $12,799 $(238) $200 $12,761
Cost of revenues* 7,959 (175) 172 7,956
Selling, general and
administrative* 3,901 (39) 41 3,903
Operating expenses 11,860 (214) 213 11,859
Business segment operating
income (loss) 939 (24) (13) 902
Equity in pretax income
(loss) of Entertainment
Group 290 (16) (7) 267
Interest and other, net (1,268) 62 20 (1,186)
Corporate expenses (100) - - (100)
Income (loss) before
income taxes (139) 22 - (117)
Income tax (provision)
benefit (143) (9) - (152)
Income (loss) before
extraordinary item (282) 13 - (269)
Preferred dividend
requirements (308) - - (308)
Income (loss) before extraordinary
item applicable to
common shares $ (590) $ 13 $ - $(577)
Loss before extraordinary
item per common share $(1.04) $(1.02)
Average common shares 567.3 567.3
_______________
* Includes depreciation and
amortization expense of: $1,245 $ (95) $ 36 $1,186
See accompanying notes.
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TIME WARNER INC.
NOTES TO PRO FORMA CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS
(a) Pro forma adjustments to record the CVI Transfers at June
30, 1997 reflect (1) a $635 million increase in Time
Warner's investment in and amounts due to and from the
Entertainment Group as a result of the receipt by Paragon
of a 1.15% common partnership interest and $147 million
preferred partnership interest in the TWE-Advance/Newhouse
Partnership and (2) the elimination of $635 million of net
assets relating to Time Warner's historical cost basis in
the net assets to be transferred at June 30, 1997, including
$985 million of long-term indebtedness that will be
assumed by the TWE-Advance/Newhouse Partnership.
(b) Pro forma adjustments to record the Paragon Transfers
reflect (1) a $22 million increase in Time Warner's invest-
ment in and amounts due to and from the Entertainment Group
as a result of the receipt by Paragon of a .04% common
partnership interest and $5 million preferred partnership
interest in the TWE-Advance/Newhouse Partnership, (2) the
elimination of $22 million of net assets relating to Time
Warner's historical cost basis in the net assets to be
transferred at June 30, 1997, including (i) $46 million of
cable television franchises and (ii) $12 million of
goodwill, offset by (iii) $36 million of long-term
indebtedness that will be assumed by the TWE-Advance/Newhouse
Partnership and (3) the consolidation of Paragon by Time
Warner as a result of the redemption by Paragon of substantially
all of TWE's and the TWE-Advance/Newhouse Partnership's pre-
existing 50% beneficial ownership interests
therein which, in effect, will result in wholly owned
subsidiaries of Time Warner owning substantially all of the
remaining cable television systems of Paragon. Pro forma
adjustments to consolidate Paragon reflect (1) the consolidation
of $392 million of net assets, including $40 million
of cable television franchises, relating to the historical
financial position at June 30, 1997 of the remaining cable
television systems of Paragon that will not be transferred
to the TWE-Advance/Newhouse Partnership and (2) a $967
million decrease in other investments as a result of the
elimination of Time Warner's historical investment in
Paragon, of which $575 million has been reclassified to
cable television franchises.
(c) Pro forma adjustments to record the CVI Transfers for the
six months ended June 30, 1997 and the year ended December
31, 1996 reflect (1) the elimination of $11 million and $39
million of pretax losses, respectively, relating to the net
assets to be transferred, (2) a $5 million and $16 million
reduction in Time Warner's equity in the pretax income of
the Entertainment Group, respectively, representing the
aggregate effect on TWE's operating results from the CVI
Transfers, as more fully described in the notes to the
Entertainment Group pro forma consolidated condensed
financial statements contained elsewhere herein, (3) a
decrease in interest and other, net, of $2 million in the
six months ended June 30, 1997 and an increase of $1
million in the year ended December 31, 1996, relating to
Paragon's equity in the net income of the TWE-Advance/
Newhouse Partnership, including distributions received on
Paragon's $147 million preferred partnership interest
therein and (4) an increase of $3 million and $9 million in
income tax expense, respectively, provided at a 41% tax
rate.
(d) Pro forma adjustments to record the Paragon Transfers for
the six months ended June 30, 1997 and the year ended
December 31, 1996 reflect (1) the consolidation of the
operating results of Paragon, (2) a $3 million increase and
a $7 million reduction in Time Warner's equity in the
pretax income of the Entertainment Group, respectively,
representing the aggregate effect on TWE's operating
results from the Paragon Transfers, as more fully described
in the notes to the Entertainment Group pro forma consolidated
condensed financial statements contained elsewhere
herein and (3) a $1 million and $2 million reduction in
interest expense, respectively, as a result of the assump-
tion by the TWE-Advance/Newhouse Partnership of $36 million
of long-term indebtedness. Pro forma adjustments to
consolidate the operating results of Paragon for the six
months ended June 30, 1997 and the year ended December 31,
1996 include (i) an increase in operating income of $18
million and $37
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million, respectively, relating to the operations of the
remaining cable television systems of Paragon that will not be
transferred to the TWE-Advance/Newhouse Partnership, (ii) a reduction
of $4 million and $18 million, respectively, in interest and
other, net, principally relating to gains on the sale of certain
assets formerly owned by Paragon and (iii) a reduction of $26
million and $50 million in the historical operating results of
Time Warner, respectively, resulting from the elimination of
Time Warner's equity in the net income of Paragon.
(e) Reflects the historical operating results of TBS for the
nine-month, pre-acquisition period ended September 30,
1996, including certain reclassifications to conform to
Time Warner's financial statement presentation.
(f) Pro forma adjustments to record the TBS Transaction for the
nine-month, pre-acquisition period ended September 30, 1996
reflect (1) the exclusion of $9 million of merger costs
directly related to the TBS Transaction expensed by TBS in
such period, (2) an increase of $150 million in cost of
revenues consisting of (i) a $7 million reduction of TBS's
historical amortization of pre-existing goodwill, (ii) a
$152 million increase in amortization with respect to the
excess cost to acquire TBS that has been allocated to (a)
goodwill in the amount of $6.746 billion and amortized on
a straight-line basis over a forty-year period and (b)
other intangible assets in the amount of $698 million and
amortized on a straight-line basis over a weighted average
period of approximately 20 years, (iii) a $29 million
decrease in the amortization of film libraries resulting
from a change in their estimated useful lives and (iv) a
$34 million increase in the amortization of capitalized
film exploitation costs to conform TBS's accounting policy
to Time Warner's accounting policy, (3) an increase of $5
million in interest expense on the $95 million of additional
indebtedness for the payment of transaction costs
and other related liabilities of Time Warner and TBS, (4)
a decrease of $7 million in interest and other, net due to
the elimination of TW Companies's historical equity
accounting for its investment in TBS and (5) a decrease of
$11 million in income tax expense as a result of income
taxes provided at a 41% tax rate.
(g) Pro forma adjustments to record the Debt Refinancings for
the year ended December 31, 1996 reflect an increase in
noncash preferred dividend requirements of $51 million
relating to the payment of Series M Preferred Stock
dividends, at a rate of 10-1/4% per annum, payable quarterly.
For purposes of Time Warner's pro forma consolidated
condensed statement of operations, such dividend requirements
have been assumed to have been satisfied in-kind,
through the issuance of additional shares of Series M
Preferred Stock with an aggregate liquidation preference
equal to the amount of such dividends.
Pro forma adjustments to record the Debt Refinancings for the year
ended December 31, 1996 also reflect interest savings of $38 million
resulting from (1) the issuance of the January 1996 Debentures for
approximately $750 million of proceeds and the use of $721 million
of such proceeds, together with $557 million of available cash and
equivalents related to the issuance of the Preferred Trust
Securities, to redeem $1.226 billion principal amount of 8.75%
Convertible Debentures for an aggregate redemption price of
$1.278 billion, including redemption premiums and accrued interest
thereon of $52 million and (2) the issuance of 1.6 million shares
of Series M Preferred Stock for approximately $1.55 billion of net
proceeds and the use of (i) $265 million of such proceeds to redeem
all $250 million principal amount of Time Warner's outstanding
8.75% Debentures (plus redemption premiums and accrued interest
thereon of $15 million) and (ii) the remaining $1.285 billion of such
proceeds to reduce outstanding indebtedness of TWI Cable under the
1995 Credit Agreement.
All pro forma adjustments to record the Debt Refinancings for the
year ended December 31, 1996 reflect the
<PAGE>
incremental increase (decrease) in Time Warner's interest
expense from each refinancing that had closed during the
period, as set forth below (in millions).
* Issuance by Time Warner of $750 million of January
1996 Debentures in connection with the Convertible
Debt Refinancing, at a weighted average
interest rate of 7.3% $ 2
* Redemption of $1.226 billion principal amount of
8.75% Convertible Debentures (9)
* Redemption of $250 million principal amount of 8.75% Debentures (8)
* Repayment of $1.285 billion of TWI Cable indebtedness
under the 1995 Credit Agreement (23)
Net decrease in interest expense $(38)
Income taxes of $16 million have been provided at a 41% tax rate on
the aggregate net reduction in interest expense.
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT GROUP
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
June 30, 1997
(millions, unaudited)
Entertainment Entertainment
Group CVI Paragon Group
Historical Transfers(a) Transfers(b) Pro Forma
A S S E T S
Cash and equivalents $ 293 $ - $(166) $ 127
Other current assets 3,266 8 (9) 3,265
Total current assets 3,559 8 (175) 3,392
Noncurrent inventories 2,126 - - 2,126
Loan receivable from
Time Warner 400 - - 400
Property, plant and
equipment, net 6,269 213 (216) 6,266
Cable television franchises 2,977 1,084 6 4,067
Goodwill 3,936 341 12 4,289
Other assets 990 2 (5) 987
Total assets $20,257 $1,648 $(378) $21,527
LIABILITIES AND PARTNERS' CAPITAL
Total current liabilities $ 3,649 $ 24 $ (41) $ 3,632
Long-term debt 5,781 985 36 6,802
Other long-term liabilities 1,203 4 (3) 1,204
Minority interests 1,137 635 (370) 1,402
Preferred stock of a subsidiary
holding solely a mortgage
note of its parent 240 - - 240
Time Warner General Partners'
Senior Capital 1,605 - - 1,605
Partners' capital 6,642 - - 6,642
Total liabilities and
partners' capital $20,257 $1,648 $(378) $21,527
See accompanying notes.
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT GROUP
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Six Months Ended June 30, 1997
(millions, unaudited)
Entertainment Entertainment
Group CVI Paragon Group
Historical Transfers(c) Transfers(d) Pro Forma
Revenues $5,333 $ 130 $(100) $5,363
Cost of revenues* 3,445 91 (89) 3,447
Selling, general and
administrative* 1,233 18 (19) 1,232
Operating expenses 4,678 109 (108) 4,679
Business segment
operating income 655 21 8 684
Interest and other, net (11) (30) (5) (46)
Minority interest (164) 4 - (160)
Corporate expenses (36) - - (36)
Income (loss) before
income taxes 444 (5) 3 442
Income tax provision (37) - - (37)
Net income (loss) $ 407 $ (5) $ 3 $ 405
_______________
* Includes depreciation and
amortization expense of: $ 661 $ 47 $ (19) $ 689
See accompanying notes.
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT GROUP
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1996
(millions, unaudited)
Entertainment Entertainment
Group CVI Paragon Group
Historical Transfers(c) Transfers(d) Pro Forma
Revenues $10,861 $238 $(200) $10,899
Cost of revenues* 7,436 175 (172) 7,439
Selling, general and
administrative* 2,335 39 (41) 2,333
Operating expenses 9,771 214 (213) 9,772
Business segment
operating income 1,090 24 13 1,127
Interest and other, net (524) (59) (20) (603)
Minority interest (207) 19 - (188)
Corporate expenses (69) - - (69)
Income (loss) before
income taxes 290 (16) (7) 267
Income tax provision (70) - - (70)
Income (loss) before
extraordinary item $ 220 $ (16) $ (7) $ 197
_______________
*Includes depreciation and
amortization expense of: $1,244 $ 95 $ (36) $1,303
See accompanying notes.
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO THE ENTERTAINMENT GROUP PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(a) Pro forma adjustments to record the CVI Transfers at June 30,
1997 reflect (1) the recording of $635 million of net assets to
be acquired by the TWE-Advance/Newhouse Partnership from
Paragon at Time Warner's historical cost basis of accounting,
including $985 million of indebtedness that will be assumed in
the transaction and (2) a $635 million increase in minority
interest resulting from the issuance by the TWE-Advance/
Newhouse Partnership of a 1.15% common partnership interest and
a $147 million preferred partnership interest to Paragon.
(b) Pro forma adjustments to record the Paragon Transfers at June
30, 1997 reflect (1) the recording of $22 million of net assets
to be acquired by the TWE-Advance/Newhouse Partnership from
Paragon at Time Warner's historical cost basis of accounting,
including (i) $46 million of cable television franchises and
(ii) $12 million of goodwill, offset by (iii) $36 million of
indebtedness that will be assumed in the transaction, (2) a $22
million increase in minority interest resulting from the
issuance by the TWE-Advance/Newhouse Partnership of a .04%
common partnership interest and a $5 million preferred
partnership interest to Paragon and (3) the deconsolidation of Paragon
by TWE as a result of the redemption by Paragon of substantially all
of TWE's and the TWE-Advance/Newhouse Partnership's
pre-existing 50% beneficial ownership interests therein which,
in effect, will result in wholly owned subsidiaries of Time
Warner owning substantially all of the remaining cable television
systems of Paragon. Pro forma adjustments to deconsolidate
Paragon reflect (1) the deconsolidation of $392 million of net
assets, including $40 million of cable television franchises,
relating to the historical financial position at June 30, 1997
of the remaining cable television systems of Paragon that will
not be transferred to the TWE-Advance/Newhouse Partnership and
(2) a $392 million decrease in minority interest relating to
the elimination of Time Warner's historical investment in Paragon.
TWE's contribution of the TWE/Paragon Transferred Systems to the
TWE-Advance/Newhouse Partnership in exchange for the
TWE-Advance/Newhouse Partnership's beneficial interest in Paragon
and in satisfaction of certain pre-existing obligations to the
TWE-Advance/Newhouse Partnership has no effect on the pro forma
consolidated condensed balance sheet of TWE and accordingly,
has not been given pro forma effect to therein.
(c) Pro forma adjustments to record the CVI Transfers for the six
months ended June 30, 1997 and the year ended December 31, 1996
reflect (1) the recording of $11 million and $39 million of
pretax losses, respectively, relating to the net assets to be
acquired by the TWE-Advance/Newhouse Partnership, (2) a $2
million and $4 million decrease in interest and other, net,
respectively, resulting from a 37.5 basis point decrease in the
pro forma interest rates applicable to borrowings by the TWE-
Advance/Newhouse Partnership under the New Credit Agreement in
comparison to the pro forma interest rates applicable to
borrowings by TWI Cable under the same credit agreement and (3)
a $4 million and $19 million decrease in minority interest
expense, respectively, representing the net effect of (i)
Advance/Newhouse's minority interest in the incremental net
losses and preferred dividend requirements of the TWE-
Advance/Newhouse Partnership which are partially offset by (ii)
Paragon's minority interest in the aggregate net income of the
TWE-Advance/Newhouse Partnership, including distributions on
its $147 million preferred partnership interest therein at an
annual rate of 10-1/4%.
(d) Pro forma adjustments to record the Paragon Transfers for the
six months ended June 30, 1997 and the year ended December 31,
1996 reflect (1) the deconsolidation of the operating results
of Paragon, (2) a $1 million and $2 million increase in
interest and other, net, respectively, as a result of the
assumption by the TWE-Advance/Newhouse Partnership of $36
million of long-term indebtedness of TWI Cable. Pro forma
adjustments to deconsolidate the operating results of Paragon
for the six months ended June 30, 1997 and the year ended
<PAGE>
December 31, 1996 include (i) a reduction of $18 million and $37
million in the historical operating income of Paragon, respect-
ively, relating to the operations of the remaining cable television
systems of Paragon that will not be transferred to the TWE-Advance/
Newhouse Partnership, (ii) an increase of $4 million and
$18 million, respectively, in interest and other, net, principally
relating to the elimination of a gain on the sale of an investment
formerly owned by Paragon and (iii) a $26 million and $50 million
increase in operating income relating to the elimination of Time
Warner's historical minority interest in the net income of Paragon.
TWE's contribution of the TWE/Paragon Transferred Systems to the
TWE-Advance/Newhouse Partnership in exchange for the
TWE-Advance/Newhouse Partnership's beneficial interest in Paragon
and in satisfaction of certain pre-existing obligations to the
TWE-Advance/Newhouse Partnership has no effect on the pro forma
consolidated condensed statements of operations of TWE and
accordingly, has not been given pro forma effect to therein.
<PAGE>
(b) Financial statements of businesses acquired:
(i) Turner Broadcasting System, Inc. (the documents listed in this
paragraph (i) being referred to as the "Financial Statements of Turner
Broadcasting System, Inc."):
(A) Unaudited Consolidated Condensed Financial Statements as
of September 30, 1996 and for each of the nine months ended
September 30, 1996 and 1995; and
(B) Consolidated Financial Statements as of December 31, 1995
and 1994 and for each of the years ended December 31, 1995, 1994 and
1993, including the report thereon of Price Waterhouse LLP.
(ii) Cablevision Industries Corporation and subsidiaries (the
documents listed in this paragraph (ii) being referred to as the
"Financial Statements of Cablevision Industries Corporation"):
(A) Consolidated Financial Statements as of and for the
year ended December 31, 1995, including the report thereon of Ernst
& Young LLP; and
(B) Consolidated Financial Statements as of December 31,
1994 and for each of the years ended December 31, 1994 and 1993,
including the report thereon of Arthur Andersen LLP.
(c) Pro forma Consolidated Condensed Financial Statements:
(i) Time Warner Inc.:
(A) Pro Forma Consolidated Condensed Balance Sheet as of
June 30, 1997;
(B) Pro Forma Consolidated Condensed Statements of
Operations for the six months ended June 30, 1997 and the year ended
December 31, 1996; and
(C) Notes to Pro Forma Consolidated Condensed Financial
Statements.
(ii) Entertainment Group:
(A) Pro Forma Consolidated Condensed Balance Sheet as of
June 30, 1997;
(B) Pro Forma Consolidated Condensed Statement of
Operations for the six months ended June 30, 1997 and the year ended
December 31, 1996; and
(C) Notes to Pro Forma Consolidated Condensed Financial
Statements.
(d) Exhibits:
(i) Exhibit 23.(a): Consent of Price Waterhouse LLP.
(ii) Exhibit 23.(b): Consent of Ernst & Young LLP.
(iii) Exhibit 23.(c): Consent of Arthur Andersen LLP.
(iv) Exhibit 99.(a): Financial Statements of Turner Broadcasting
System, Inc. (incorporated by reference from pages 31 to 53 of the
Annual Report to Shareholders incorporated by reference into the Annual
Report on Form 10-K for the year ended December 31, 1995 of Turner
Broadcasting System, Inc. and from pages 2 to 9 of the Quarterly Report
on Form 10-Q for the nine months ended September 30, 1996 of Turner
Broadcasting System, Inc.).
(v) Exhibit 99.(b): Financial Statements of Cablevision Industries
Corporation (incorporated by reference from pages 23 to 39 of the Annual
Report on Form 10-K for the year ended December 31, 1995 of Cablevision
Industries Corporation).
(vi) Exhibit 99.(c): Amended and Restated Transaction Agreement
dated as of October 27, 1997 among Advance Publications, Inc.,
Newhouse Broadcasting Corporation, Advance/Newhouse Partnership,
Time Warner Entertainment Company, L.P., TW Holding Co. and Time
Warner Entertainment-Advance/Newhouse Partnership.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on November 5, 1997.
TIME WARNER INC.
By: /s/ Richard J. Bressler
Name: Richard J. Bressler
Title: Senior Vice President
and Chief Financial Officer
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
No. Description of Exhibits Page Number
23.(a) Consent of Price Waterhouse LLP,
Independent Accountants.
23.(b) Consent of Ernst & Young LLP, Independent
Accountants.
23.(c) Consent of Arthur Andersen LLP, Independent
Public Accountants.
99.(a) Financial Statements of Turner Broadcasting
System, Inc. (incorporated by reference from
pages 31 to 53 of the Annual Report to Shareholders
incorporated by reference into the
Annual Report on Form 10-K for the year ended
December 31, 1995 of Turner Broadcasting System,
Inc. and from pages 2 to 9 of the Quarterly Report
on Form 10-Q for the nine months ended September
30, 1996 of Turner Broadcasting System, Inc.) *
99.(b) Financial Statements of Cablevision Industries
Corporation (incorporated by reference from pages
23 to 39 of the Annual Report on Form 10-K for the
year ended December 31, 1995 of
Cablevision Industries Corporation). *
99.(c) Amended and Restated Transaction Agreement, dated
as of October 27, 1997 among Advance Publications, Inc.,
Newhouse Broadcasting Corporation, Advance/Newhouse
Partnership, Time Warner Entertainment Company, L.P.,
TW Holding Co. and Time Warner Entertainment-Advance
Newhouse Partnership.
_______________
* Incorporated by reference.
EXHIBIT 23.(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference of our report
dated February 5, 1996, which appears on page 53 of Turner Broadcasting
System, Inc.'s 1995 Annual Report to Shareholders, which is incorporated
by reference in Turner Broadcasting System, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1995 and which report has been
incorporated by reference in the Current Report on Form 8-K of Time
Warner Inc. dated October 27, 1997, in each of the following:
1. Registration Statement No. 333-11471 on Form S-4 for Time
Warner Inc. (formerly named TW Inc.);
2. Post-Effective Amendment No. 1 to Registration Statement on
Form S-4 (Registration No. 333-11471) filed on Form S-8 of
Time Warner Inc.;
3. Post-Effective Amendment No. 2 to Registration Statement on
Form S-4 (Registration No. 333-11471) filed on Form S-8 of
Time Warner Inc.;
4. Post-Effective Amendment No. 3 to Registration Statement on
Form S-4 (Registration No. 333-11471) filed on Form S-8 of
Time Warner Inc.;
5. Post-Effective Amendment No. 4 to Registration Statement on
Form S-4 (Registration No. 333-11471) filed on Form S-8 of
Time Warner Inc.;
6. Post-Effective Amendment No. 5 to Registration Statement on
Form S-4 (Registration No. 333-11471) filed on Form S-8 of
Time Warner Inc.;
7. Registration Statement on Form S-8 and Post-Effective
Amendment No. 1 (Registration No. 333-14053) of Time Warner Inc.;
8. Registration Statement on Form S-3 (Registration No.
333-14611) of Time Warner Inc.;
9. Registration Statement on Form S-8 (Registration No.
333-27265) of Time Warner Inc.;
10. Registration Statement on Form S-3 (Registration No.
333-32813) of Time Warner Inc. and Time Warner Companies, Inc.;
11. Registration Statement on Form S-3 (Registration No. 333-37827)
of Time Warner Inc. (and Registration No. 333-37827-01 of
Time Warner Companies, Inc. and prospectus also
relates and constitutes a post-effective amendment to
Registration No. 333-32813); and
12. Registration Statement on Form S-8 (Registration No. 33-61497)
of Time Warner Companies, Inc.
PRICE WATERHOUSE LLP
Atlanta, Georgia
November 3, 1997
EXHIBIT 23.(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference of our report dated
March 8, 1996, with respect to the consolidated financial statements and
schedule of Cablevision Industries Corporation and Subsidiaries
("Cablevision") included in Cablevision's Annual Report on Form 10-K for
the year ended December 31, 1995, incorporated by reference in the
Current Report on Form 8-K of Time Warner Inc. dated October 27, 1997,
in each of the following:
1. Registration Statement No. 333-11471 on Form S-4 for Time
Warner Inc. (formerly named TW Inc.);
2. Post-Effective Amendment No. 1 to Registration Statement No.
333-11471 on Form S-4 filed on Form S-8 of Time Warner Inc.;
3. Post-Effective Amendment No. 2 to Registration Statement No.
333-11471 on Form S-4 filed on Form S-8 of Time Warner Inc.;
4. Post-Effective Amendment No. 3 to Registration Statement No.
333-11471 on Form S-4 filed on Form S-8 of Time Warner Inc.;
5. Post-Effective Amendment No. 4 to Registration Statement No.
333-11471 on Form S-4 filed on Form S-8 of Time Warner Inc.;
6. Post-Effective Amendment No. 5 to Registration Statement No.
333-11471 on Form S-4 filed on Form S-8 of Time Warner Inc.;
7. Post-Effective Amendment No. 1 to Registration Statement No.
333-14053 on Form S-8 of Time Warner Inc.;
8. Registration Statement No. 333-14611 on Form S-3 of Time
Warner Inc.;
9. Registration Statement No. 333-27265 on Form S-8 of Time
Warner Inc.;
10. Registration Statement No. 333-32813 on Form S-3 of Time
Warner Inc. and Time Warner Companies, Inc.;
11. Registration Statement No. 333-37827 on Form S-3 of Time
Warner Inc. (and Registration No. 333-37827-01 of Time
Warner Companies, Inc.) (prospectus also relates and
constitutes a post-effective amendment to Registration No.
333-32813); and
12. Registration Statement No. 33-61497 on Form S-8 of Time
Warner Companies, Inc.
ERNST & YOUNG LLP
New York, New York
November 3, 1997
EXHIBIT 23.(c)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our reports dated March 1, 1995, with
respect to Cablevision Industries Corporation's Form 10-K for the year
ended December 31, 1994, and to all references to our Firm included in
each of the following:
1. Registration Statement No. 333-11471 on Form S-4 for Time
Warner Inc. (formerly named TW Inc.);
2. Post-Effective Amendment No. 1 to Registration Statement on
Form S-4 (Registration No. 333-11471) filed on Form S-8 of
Time Warner Inc.;
3. Post-Effective Amendment No. 2 to Registration Statement on
Form S-4 (Registration No. 333-11471) filed on Form S-8 of
Time Warner Inc.;
4. Post-Effective Amendment No. 3 to Registration Statement on
Form S-4 (Registration No. 333-11471) filed on Form S-8 of
Time Warner Inc.;
5. Post-Effective Amendment No. 4 to Registration Statement on
Form S-4 (Registration No. 333-11471) filed on Form S-8 of
Time Warner Inc.;
6. Post-Effective Amendment No. 5 to Registration Statement on
Form S-4 (Registration No. 333-11471) filed on Form S-8 of
Time Warner Inc.;
7. Registration Statement on Form S-8 and Post-Effective
Amendment No. 1 (Registration No. 333-14053) of Time Warner Inc.;
8. Registration Statement on Form S-3 (Registration No. 333-14611)
of Time Warner Inc.;
9. Registration Statement on Form S-8 (Registration No. 333-27265)
of Time Warner Inc.;
10. Registration Statement on Form S-3 (Registration No.
333-32813) of Time Warner Inc. and Time Warner
Companies, Inc.;
11. Registration Statement on Form S-3 (Registration No.
333-37827) of Time Warner Inc. (and Registration No.
333-37827-01 of Time Warner Companies, Inc. and
prospectus also relates and constitutes a post-effective
amendment to Registration No. 333-32813);
and
12. Registration Statement on Form S-8 (Registration No.
33-61497) of Time Warner Companies, Inc.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
November 3, 1997
EXHIBIT 99.(c)
AMENDED AND RESTATED TRANSACTION AGREEMENT
AMENDED AND RESTATED TRANSACTION AGREEMENT, dated as of
October 27, 1997 (this "Agreement"), among ADVANCE PUBLICATIONS, INC., a
New York corporation ("Advance"), NEWHOUSE BROADCASTING CORPORATION, a
New York corporation ("Newhouse"), ADVANCE/NEWHOUSE PARTNERSHIP, a New
York general partnership ("Advance/Newhouse"), TIME WARNER ENTERTAINMENT
COMPANY, L.P., a Delaware limited partnership ("TWE"), TW HOLDING CO., a
New York general partnership ("TW Holding Co."), and TIME WARNER
ENTERTAINMENT-ADVANCE/NEWHOUSE PARTNERSHIP, a New York general
partnership (the "Partnership").
WHEREAS, Advance/Newhouse and TWE entered into a Partnership
Agreement, dated as of September 9, 1994, as amended, pursuant to which
they formed the Partnership (the "Partnership Agreement");
WHEREAS, Advance, Newhouse, Advance/Newhouse, TWE and the
Partnership entered into a Contribution Agreement, dated as of
September 9, 1994, as amended (the "Contribution Agreement"), pursuant
to which each of Advance/Newhouse and TWE contributed certain specified
assets to the Partnership;
WHEREAS, the Partnership Agreement provides that if TWE or
any of its Affiliates acquires or invests in any System Opportunity (as
defined in the Partnership Agreement), TWE or such Affiliate shall use
reasonable best efforts to transfer or assign to the Partnership as
promptly as practicable the economic benefits of those cable television
systems comprising such System Opportunity that are within a Preferred
Cluster Area (as defined in the Partnership Agreement) (in a manner and
at a time intended to preserve any deferral of tax on such acquisition
and otherwise minimize the taxes payable in connection with such
transaction) at a price, payable in tax efficient consideration equal to
the fair market value of the System Opportunity transferred or assigned
to the Partnership;
WHEREAS, Time Warner Inc., a Delaware corporation and an
affiliate of TWE ("TWX"), has acquired several such System
Opportunities;
WHEREAS, prior to the Closing (as defined below) certain of
such System Opportunities (or portions thereof) will be transferred by
subsidiaries of TWX to TW Holding Co.;
WHEREAS, the parties hereto executed a Transaction
Agreement, dated as of August 15, 1996 (the "Original Transaction
Agreement"), setting forth the terms on which such System Opportunities
(or portions thereof) were to be transferred by TW Holding Co. to the
Partnership;
<PAGE>
WHEREAS, the Original Transaction Agreement also provided
for the transfer by TWE to the Partnership of certain cable television
systems and related assets (i) in satisfaction of its obligations to
the Partnership in respect of the Designated Paragon Interest (as
defined in the Contribution Agreement) and (ii) in satisfaction of
certain of its outstanding obligations to the Partnership under Section
2 of the Letter Agreement, dated April 1, 1995, among Advance, Newhouse,
Advance/Newhouse and TWE (the "April 1995 Letter"); and
WHEREAS, the parties now wish to amend and restate the
Original Transaction Agreement in its entirety.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and for other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
1. Contribution of Designated CVI Systems.
(a) Subject to the conditions set forth in Section
4, at the Closing (as defined below), (i) TW Holding Co. shall
contribute, assign, convey, transfer and deliver to the Partnership its
right, title and interest in and to the cable television systems
described on Schedule 1 hereto (the "Designated CVI Systems"), and (ii)
the Partnership shall assume, and agree to pay and discharge, as and
when they become due, or otherwise take subject to, the indebtedness and
other liabilities associated with the Designated CVI Systems that are
described on Schedule 2 hereto (the "Assumed CVI Liabilities").
(b) At the Closing, (i) TW Holding Co. shall deliver
instruments executed by it and in form and substance reasonably
satisfactory to the Partnership contributing, assigning, conveying,
transferring and delivering to the Partnership its right, title and
interest in and to the Designated CVI Systems and (ii) the Partnership
shall deliver instruments executed by it and in form and substance
reasonably satisfactory to TW Holding Co. by which it shall assume and
agree to pay and discharge the Assumed CVI Liabilities.
(c) In exchange for the contributions contemplated
by Section 1(a), TW Holding Co. shall receive (i) Common Partnership
Units (as defined in the Partnership Agreement) having a value equal to
50% of the Net CVI Contribution and (ii) TW Holding Co. Preferred
Partnership Units (as defined in the Partnership Agreement, as amended
by the First Amendment (as defined below)) having a value equal to 50%
of the Net CVI Contribution. For purposes of the foregoing, "Net CVI
Contribution" means the excess of (i) the Designated CVI System Value
determined in accordance with Section 9 over (ii) the Assumed CVI
Indebtedness.
<PAGE>
2. Contribution of Designated Paragon Systems.
(a) Subject to the conditions set forth in Section
4, at the Closing, TWE shall contribute, assign, convey, transfer and
deliver to the Partnership (i) an undivided percentage interest
(determined in the manner described below) in its right, title and
interest in and to the cable television systems described on Schedule 3
hereto (the "Designated Paragon Systems") free of any indebtedness for
money borrowed and (ii) its right, title and interest in and to 8,832
Primestar subscribers in the localities described on Schedule 4 hereto
(the "Designated Primestar Subscribers"). The undivided percentage
interest in the Designated Paragon Systems to be contributed to the
Partnership by TWE pursuant to this paragraph shall equal a fraction,
the numerator of which shall be the excess of (x) the TWE Pre-Existing
Subscriber Obligation (as defined below) as of June 30, 1996 over (y)
one-half the number of Designated Primestar Subscribers contributed to
the Partnership pursuant to clause (ii) of this Section 2(a), and the
denominator of which shall be the total number of subscribers served by
all Designated Paragon Systems as of June 30, 1996. "TWE Pre-Existing
Subscriber Obligation" means, as of any date, a number of cable tele-
vision subscribers equal to the sum of (1) 25% of the total number of
subscribers served by cable television systems owned by Paragon as of
such date and (2) 238,500 subscribers, increased (in the case of this
clause (2) only) by the average rate of subscriber growth applicable to
TWE's cable television systems (other than Partnership cable television
systems) from July 1, 1994 through such date (without giving effect to
acquisitions, dispositions, trades and other extraordinary transactions
during such period). The equivalent number of subscribers represented
by the undivided interest in the Designated Paragon Systems contributed
to the Partnership by TWE pursuant to this Section 2(a) is referred to
herein as the "TWE Paragon Subscribers."
(b) Subject to the conditions set forth in Section
4, at the Closing, TW Holding Co. shall contribute, assign, convey,
transfer and deliver to the Partnership an undivided percentage interest
(determined in the manner described below) in its right, title and
interest in and to the Designated Paragon Systems, and the Partnership
shall assume, and agree to pay and discharge, as and when they become
due, or otherwise take subject to, the indebtedness and other
liabilities associated with the Designated Paragon Systems that are
described on Schedule 5 hereto (the "Assumed Paragon Liabilities"). The
undivided percentage interest in the Designated Paragon Systems to be
contributed to the Partnership by TW Holding Co. shall equal 100% less
the undivided percentage interest in the Designated Paragon Systems
contributed to the Partnership by TWE pursuant to Section 2(a). The
equivalent number of subscribers represented by the undivided interest
in the Designated Paragon Systems contributed to the Partnership by TW
Holding Co. pursuant to this Section 2(b) is referred to herein as the
"Excess Paragon Subscribers."
<PAGE>
(c) At the Closing, (i) TWE shall deliver
instruments executed by it and in form and substance reasonably
satisfactory to the Partnership contributing, assigning, conveying,
transferring and delivering to the Partnership its right, title and
interest in and to the TWE Paragon Subscribers and the Designated
Primestar Subscribers in accordance with Section 2(a), (ii) TW Holding
Co. shall deliver instruments executed by it and in form and substance
reasonably satisfactory to the Partnership contributing, assigning,
conveying, transferring and delivering its right, title and interest in
and to the Excess Paragon Subscribers in accordance with Section 2(b)
and (iii) the Partnership shall deliver instruments executed by it and
in form and substance reasonably satisfactory to TW Holding Co. by which
it shall assume and agree to pay and discharge the Assumed Paragon
Liabilities.
(d) The Contribution to the Partnership by TWE of
its right, title and interest in and to the TWE Paragon Subscribers and
the Designated Primestar Subscribers pursuant to Section 2(a) shall be
made in full satisfaction of (i) all of its obligations in respect of
the Designated Paragon Interest under the (x) Contribution Agreement,
(y) the Letter Agreement, dated September 9, 1994, relating thereto and
(z) paragraph 17 of the April 1995 Letter and (ii) all of its
obligations under paragraph 2 of the April 1995 Letter with respect to
the assets described in paragraph 1 of Schedule A thereto, in each case
from and after July 1, 1996. In exchange for contributing to the
Partnership its right, title and interest in and to the Excess Paragon
Subscribers pursuant to Section 2(b), TW Holding Co. shall receive (i)
Common Partnership Units having a value equal to 50% of the Net Paragon
Contribution and (ii) TW Holding Co. Preferred Partnership Units having
a value equal to 50% of the Net Paragon Contribution. For purposes of
the foregoing, "Net Paragon Contribution" means the excess of (i) the
Excess Paragon Subscriber Value determined in accordance with Section 9
over (ii) the Assumed Paragon Indebtedness.
3. Beneficial Assets and Subsidiary Beneficial Assets.
If any consent or approval is required in connection with the
contribution to the Partnership pursuant to this Agreement of any cable
television system (or the franchise pursuant to which such cable
television system is operated) and such consent or approval is not
obtained prior to the Closing, then in lieu of contributing (and pending
the actual contribution of) such cable television systems to the
Partnership, TW Holding Co. or TWE, as applicable, will hold such cable
television systems (or cause such cable television systems to be held)
for the use and benefit of the Partnership. Such cable television
systems shall be treated as Beneficial Assets (as defined in the
Contribution Agreement) or Subsidiary Beneficial Assets (as defined in
the Contribution Agreement) in either case in accordance with Section
5.8 of the Partnership Agreement and Section 6.7 of the Contribution
Agreement. In accordance with Section 6.7 of the Contribution
Agreement, following the Effective Date, TW Holding Co. and TWE shall
continue to use their reasonable best efforts to obtain any consent or
approval necessary to effectuate the contribution to the Partnership of
any Beneficial Asset or Subsidiary Beneficial Asset not contributed to
the Partnership on the Effective Date, and shall take all reasonable
actions to effectuate the contribution
<PAGE>
of such Beneficial Asset or Subsidiary Beneficial Asset after such
consent or approval is obtained; provided, however, that no cable
television franchise comprising a Beneficial Asset or Subsidiary
Beneficial Asset shall be required to be contributed to the Partnership
until consents or approvals shall have been obtained with respect to the
contribution of all cable television franchises in the same cable
television system as such franchise. The parties acknowledge and agree
that with respect to those Designated Paragon Systems that are proposed
to be contributed to a joint venture with TeleCommunications, Inc. (or
one of its affiliates) in accordance with the Letter of Intent, dated
September 2, 1997, TW Holding Co. and/or TWE may seek to obtain
necessary consents and approvals for the transfers contemplated by such
Letter of Intent at the same time as the transfers contemplated hereby.
4. Closing Conditions. The obligations of TW Holding
Co., TWE and the Partnership to effect the transactions contemplated by
this Agreement, shall be subject to the satisfaction at or prior to the
Closing of the following conditions, the imposition of which are solely
for the benefit of such parties and any one or more of which may be
waived by such parties in their discretion:
(a) each of TWE, Advance/Newhouse and TW Holding Co.
shall have executed and delivered an amendment to the Partnership
Agreement substantially in the form of Exhibit A (the "First
Amendment");
(b) the waiting periods (and any extensions
thereof), if any, applicable to the transactions contemplated by this
Agreement under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(the "HSR Act") shall have been terminated or shall have expired (it
being understood that as soon as practicable after the execution of this
Agreement, the parties will complete and file, or cause to be completed
and filed, any notification and report required to be filed under the
HSR Act and each such filing shall request early termination of the
waiting period imposed by the HSR Act); and
(c) no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated hereby shall be in effect.
5. Advance/Newhouse Contribution. Subject to the
consummation of the transfer or beneficial assignment of the Designated
CVI Systems and the Excess Paragon Subscribers to the Partnership, on or
prior to the fourth anniversary of the Effective Date (but in no event
prior to the date that is six months following the Effective Date),
Advance/Newhouse shall contribute to the Partnership cash in an amount
equal to the Advance/Newhouse Contribution Amount, plus interest thereon
at the Interest Rate compounded (to the extent not paid) on a quarterly
basis, from July 1, 1996 until the date such contribution is made in
full. For the purposes of the foregoing, (i) "Advance/Newhouse
Contribution Amount" means an amount equal to
<PAGE>
50% of the value of the Common Partnership Units received by TW Holding
Co. in exchange for its contribution of the Designated CVI Systems and
the Excess Paragon Subscribers and (ii) "Interest Rate" shall mean the
average interest rate applicable from time to time to borrowings by the
Partnership under the senior revolving credit facility of the
Partnership. At the Closing, Advance/Newhouse shall execute and deliver
to the Partnership a promissory note (the "Advance/Newhouse Note")
substantially in the form of Exhibit B hereto having a principal amount
equal to the Advance/Newhouse Contribution Amount, as security for its
obligation to contribute to the Partnership the Advance/Newhouse
Contribution Amount, plus interest as provided in this Section 5.
Advance/Newhouse shall take any and all actions and execute and deliver
all documents or agreements reasonably requested by the Partnership to
enable the Partnership to perfect its security interest in the
Advance/Newhouse Note. Advance/Newhouse and the Partnership acknowledge
and agree that the Advance/Newhouse Note shall not be deemed an asset of
the Partnership unless and until the Partnership seeks to realize upon
its security interest therein. In exchange for its agreement to
contribute the Advance/Newhouse Contribution Amount, Advance/Newhouse
shall receive Common Partnership Units having a value equal to the
Advance/Newhouse Contribution Amount.
6. Time and Place of Closing. Subject to the
satisfaction (or waiver) of each of the conditions set forth in Section
4, the closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Paul, Weiss, Rifkind,
Wharton & Garrison, 1285 Avenue of the Americas, New York, New York
10019 (or such other place as the parties may mutually agree), at 10:00
a.m. (New York City time) on February 12, 1998 or such earlier date as
TWE may determine (upon 2 business days' notice to Advance/Newhouse), or
such later date as the parties may mutually agree in writing. The date
on which the Closing occurs is referred to herein as the "Effective
Date".
7. Effect of Contributions. Upon the consummation of the
contribution or beneficial assignment to the Partnership of the
Designated CVI Systems and the Designated Paragon Systems in accordance
with the terms and conditions of this Agreement, each of TWE (and its
Affiliates) and the Partnership shall be deemed to have satisfied all of
its obligations pursuant to Section 10.1 of the Partnership Agreement
with respect to the businesses and assets of TWI Cable Inc. (formerly
known as Cablevision Industries Corporation) and its affiliated
companies and KBLCOM Incorporated and its affiliated companies.
8. Representations and Warranties; Indemnification.
Subject to the Closing having occurred, each of TWX and TW Holding Co.
(i) shall use commercially reasonable efforts, at the Partnership's
expense, to enforce its rights with respect to the representations and
warranties set forth in the CVI Supplemental Agreement (as defined
below) as such representations and warranties relate to the Designated
CVI Systems, including by way of seeking indemnification in accordance
with the terms of the CVI Supplemental Agreement, and (ii) shall grant
to the
<PAGE>
Partnership the benefits, if any, obtained as a result of the
enforcement of such rights. For the purposes of the foregoing, "CVI
Supplemental Agreement" shall mean the Supplemental Agreement, dated as
of February 6, 1995, among Cablevision Industries Corporation,
Cablevision Management Corporation of Philadelphia, Cablevision
Properties, Inc., Cablevision Industries Limited Partnership,
Cablevision Industries of Saratoga Associates, Cablevision Industries of
Tennessee L.P., Cablevision of Fairhaven/Acushnet, Cablevision
Industries of Middle Florida, Inc., Cablevision Industries of Florida,
Inc., Cablevision Industries of Delaware, Inc., ARA Cablevision, Inc.,
Alan Gerry, TWX and TW CVI Acquisition Corp.
9. Valuation of Designated CVI Systems and Excess Paragon
Subscribers.
(a) Designated CVI Systems. The gross value of the
Designated CVI Systems (the "Designated CVI System Value") shall equal
(i) the Annualized Operating Cash Flow (as defined below) of the
Designated CVI Systems multiplied by the CVI Multiple (as defined
below), plus (ii) all capital expenditures made in respect of the
Designated CVI Systems between January 4, 1996 and June 30, 1996, minus
(iii) $25,629,000. The Designated CVI System Value shall be subject to
adjustment pursuant to Section 10(a).
(b) Excess Paragon Subscribers. The gross value of
the Excess Paragon Subscribers (the "Excess Paragon Subscriber Value")
shall equal (i) the Annualized Operating Cash Flow of the Designated
Paragon Systems, multiplied by (ii) the Paragon Multiple (as defined
below), multiplied by (iii) a fraction, the numerator of which shall be
the number of subscribers comprising the Excess Paragon Subscribers and
the denominator of which shall be the total number of subscribers served
by all Designated Paragon Systems, in each case as of June 30, 1996.
(c) Valuation Terms. As used in this Section 9, the
following terms shall have the meanings set forth below:
"Annualized Operating Cash Flow" means, with respect
to any cable television systems, an amount equal to two times the
Operating Cash Flow for such cable television systems for the six months
ended June 30, 1996.
"CVI Multiple" means the Total Adjusted CVI
Acquisition Price divided by the Annualized Operating Cash Flow for all
of the cable television systems owned by CVI and its wholly owned
subsidiaries.
"Operating Cash Flow" means total revenues less total
operating, selling, general and administrative expenses, determined in
accordance with generally accepted accounting principles, generated at
the cable system level, exclusive of any corporate or divisional
<PAGE>
overhead costs. For this purpose, divisional overhead costs shall
include the cost of regional offices to the extent that such offices
perform divisional functions.
"Paragon Multiple" means (i) the sum of (x) the Total
Adjusted CVI Acquisition Price, plus (y) the Total Adjusted Summit
Acquisition Price, divided by (ii) the sum of (x) the Annualized
Operating Cash Flow for all of the cable television systems owned by CVI
and its wholly owned subsidiaries, plus (y) the Annualized Operating
Cash Flow for the cable television systems owned by Summit
Communications Group, Inc. and its wholly owned subsidiaries.
"Total Adjusted CVI Acquisition Price" shall equal
$2,670,636,000.
"Total Adjusted Summit Acquisition Price" shall equal
$379,385,000.
(d) Procedure; Dispute Resolution. Within 60 days
following the Effective Date, TW Holding Co. shall deliver to the
Partnership, Advance/Newhouse and TWE a certificate (the "Valuation
Certificate"), signed by an appropriate officer of TW Holding Co. after
due inquiry by such officer, but without any personal liability to such
officer, setting forth the Designated CVI System Value, the Net CVI
Contribution, the Excess Paragon Subscriber Value and the Net Paragon
Contribution and the calculation thereof in accordance with Section
1(c), Section 2(d), Section 10(a), Section 10(b) and this Section 9. At
the request of Advance/Newhouse or TWE, TW Holding Co. shall provide the
requesting party with prompt and complete access to all working papers
and relevant supporting documentation as well as appropriate TWX, TW
Holding Co. or TWE personnel, in each case reasonably necessary in
connection with such party's review of the information set forth in the
Valuation Certificate. If either Advance/Newhouse or TWE shall conclude
that the Valuation Certificate is not accurate, then Advance/Newhouse or
TWE, as appropriate (the "Disputing Party"), within 90 days of receipt
of such Valuation Certificate, shall furnish TW Holding Co. with a
written statement of any discrepancy or discrepancies believed to exist
(the "Discrepancy Certificate"). The Disputing Party and TW Holding Co.
shall attempt jointly to resolve any discrepancy set forth in the
Discrepancy Certificate within 30 days after receipt thereof, which
resolution, if achieved, shall be binding upon all parties to this
Agreement and not subject to dispute or review. If the Disputing Party
and TW Holding Co. cannot resolve the discrepancy to their mutual
satisfaction within such 30-day period, the Disputing Party and TW
Holding Co. shall, within 10 days following the expiration of such
30-day period, jointly designate a nationally known independent
certified public accounting firm to review the Valuation Certificate,
together with the Discrepancy Certificate, and any other relevant
documents. If the Disputing Party and TW Holding Co. do not agree upon
a nationally known independent certified public accounting firm in
accordance with the preceding sentence within such 10-day period, then
such review shall be performed by a nationally known independent
certified
<PAGE>
public accounting firm selected by two other nationally known certified
public accounting firms, one selected by the Disputing Party and one
selected by TW Holding Co.; provided that if one party fails to notify
the other party of its selection within 5 days following receipt from
the other party of its selection, the accounting firm so selected shall
perform such review. The cost of retaining such independent public
accounting firm shall be borne one-half by the Disputing Party and
one-half by TW Holding Co. Such firm shall report its conclusions and
such report shall be conclusive and binding on all parties to this
Agreement and not subject to dispute or review. The Designated CVI
System Value, the Net CVI Contribution, the Advance/Newhouse Contribution
Amount, the Assumed CVI Liabilities, the Excess Paragon Subscriber Value,
the Net Paragon Contribution and the Assumed Paragon Liabilities
shall be adjusted, if necessary, to reflect any such resolution.
10. Closing Adjustments.
(a) July 1, 1996 Adjustments.
(i) TW Holding Co. Adjustment Amount. At the Closing, TW
Holding Co. shall deliver to the Partnership a certificate setting
forth the estimated TW Holding Co. Adjustment Amount (as defined
below), which shall be determined in good faith by TW Holding Co.
If the estimated TW Holding Co. Adjustment Amount is greater than
zero, then the Designated CVI System Value shall be reduced by an
amount equal to such estimated TW Holding Co. Adjustment Amount.
If the estimated TW Holding Co. Adjustment Amount is less than
zero, then the Designated CVI System Value shall be increased by
an amount equal to the absolute value of such TW Holding Co.
Adjustment Amount. The Valuation Certificate delivered by TW
Holding Co. pursuant to Section 9(d) shall set forth the final TW
Holding Co. Adjustment Amount and, to the extent necessary, the
Designated CVI System Value, the Net CVI Contribution, the
Advance/Newhouse Contribution Amount and the Assumed CVI
Liabilities shall be adjusted to reflect difference between the
final TW Holding Co. Adjustment Amount and the estimated TW
Holding Co. Adjustment Amount.
(ii) TWE Adjustment Amount. At the Closing, TWE shall
deliver to the Partnership a certificate setting forth the
estimated TWE Adjustment Amount (as defined below), which shall be
determined in good faith by TWE. If the estimated TWE Adjustment
Amount is greater than zero, then at the Closing TWE shall
contribute to the Partnership an amount in cash equal to such
estimated TWE Adjustment Amount. If the estimated TWE Adjustment
Amount is less than zero, then at the Closing the Partnership
shall assume from TWE indebtedness for money borrowed in an amount
equal to the absolute value of such TWE Adjustment Amount. No
later than 60 days
<PAGE>
following the Closing, TWE shall deliver to the Partnership
a certificate setting forth the final TWE Adjustment Amount
(the "TWE Closing Adjustments Certificate"). If the final
TWE Adjustment Amount is greater than the estimated TWE
Adjustment Amount, then TWE shall promptly contribute to the
Partnership an amount in cash equal to the final TWE
Adjustment Amount minus the estimated TWE Adjustment Amount.
If the final TWE Adjustment Amount is less than the
estimated TWE Adjustment Amount, then the Partnership shall
promptly pay to TWE an amount in cash equal to the estimated
TWE Adjustment Amount minus the final TWE Adjustment Amount.
The foregoing adjustments are intended to place the
Partnership and its Partners in substantially the same after-tax
economic position with respect to the Designated CVI Systems, the
Designated Paragon Systems and the Designated Primestar Subscribers that
it would have been in had the Effective Date occurred on July 1, 1996.
For purposes of the foregoing, (i) "TW Holding Co. Adjustment Amount"
means (A) the Cash Flow (as defined below) generated by the Designated
CVI Systems and the Excess Paragon Subscribers during the period from
July 1, 1996 to the Effective Date, less (B) interest on the Assumed CVI
Indebtedness and the Assumed Paragon Indebtedness accruing from July 1,
1996 to the Effective Date (calculated at an interest rate equal to the
interest rate that would have been applicable to such Assumed CVI
Indebtedness and Assumed Paragon Indebtedness had such amounts been
indebtedness of the Partnership under the senior bank credit facility of
the Partnership in effect during such period), less (C) the Priority
Return (as defined in the First Amendment) that would have accrued on
the TW Holding Co. Preferred Partnership Units from July 1, 1996 to the
Effective Date had the TW Holding Co. Preferred Partnership Units issued
on the Effective Date been outstanding throughout such period, less
(D) an amount equal to the income taxes that would be payable on the net
income relating to the Cash Flow described in clause (A), calculated at
the Special Effective Tax Rate (as defined in the First Amendment)
assuming for such purposes that such net income were reduced by the
amount of interest described in clause (B) and the amount of the
Priority Return described in clause (C); (ii) "TWE Adjustment Amount"
means (A) the Cash Flow generated by the TWE Paragon Subscribers and the
Designated Primestar Subscribers during the period from July 1, 1996 to
the Effective Date, minus (B) an amount equal to the income taxes that
would be payable on the net income relating to the Cash Flow described
in clause (A), calculated at the Special Effective Tax Rate; and (iii)
"Cash Flow" means, with respect to any period, (A) total revenues less
total operating, selling, general and administrative expenses,
determined in accordance with generally accepted accounting principles
(excluding expenses that do not result in the accrual of current
liabilities), generated at the cable system level, including an
allocation of the management fees payable to TWE (calculated in a manner
consistent with the manner in which such management fees would have been
calculated under Section 3.1(h) of the Partnership Agreement had such
systems been owned by the Partnership during such period) minus
(B) capital expenditures, plus or minus (C) changes in working capital
from the
<PAGE>
beginning of such period to the end of such period (assuming for such
purposes that working capital as of June 30, 1996 is zero). For
purposes of the foregoing, the Cash Flow generated by the Excess Paragon
Subscribers and the TWE Paragon Subscribers, respectively, shall bear
the same proportion to the total Cash Flow generated by the Designated
Paragon Systems as the number of subscribers comprising the Excess
Paragon Subscribers and the TWE Paragon Subscribers, respectively, bear
to the total number of subscribers served by all Designated Paragon
Systems. The adjustments made pursuant to this Section 10 are already
reflected in the capital account balances of the partners of the
Partnership and, accordingly, no additional adjustments to the partners'
capital account balances shall be made in respect of such adjustments.
Notwithstanding anything to the contrary contained in the Contribution
Agreement, the Free Cash Flow Amount payable by TWE to the Partnership
in respect of the assets described in paragraph 1 of Schedule A to the
April 1995 Letter for the period from April 1, 1995 through June 30,
1996 shall not take into account changes in working capital.
(b) Dispute Resolution. At the request of
Advance/Newhouse, TWE shall provide Advance/Newhouse with prompt and
complete access to all working papers and relevant supporting
documentation as well as appropriate TWE personnel, in each case
reasonably necessary in connection with Advance/Newhouse's review of the
information set forth in the TWE Closing Adjustments Certificate. If
Advance/Newhouse shall conclude that the TWE Closing Adjustments
Certificate is not accurate, then Advance/Newhouse, within 90 days of
receipt of such Closing Adjustments Certificate, shall furnish TWE with
a written statement of any discrepancy or discrepancies believed to
exist (the "Dispute Certificate"). Advance/Newhouse and TWE shall
attempt jointly to resolve any discrepancy set forth in the Dispute
Certificate within 30 days after receipt thereof which resolution, if
achieved, shall be binding upon all parties to this Agreement and not
subject to dispute or review. If Advance/Newhouse and TWE cannot
resolve the discrepancy to their mutual satisfaction within such 30-day
period, Advance/Newhouse or TWE shall, within 10 days following the
expiration of such 30-day period, jointly designate a nationally known
independent certified public accounting firm to review the TWE Closing
Adjustments Certificate, together with the Dispute Certificate and any
other relevant documents. If Advance/Newhouse and TWE do not agree upon
a nationally known independent certified public accounting firm in
accordance with the preceding sentence within such 10-day period, then
such review shall be performed by a nationally known independent
certified public accounting firm selected by two other nationally known
independent certified public accounting firms, one selected by
Advance/Newhouse and one selected by TWE; provided that if one party
fails to notify the other party of its selection within 5 days following
receipt from the other party of its selection, the accounting firm so
selected shall perform such review. The cost of retaining such
accounting firm shall be borne one-half by Advance/Newhouse and one-half
by TWE. Such accounting firm shall report its conclusions and such
report shall be conclusive and binding on all parties to
<PAGE>
this Agreement and not subject to dispute or review and, if necessary,
the parties shall take all such action necessary to implement such
conclusions.
11. Other Agreements.
(a) Revised Long Term Strategic Plan. Within 60
days following the Effective Date, TWE shall present to Advance/Newhouse
for its approval a revised Long Term Strategic Plan as contemplated by
Section 3.3(a) of the Partnership Agreement, which plan shall give
effect to the acquisition by the Partnership of the Designated CVI
Systems, the Designated Paragon Systems and the Designated Primestar
Subscribers.
(b) Post-Closing Accounting Report. Within 90 days
following the Effective Date, TWE shall provide to the Advance/Newhouse
Accountants a complete report on the following matters:
(i) Accounting for the Designated Paragon Interest for the
period from April 1, 1995 through June 30, 1996.
(ii) Revised accounting for the assets described in
paragraph 1 of Schedule A to the April 1995 Letter for the period
from April 1, 1995 through June 30, 1996 based upon a pro rata
allocation of the Designated Paragon Systems.
(iii) Accounting for all Partnership Primestar activity
during the period from October 1, 1995 through June 30, 1996, and
the Primestar activity within the TWE Systems and the
Advance/Newhouse Systems (each, as defined in the Contribution
Agreement) for the period from April 1, 1995 through September 30,
1995. Such report shall include a complete and correct listing of
all Partnership Primestar territories (whether or not any
subscribers are currently served) and shall properly allocate to
the Partnership all Primestar activity in all systems formerly
owned by Advance/Newhouse and all TWE systems contributed to the
Partnership, plus Savannah.
TWE shall fully and promptly cooperate with the Advance/Newhouse
Accountants in their review and audit of such reports so that within 90
days of receipt of such reports, TWE and Advance/Newhouse shall be in
position to agree upon the final accounting of such matters. TWE shall
thereafter make any appropriate adjustments.
(c) Amendment to Section 6.7 of Contribution
Agreement. Section 6.7 of the Contribution Agreement shall be amended
(effective from and after the Effective Date) by deleting the following
words from the third sentence thereof: "(net of taxes on the net income
relating thereto calculated at the highest marginal combined Federal,
state and local income tax rate (giving effect to the deduction of state
and local income taxes, as applicable, for Federal and state income tax
<PAGE>
purposes), applicable to a corporation located in the jurisdiction in
which the Person holding such Beneficial Asset is located)".
(d) Substitution of Paragon for TW Holding Co.
Prior to the Closing, TWE may elect by written notice to
Advance/Newhouse, to substitute Paragon Communications, a Colorado
general partnership ("Paragon"), for TW Holding Co., in which case all
references herein to TW Holding Co. shall be deemed to mean Paragon.
12. Miscellaneous.
(a) This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (other
than its rules of conflicts of law to the extent the application of the
law of another jurisdiction would be required thereby).
(b) The parties hereto shall cooperate with each
other and their respective counsel and accountants in connection with
any steps required to be taken as part of their respective obligations
under this Agreement and will each use reasonable best efforts to
perform or fulfill all conditions and obligations to be performed or
fulfilled by them under this Agreement so that the transactions
contemplated hereby shall be consummated.
(c) This Agreement may be terminated by either TWE
or Advance/Newhouse (by delivery of written notice to the other) if the
Closing hereunder has not occurred on or before April 1, 1998.
(d) Section headings contained in this Agreement are
inserted only as a matter of convenience and reference and in no way
define, limit, extend or describe the scope of this Agreement or the
intent of any provisions hereof.
(e) This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which, when
taken together, shall constitute one and the same instrument.
<PAGE>
(f) This Agreement supersedes the Original
Transaction Agreement and from and after the date hereof the Original
Transaction Agreement shall be of no force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
ADVANCE PUBLICATIONS, INC.
By: /s/ S.I. NEWHOUSE, JR.
Name: S.I. Newhouse, Jr.
Title: Chairman & Vice President
NEWHOUSE BROADCASTING
CORPORATION
By: /s/ S.I. NEWHOUSE, JR.
Name: S.I. Newhouse, Jr.
Title: Vice President
ADVANCE/NEWHOUSE PARTNERSHIP
By: ADVANCE COMMUNICATION
CORP., General Partner
By: /s/ S.I. NEWHOUSE, JR.
Name: S.I. Newhouse, Jr.
Title: Vice President
By: NEWHOUSE BROADCASTING
CORPORATION, General Partner
By: /s/ S.I. NEWHOUSE, JR.
Name: S.I. Newhouse, Jr.
Title: Vice President
<PAGE>
TIME WARNER ENTERTAINMENT
COMPANY, L.P.
By: /s/ SPENCER B. HAYS
Name: Spencer B. Hays
Title: Vice President
TW HOLDING CO.
By: TWI CABLE INC., General Partner
By: /s/ SPENCER B. HAYS
Name: Spencer B. Hays
Title: Vice President
TIME WARNER ENTERTAINMENT -
ADVANCE/NEWHOUSE PARTNERSHIP
By: TIME WARNER ENTERTAINMENT
COMPANY, L.P., General Partner
By: /s/ SPENCER B. HAYS
Name: Spencer B. Hays
Title: Vice President
<PAGE>
By: ADVANCE/NEWHOUSE
PARTNERSHIP, General Partner
By: ADVANCE COMMUNICATION CORP.,
General Partner
By: /s/ S.I. NEWHOUSE, JR.
Name: S.I. Newhouse, Jr.
Title: Vice President
By: NEWHOUSE BROADCASTING
CORPORATION, General Partner
By: /s/ S.I. NEWHOUSE, JR.
Name: S.I. Newhouse, Jr.
Title: Vice President
For purposes of Section 8 only:
TIME WARNER INC.
By: /s/ SPENCER B. HAYS
Name: Spencer B. Hays
Title: Vice President
Accepted and agreed to as
of the date set forth above:
U S WEST, INC.
By: /s/ FRANK EICHLER
Name: Frank Eichler
Title: Vice President
U S WEST MULTIMEDIA COMMUNICATIONS, INC.
By: /s/ FRANK EICHLER
Name: Frank Eichler
Title: Vice President
<PAGE>
