<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 23, 1998
REGISTRATION NO. 333-53553
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TIME WARNER TELECOM LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 4813 APPLIED FOR
(STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
5700 S. QUEBEC STREET, GREENWOOD VILLAGE, CO 80111
(303) 566-1000
(ADDRESS, INCLUDING EACH ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
TIME WARNER TELECOM INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 4813 84-1452416
STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
5700 S. QUEBEC STREET, GREENWOOD VILLAGE, CO 80111
(303) 566-1000
(ADDRESS, INCLUDING EACH ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID J. RAYNER
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
TIME WARNER TELECOM LLC
5700 S. QUEBEC STREET, GREENWOOD VILLAGE, CO 80111
(303) 566-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
WILLIAM P. ROGERS, JR. PETER R. HAJE FAITH D. GROSSNICKLE
CRAVATH, SWAINE & MOORE EXECUTIVE VICE PRESIDENT, SECRETARY AND SHEARMAN & STERLING
WORLDWIDE PLAZA GENERAL COUNSEL 599 LEXINGTON AVENUE,
825 EIGHTH AVENUE, TIME WARNER INC. NEW YORK, N.Y. 10022-6069
NEW YORK, N.Y. 10019-7415 75 ROCKEFELLER PLAZA, (212) 848-4000
(212) 474-1270 NEW YORK, N.Y. 10019
(212) 484-8000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
AGGREGATE AGGREGATE
TITLE OF EACH CLASS AGGREGATE AMOUNT OFFERING OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED TO BE REGISTERED PRICE PER UNIT(1) PRICE(1) REGISTRATION FEE(1)
<S> <C> <C> <C> <C>
Senior Notes Due 2008...................... $400,000,000 100% $400,000,000 $14,750(2)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
(2) $103,250 of the Registration Fee was paid on May 26, 1998 in connection with
the initial registration of debt securities.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED JUNE 23, 1998
$400,000,000
[LOGO]
TIME WARNER TELECOM LLC
TIME WARNER TELECOM INC.
% SENIOR NOTES DUE 2008
------------------------
Interest payable February 15 and July 15
------------------------
TIME WARNER TELECOM LLC (THE 'COMPANY') AND TIME WARNER TELECOM INC., A WHOLLY
OWNED SUBSIDIARY OF THE COMPANY ('TWT' AND, TOGETHER WITH THE COMPANY, THE
'OBLIGORS'), ARE OFFERING $400 MILLION OF % SENIOR NOTES DUE 2008.
THE NOTES ARE REDEEMABLE AT THE OPTION OF THE OBLIGORS, IN WHOLE OR IN PART, AT
ANY TIME ON OR AFTER JULY 15, 2003 AT THE REDEMPTION PRICES SET FORTH HEREIN,
PLUS ACCRUED INTEREST, IF ANY, TO THE DATE OF REDEMPTION. IN ADDITION, AT
ANY TIME PRIOR TO JULY 15, 2001, UP TO 35% OF THE AGGREGATE PRINCIPAL
AMOUNT OF THE NOTES MAY BE REDEEMED BY THE OBLIGORS OR THEIR SUCCESSORS
FROM THE NET PROCEEDS OF ONE OR MORE SALES OF ITS COMMON STOCK OR
EQUIVALENT INTERESTS, AT THE REDEMPTION PRICE SET FORTH HEREIN, PLUS
ACCRUED INTEREST TO THE DATE OF REDEMPTION; PROVIDED, HOWEVER, THAT
AFTER ANY SUCH REDEMPTION AT LEAST 65% OF THE AGGREGATE PRINCIPAL
AMOUNT OF NOTES ORIGINALLY ISSUED REMAINS OUTSTANDING.
THE NOTES WILL BE GENERAL, UNSECURED SENIOR OBLIGATIONS OF THE OBLIGORS, RANKING
PARI PASSU IN RIGHT OF PAYMENT WITH ALL EXISTING AND FUTURE UNSECURED
UNSUBORDINATED OBLIGATIONS, AND SENIOR IN RIGHT OF PAYMENT TO ALL EXISTING
AND FUTURE SUBORDINATED INDEBTEDNESS OF THE OBLIGORS. THE NOTES WILL ALSO
BE SUBORDINATED TO ALL EXISTING AND FUTURE SECURED INDEBTEDNESS OF THE
OBLIGORS TO THE EXTENT OF SUCH SECURITY. AT MARCH 31, 1998, ON A PRO
FORMA BASIS AFTER GIVING EFFECT TO THE OFFERING (AS DEFINED), THE
OBLIGORS WOULD HAVE HAD OUTSTANDING APPROXIMATELY $ MILLION OF
INDEBTEDNESS, APPROXIMATELY $ MILLION OF WHICH WOULD HAVE BEEN
SECURED. IN ADDITION, THE COMPANY IS A HOLDING COMPANY AND THE
NOTES WILL BE EFFECTIVELY SUBORDINATED TO ALL EXISTING AND
FUTURE LIABILITIES (INCLUDING TRADE PAYABLES) OF THE COMPANY'S
SUBSIDIARIES OTHER THAN TWT. ON MARCH 31, 1998, ON THE SAME PRO
FORMA BASIS, THE SUBSIDIARIES OF THE COMPANY OTHER THAN TWT
WOULD HAVE HAD $ MILLION OF LIABILITIES (EXCLUDING
INTERCOMPANY INDEBTEDNESS), INCLUDING $ MILLION OF
INDEBTEDNESS, APPROXIMATELY $ MILLION OF WHICH WOULD
HAVE BEEN SECURED.
------------------------
SEE 'RISK FACTORS' BEGINNING ON PAGE 11 FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PRICE % AND ACCRUED INTEREST, IF ANY
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC (1) COMMISSIONS (2) COMPANY (1) (3)
------------------------ ------------------------ ------------------------------
<S> <C> <C> <C>
Per Note................................. % % %
Total.................................... $ $ $
</TABLE>
- ------------
(1) Plus accrued interest, if any, from , 1998.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
See 'Underwriters.'
(3) Before deducting estimated expenses of $ , payable by the
Company.
------------------------
The Notes are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Shearman & Sterling, counsel for the Underwriters. It is expected that
delivery of the Notes will be made on or about , 1998 at the
office of Morgan Stanley & Co. Incorporated, New York, NY, against payment
therefor in immediately available funds.
------------------------
JOINT BOOK -- RUNNING MANAGERS
MORGAN STANLEY DEAN WITTER LEHMAN BROTHERS
, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
<PAGE>
[GRAPHIC REPRESENTATION]
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING,
AND MAY BID FOR, AND PURCHASE, NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE 'UNDERWRITERS.'
<PAGE>
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE ANY
SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------
UNTIL , 1998 (90 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------
FOR INVESTORS OUTSIDE THE UNITED STATES: NO ACTION HAS BEEN OR WILL BE
TAKEN IN ANY JURISDICTION BY THE COMPANY OR BY ANY UNDERWRITER THAT WOULD PERMIT
A PUBLIC OFFERING OF THE NOTES OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS
IN ANY JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED, OTHER THAN IN THE
UNITED STATES. PERSONS INTO WHOSE POSSESSION THIS PROSPECTUS COMES ARE REQUIRED
BY THE COMPANY AND THE UNDERWRITERS TO INFORM THEMSELVES ABOUT AND TO OBSERVE
ANY RESTRICTIONS AS TO THE OFFERING OF THE NOTES AND THE DISTRIBUTION OF THIS
PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................... 4
Risk Factors..................................... 11
Use of Proceeds.................................. 22
The Reorganization............................... 23
Capitalization................................... 24
Selected Combined Financial and Other Operating
Data........................................... 25
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 27
Business......................................... 35
Management....................................... 50
Certain Relationships and Related Transactions... 60
<CAPTION>
PAGE
----
<S> <C>
Principal Members................................ 65
Description of the Notes......................... 66
Description of Interests......................... 91
Description of Capital Stock..................... 93
Certain United States Federal Tax Consequences to
Non-United States Holders of Notes............. 95
Underwriters..................................... 97
Legal Matters.................................... 97
Experts.......................................... 97
Additional Information........................... 98
Glossary......................................... 99
Index to Combined Financial Statements........... F-1
</TABLE>
------------------------
Certain statements contained herein under 'Prospectus Summary,' 'Risk
Factors,' 'Management's Discussion and Analysis of Financial Condition and
Results of Operations' and 'Business' including, without limitation, those
concerning the Company's business and operating strategy, contain certain
forward-looking statements concerning the Company's operations, economic
performance and financial condition. Because such statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause such
differences include, but are not limited to, those discussed under 'Risk
Factors.'
3
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the Company's financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
As used herein, the term 'Company' refers to Time Warner Telecom LLC, its
consolidated and unconsolidated subsidiaries, including TWT, and all operations
of the Company that were historically conducted by the Members (as defined
herein). The term 'Members' refers to Time Warner Inc. and certain of its
subsidiaries (collectively, 'TW'), MediaOne Group, Inc. and certain of its
subsidiaries (collectively, 'MediaOne'), and Advance/Newhouse Partnership
('Newhouse'). TW and MediaOne, through certain subsidiaries, are partners in
Time Warner Entertainment Company, L.P. ('TWE'). TWE and Newhouse are partners
in Time Warner Entertainment-Advance/Newhouse Partnership ('TWE-A/N'). The term
'TW Cable' refers collectively to the cable systems owned by subsidiaries and
divisions of TWE, TWE-A/N and TW. The Company was recently formed in connection
with a reorganization (the 'Reorganization') of the assets and liabilities of
its business, which were previously owned by subsidiaries and divisions of TWE,
TWE-A/N and TW (together, the 'Parent Companies'). The Reorganization will be
consummated immediately prior to effectiveness of the Registration Statement of
which this Prospectus forms a part. In connection with the Reorganization, TW,
MediaOne and Newhouse will receive 61.95%, 18.88%, and 19.17% respectively, of
the limited liability company interests in the Company. See 'The Reorganization'
and 'Principal Members.' Unless otherwise indicated, the information set forth
in this Prospectus gives effect to the transactions described herein under 'The
Reorganization.' See 'Glossary' for definitions of certain other terms used in
this Prospectus.
THE COMPANY
The Company is a leading facilities-based competitive local exchange
carrier ('CLEC') in selected metropolitan areas across the United States,
offering a wide range of business telephony services, primarily to medium- and
large-sized business customers and other carriers. The Company's customers are
principally telecommunications-intensive business end-users, long distance
carriers ('IXCs'), Internet service providers ('ISPs'), wireless communications
companies and governmental entities. Such customers are offered a wide range of
integrated telecommunications services, including dedicated transmission, local
switched, data and video transmission services and certain Internet services.
The Company has deployed switches in 16 of its 19 service areas as of March 31,
1998, and management expects that a growing portion of the Company's revenues
will be derived from providing switched services. In addition, the Company
benefits from its strategic relationship with TW Cable both through network
facilities access and cost-sharing. As a result, the Company's networks have
been constructed primarily through licensing the use of fiber capacity from TW
Cable. As of March 31, 1998, the Company operated networks in 19 metropolitan
areas that spanned 6,239 route miles, contained 244,894 fiber glass miles and
offered service to 2,711 buildings. Consolidated revenues for the Company, which
have historically been primarily derived from private line services, grew by
117.2% for the three months ended March 31, 1998 as compared to the same period
in 1997.
The business of the Company was commenced in 1993 by TW Cable, originally
to provide certain telephony services together with cable television. In January
1997, the Company put in place a new management team that is implementing a
business strategy focused on exclusively serving business customers, rapidly
providing switched services in all the Company's service areas and expanding the
range of business telephony services offered by the Company.
The Company believes that the Telecommunications Act of 1996 (the '1996
Act') and certain state regulatory initiatives provide increased opportunities
in the telecommunications marketplace by opening all local service areas to
competition and requiring incumbent local exchange carriers ('ILECs') to provide
increased direct interconnection. According to the Federal Communications
Commission (the 'FCC'), in 1996 the total revenues for the telecommunications
industry amounted to approximately $222 billion, of which approximately $122
billion was local service and approximately $100 billion was long distance.
BUSINESS STRATEGY
The Company's primary objective is to be a leading CLEC in its existing and
future service areas, offering medium- and large-sized businesses superior
telecommunications services through advanced networks. The key elements of the
Company's business strategy include the following:
4
<PAGE>
<PAGE>
Leverage Existing Fiber Optic Networks. The Company has designed and
built its networks to serve geographic locations where management believes
there are large numbers of potential customers. As of March 31, 1998, the
Company operated networks that spanned 6,239 route miles and contained
244,894 fiber miles. The Company's highly concentrated networks have yet to
be fully exploited and provide the capacity to serve a substantially larger
base of customers. Management believes that the Company's extensive fiber
network capacity allows it to: (i) increase orders substantially from new
and existing customers without incurring significant additional capital
expenditures and operating expenses; (ii) emphasize its facilities-based
services rather than resales of network capacity of other providers; and
(iii) exert greater control over its services than the Company's
competitors that are dependent upon off-net facilities, thereby providing
better customer service.
Expand Switched Services. The Company provided a broad range of
switched services in 16 of its service areas as of March 31, 1998, and
plans to provide switched services in all of its current service areas by
the end of 1999. For the three months ended March 31, 1998, consolidated
revenues from switched service grew by 187.0% as compared to the same
period in 1997. Because the demand for switched services is greater than
for dedicated transport services, and the Company has been rapidly
installing switches in its markets, Management expects the Company to
derive a growing portion of its revenues from switched services.
Target Medium- and Large-Sized Business Customers. The Company
operates networks in metropolitan areas that have high concentrations of
medium- and large-sized businesses. Such businesses tend to be
telecommunications-intensive and are more likely to seek the greater
reliability provided by an advanced network such as the Company's. Thus,
management believes that significant economies of scale may be achieved by
focusing and intensifying its sales and marketing efforts on such
businesses as they are potentially high volume users of the Company's
services. To drive revenue growth in these markets, the Company is
aggressively expanding its direct sales force to focus on such business
customers.
Interconnect Service Areas within Clusters. The 19 service areas in
which the Company currently operates are grouped in six geographic clusters
across the United States. The Company plans to interconnect each service
area within a cluster with broadband, fiber optic facilities of its own or
licensed from TW Cable and/or third parties. Interconnecting the service
areas within a cluster will enable the Company to increase its revenue
potential by addressing customers' regional long distance voice, data and
video requirements. In 1998, management plans to begin interconnecting
service areas within the Company's Midwest, Southwest and Southeast
clusters.
Utilize Strategic Relationships with TW Cable. The Company has
benefited from and continues to leverage its relationships with TW Cable,
the second largest multiple system cable operator in the U.S., by licensing
and sharing the cost of digital fiber optic facilities. This licensing
arrangement allows the Company to benefit from TW Cable's access to
rights-of-way, easements, poles, ducts and conduits. By leveraging its
existing relationship with TW Cable, the Company believes that it can
increase revenues, benefit from existing regulatory approvals and licenses,
derive economies of scale in network costs and extend its existing networks
in a rapid, efficient and cost-effective manner. Furthermore, management
believes that the strong awareness and positive recognition of the 'Time
Warner' brand name significantly contributes to its marketing programs and
sales efforts by distinguishing it from its competitors.
Expand Product Offerings. The Company intends to increase revenues and
cash flows by developing and tailoring diversified bundles of telephony
services for its customers. The services currently offered by the Company
include a wide range of dedicated transmission, local switched, data and
video transmission services and certain Internet services. The Company
intends to offer additional services including long distance service and
other high speed data transport services. The Company generally develops
its customer base by first offering basic telecommunications services to
its new customers. As the needs of such customers change and develop, the
Company selectively bundles and offers more sophisticated, higher margin
products and services to them.
Enter into New Geographic Areas. The Company's strategy is to target
metropolitan areas possessing demographic, economic and telecommunications
demand profiles that it believes provide it with the potential to generate
an attractive economic return. Currently, the Company operates networks in
a total of
5
<PAGE>
<PAGE>
19 metropolitan areas. Management plans to have networks in operation or
under construction in several additional service areas by the end of 1999,
most of which will be in service areas where TW Cable has already made
substantial infrastructure investments. By licensing capacity from TW
Cable's existing fiber optic networks, the Company can develop new networks
quickly and cost-effectively, thereby giving it a competitive advantage
over other CLECs. See 'Certain Relationships and Related
Transactions -- Certain Operating Agreements.'
Continue Disciplined Expenditure Program. The Company increases
operational efficiencies by pursuing a disciplined approach to capital
expenditures. This capital expenditure program requires that prior to
making any expenditure on a project, the project must be expected to meet
stringent financial criteria such as minimum recurring revenue, cash flow
margins and rate of return. In addition, to control capital expenditures
and share the risks of developing costly new networks, management is
considering establishing strategic alliances with other telecommunications
providers in the form of joint ventures and possible co-branding marketing
programs.
FINANCING PLAN
The Company expects that the net proceeds of the Offering, together with
internally generated funds, will provide sufficient funds for the Company to
expand its business as currently planned, pay interest on the Notes and fund
its currently expected losses through the end of 1999. Thereafter, the Company
expects to require additional financing. See 'Use of Proceeds.'
THE REORGANIZATION
The Company was recently formed in connection with the Reorganization of
the assets and liabilities of its business, which were previously owned by
subsidiaries and divisions of the Parent Companies. In connection with the
Reorganization, the Members received all the outstanding limited liability
company interests in the Company. The interests in the Company are divided into
Class A limited liability company interests (the 'Class A Interests') and Class
B limited liability company interests (the 'Class B Interests' and, together
with the Class A Interests, the 'Interests'). The holders of the Class A
Interests have virtually no voting or approval rights, except with respect to an
amendment of the LLC Agreement (as defined) which is adverse to the interests
of such holders, and the holders of the Class B Interests have the voting
rights set forth in the LLC Agreement. The Company has not issued any Class A
Interests and the Members hold 100% of the Class B Interests. See 'The
Reorganization' and 'Principal Members.'
TWT has no operations or assets and was formed solely for the purpose of
serving as co-obligor of the Notes.
The Amended and Restated Limited Liability Company Agreement of the Company
(the 'LLC Agreement') provides that if the Members unanimously agree to do so,
the Company will be reconstituted (either by merger, exchange, contribution of
assets or a similar type of transaction) as a Delaware corporation (the
'Reconstitution') so that an initial public offering of the Class A Common Stock
of such corporation (an 'Initial Public Offering') may be effected. Upon the
Reconstitution, the Company will have authorized two classes of common stock,
Class A Common Stock ('Class A Common Stock'), which will carry one vote per
share, and Class B Common Stock ('Class B Common Stock', and together with Class
A Common Stock, 'Common Stock') which will carry ten votes per share. Pursuant
to the Reconstitution, holders of Class B Interests will receive shares of Class
B Common Stock and holders of Class A Interests, if any, will receive shares of
Class A Common Stock pursuant to the Reconstitution. As used herein, the term
'Existing Stockholders' means the Members who become holders of Common Stock
following the Reconstitution. In connection with the Reconstitution, the
Existing Stockholders will enter into a Stockholders' Agreement (the
'Stockholders Agreement') which will provide for the election of directors
designated by the Existing Stockholders, and will govern transfers of Common
Stock by the Existing Stockholders. See 'Certain Relationships and Related
Transactions -- LLC Agreement' and ' -- Stockholders Agreement.'
The Company was organized as a limited liability company in the State of
Delaware in 1998 and TWT was incorporated in the State of Delaware in 1998. The
Company's and TWT's principal executive offices are located at 5700 S. Quebec
Street, Greenwood Village, CO 80111, and their telephone number is (303)
566-1000.
6
<PAGE>
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered..................... $400.0 million aggregate principal amount of % Senior Notes due 2008
(the 'Offering').
Maturity............................... July 15, 2008
Yield and Interest..................... Interest on the Notes is payable semiannually in cash on February 15 and
July 15 of each year, commencing on February 15, 1999.
Optional Redemption.................... The Notes are redeemable prior to maturity, in whole or in part, at the
option of the Obligors at any time on or after July 15, 2003, initially
at % of their principal amount, plus accrued interest, declining to
100% of their principal amount, plus accrued interest, on or after July
15, 2006. In addition, at any time prior to July 15, 2001, up to 35% of
the aggregate principal amount of the Notes may be redeemed by the
Obligors from the net proceeds of one or more sales of the common stock
or equivalent interests of the Company or any successor thereto at %
of their principal amount plus accrued interest to the date of
redemption; provided, however, that after any such redemption at least
65% of the aggregate principal amount of the Notes originally issued
remains outstanding. See 'Description of the Notes.'
Change of Control...................... Upon a Change of Control (as defined), the Obligors will be
required to make an offer to purchase the Notes at a purchase price
equal to 101% of the principal amount thereof, plus accrued interest.
There can be no assurance that the Obligors will have sufficient funds
available at the time of any Change of Control to make any required debt
repayment (including repurchases of the Notes). See 'Description of the
Notes -- Repurchase of Notes upon a Change of Control.'
Ranking................................ The Notes will be general, unsecured senior obligations of the Obligors,
ranking pari passu in right of payment with all existing and future
unsecured unsubordinated obligations, and senior in right of payment to
all existing and future subordinated indebtedness of the Obligors. The
Notes will also be subordinated to all existing and future secured
indebtedness of the Obligors to the extent of such security. At March 31,
1998 on a pro forma basis after giving effect to the Offering, the
Obligors would have had outstanding approximately $ million of
indebtedness, approximately $ million of which would have been
secured and approximately $ million of which would have been expressly
subordinated to the Notes. In addition, the Company is a holding company
and the Notes will be effectively subordinated to all existing and
future liabilities (including trade payables) of the Company's
subsidiaries other than TWT. On March 31, 1998, on the same pro forma
basis, the subsidiaries of the Company other than TWT would have had
$ million of liabilities (excluding intercompany indebtedness),
including $ million of indebtedness, approximately $ million of
which would have been secured. See 'Description of the
Notes -- Ranking.'
Certain Covenants...................... The Indenture (as defined) will contain certain covenants, including,
but not limited to, covenants with respect to the following matters: (i)
limitation on indebtedness; (ii) limitation on restricted payments;
(iii) limitation on dividend and other payment restrictions affecting
restricted subsidiaries; (iv) limitation on the issuance and sale of
capital stock of restricted subsidiaries; (v) limitation on issuances of
guarantees by restricted subsidiaries; (vi) limitation on transactions
</TABLE>
7
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<PAGE>
<TABLE>
<S> <C>
with shareholders and affiliates; (vii) limitation on liens; (viii)
limitation on sale-leaseback transactions; and (ix) limitation on asset
sales. See 'Description of the Notes -- Certain Covenants' and
'Description of Certain Indebtedness.'
Use of Proceeds........................ The net proceeds to the Obligors from the Offering will be used to
expand and develop existing and new networks and for general corporate
and working capital purposes, which may include payment of interest on
the Notes and acquisitions of and joint ventures with other
telecommunications service providers. See 'Use of Proceeds.'
</TABLE>
RISK FACTORS
Prospective investors should consider all of the information contained in
this Prospectus before making an investment in the Notes. In particular,
prospective investors should consider the factors set forth herein under 'Risk
Factors.'
8
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<PAGE>
SUMMARY COMBINED FINANCIAL AND OTHER OPERATING DATA
The summary statement of operations data for the years ended December 31,
1995, 1996 and 1997 are derived from the audited financial statements of the
Company, including the notes thereto, appearing elsewhere in this Prospectus.
The summary statement of operations data for the year ended December 31, 1994
has been derived from audited financial statements of the Company not included
herein. The summary statement of operations data for the year ended December 31,
1993 and for the three months ended March 31, 1998 and 1997 and the summary
balance sheet data as of March 31, 1998 has been derived from the Company's
unaudited internal financial statements, which in the opinion of management,
have been prepared on the same basis as the audited financial statements and
reflect all adjustments (consisting of normal recurring adjustments), necessary
for a fair presentation of the Company's results of operations and financial
position. Operating results for the three months ended March 31, 1998 are not
necessarily indicative of results that may be expected for the full year. The
summary other operating data have been derived from the accounting records of
the Company and have not been audited. The financial statements of the Company
reflect the 'carved out' historical financial position, results of operations,
cash flows and changes in members' equity of the commercial telecommunications
operations of the Parent Companies, as if they had been operating as a separate
company. The summary financial and other operating data set forth below should
be read in conjunction with the information contained in 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
the Company's financial statements, including the notes thereto, appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------------- ---------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- --------- --------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Dedicated transport services...... $ 1,913 $ 2,169 $ 6,505 $ 20,362 $ 44,529 $ 8,301 $ 16,733
Switched services................. -- -- 350 3,555 10,872 1,852 5,315
-------- -------- --------- --------- --------- -------- --------
Total revenues................ 1,913 2,169 6,855 23,917 55,401 10,153 22,048
-------- -------- --------- --------- --------- -------- --------
Costs and expenses:
Operating (1)..................... 3,219 10,454 15,106 25,715 40,349 8,384 13,519
Selling, general and
administrative (1).............. 7,035 26,066 34,222 60,366 54,640 11,985 16,316
Depreciation and amortization
(1)............................. 578 1,213 7,216 22,353 38,466 8,842 11,932
-------- -------- --------- --------- --------- -------- --------
Total costs and expenses...... 10,832 37,733 56,544 108,434 133,455 29,211 41,767
-------- -------- --------- --------- --------- -------- --------
Operating loss........................ (8,919) (35,564) (49,689) (84,517) (78,054) (19,058) (19,719)
Gain on disposition of investment
(2)................................. -- -- -- -- 11,018 -- --
Equity in losses of unconsolidated
affiliates.......................... (392) (1,611) (1,391) (1,547) (2,082) (593) (58)
Interest expense, net (1)............. (81) (3) (25) (52) (1,538) -- (2,011)
-------- -------- --------- --------- --------- -------- --------
Net loss.............................. $ (9,392) $(37,178) $ (51,105) $ (86,116) $ (70,656) $(19,651) $(21,788)
-------- -------- --------- --------- --------- -------- --------
-------- -------- --------- --------- --------- -------- --------
Deficiency in coverage of fixed
charges by earnings before fixed
charges (3)......................... $ (9,392) $(37,178) $ (51,075) $ (86,076) $ (70,629) $(19,641) $(21,788)
-------- -------- --------- --------- --------- -------- --------
-------- -------- --------- --------- --------- -------- --------
OTHER OPERATING DATA:
EBITDA (4)............................ $ (8,341) $(34,351) $ (42,473) $ (62,164) $ (39,588) $(10,216) $ (7,787)
EBITDA Margin (5)..................... (436.0)% (1,583.7)% (619.6)% (259.9)% (71.5)% (100.6)% (35.3)%
Capital expenditures.................. 7,154 50,293 141,479 144,815 127,315 14,261 24,961
Cash used in operations............... (3,100) (14,873) (35,605) (52,274) (29,419) (28,694) (15,103)
Cash used in investing activities..... (10,656) (52,632) (145,293) (149,190) (120,621) (14,233) (24,961)
Cash provided by financing
activities.......................... 13,756 67,505 180,898 201,464 150,040 42,927 40,064
Pro forma interest expense (6)(7).....
Pro forma net loss (6)................
Pro forma deficiency in coverage of
fixed charges by earnings before
fixed charges (3)(6)................ $ $
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
----------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
----- ------- -------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA (8):
Operating Networks................................... 3 8 15 18 19 19
Route miles.......................................... 168 880 3,207 5,010 5,913 6,240
Fiber miles.......................................... 5,820 24,995 116,286 198,490 233,488 244,894
Voice grade equivalent circuits...................... -- 39,002 158,572 687,001 1,702,431 1,904,420
Digital telephone switches........................... -- -- 1 2 14 16
Employees............................................ 78 239 508 673 714 739
Access lines......................................... -- -- 493 2,793 16,078 23,702
</TABLE>
(footnotes on next page)
9
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<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-------------------------
AS ADJUSTED
FOR THE
OFFERING
ACTUAL (9)
--------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................................. $ --
Property, plant and equipment, net........................................................ 428,319
Total assets.............................................................................. 453,475
Long-term debt(10)........................................................................ 117,547
Total members' equity..................................................................... 278,602
</TABLE>
- ------------
(1) Includes expenses resulting from transactions with affiliates of $168,000
in 1993, $1,901,000 in 1994, $6,507,000 in 1995, $11,023,000 in 1996 and
$15,306,000 in 1997 and $3,486,000 and $5,479,000 in the three months ended
March 31, 1997 and 1998, respectively.
(2) In September 1997, the Company completed a series of transactions related
to its interests in the Hyperion Partnerships, a group of unconsolidated
telecommunication partnerships serving the New York area, whereby it sold
its interests in the partnerships serving the Buffalo and Syracuse markets
in exchange for $7.0 million of cash and all of the minority interests in
the partnerships serving the Albany and Binghamton markets that were not
already owned by the Company. In connection with these transactions, the
Company recognized a gain of approximately $11.0 million.
(3) For purposes of this calculation, earnings were calculated by adding (i)
net loss; (ii) interest expense, including the portion of rents
representative of an interest factor and (iii) the amount of undistributed
losses of the Company's less than 50%-owned companies. Fixed charges
consist of interest expense and the portion of rents representative of an
interest factor.
(4) EBITDA consists of operating income (loss) before depreciation and
amortization ('EBITDA'). Industry analysts generally consider EBITDA to be
an important measure of comparative operating performance for the
telecommunications industry, and when used in comparison to debt levels or
the coverage of interest expense, as a measure of liquidity. However,
EBITDA should be considered in addition to, not as a substitute for,
operating income, net income, cash flow and other measures of financial
performance and liquidity reported in accordance with generally accepted
accounting principles. EBITDA as defined herein may not be comparable to
similarly titled measures reported by other companies. Additionally,
certain covenants contained in the Indenture are based on EBITDA. See the
Combined Statements of Cash Flows contained elsewhere in this Prospectus.
(5) EBITDA Margin represents EBITDA as a percentage of revenues.
(6) The pro forma data for the three months ended March 31, 1998 and the year
ended December 31, 1997 give effect to the Offering as if it occurred at
the beginning of 1997. Such pro forma amounts are presented for
informational purposes only and are not necessarily indicative of the
actual amounts that would have been reported if the transaction had been
consummated at such date, nor are they necessarily indicative of future
results.
(7) Pro forma interest expense gives effect to the issuance of $400 million
principal amount of the Notes, assuming an interest rate of % on the
Notes, as if such transaction had occurred at the beginning of 1997,
assuming % of the interest on the Notes would have been capitalized
under FASB Statement No. 34 'Capitalization of Interest Costs.' A change of
.125% in the interest rate would change pro forma interest expense by $
for the year ended December 31, 1997 and $ for the three months ended
March 31, 1998.
(8) Includes all managed properties including unconsolidated affiliates
(MetroComm AxS, L.P. in Columbus, Ohio and the Albany and Binghamton, New
York networks). Albany and Binghamton were wholly owned at December 31,
1997.
(9) Adjusted to give effect to the issuance of $400 million principal amount of
the Notes. See 'Use of Proceeds' and 'Capitalization.'
(10) As of March 31, 1998, $117,547,000 of long-term debt consisted of
subordinated loans payable to the Parent Companies. All such indebtedness
to the Parent Companies pays interest in kind at an annual rate equal to
The Chase Manhattan Bank's prime lending rate as in effect from time to
time, is expressly subordinated to the Notes and matures one month
following the maturity of the Notes.
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RISK FACTORS
Prior to purchasing any of the Notes offered hereby, prospective investors
should consider carefully the following factors in addition to the other
information contained in this Prospectus.
LIMITED HISTORY OF OPERATIONS; NEGATIVE CASH FLOW AND OPERATING LOSSES
The Company was formed in 1998 pursuant to the Reorganization to continue
the business telephony services commenced by TW Cable in 1993. TWT has no
operations or assets and was formed in 1998 solely for the purpose of serving as
co-obligor of the Notes. Accordingly, prospective investors have limited
historical financial information upon which to base an evaluation of the
Company's performance and an investment in the Notes. The Company's prospects
must be considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development and growth.
The Company has incurred operating losses and negative cash flow since
inception, and expects to continue to incur operating losses and negative cash
flow while it installs, develops and expands its existing and future
telecommunications networks and builds its customer base. For the years ended
December 31, 1996 and 1997, on a consolidated basis, the predecessor entities of
the Company operating the commercial telecommunications operations of the Parent
Companies sustained combined operating losses of $84.5 million and $78.1
million, respectively, and negative EBITDA of $62.2 million and $39.6 million,
respectively. EBITDA consists of operating income (loss) before depreciation and
amortization ('EBITDA'). Industry analysts generally consider EBITDA to be an
important measure of comparative operating performance for the
telecommunications industry, and when used in comparison to debt levels or the
coverage of interest expense, as a measure of liquidity. However, EBITDA should
be considered in addition to, not as a substitute for, operating income, net
income, cash flow and other measures of financial performance and liquidity
reported in accordance with generally accepted accounting principles. EBITDA as
defined herein may not be comparable to similarly titled measures reported by
other companies. The capital expenditures of the Company associated with the
installation, development and expansion of its existing networks and possible
acquisitions of future networks are substantial, and a significant portion of
these expenditures generally are incurred before any related revenues are
realized. These expenditures, together with associated initial operating
expenses, will generally result in negative cash flow and operating losses from
a network until an adequate customer base and revenue stream for the network
have been established. Accordingly, the Company expects that each network will
generally produce negative cash flow for at least two and a half years after
operations commence in such network. The Company expects to incur net losses for
the foreseeable future as it continues to acquire, install, develop and expand
its existing and new telecommunications networks and build its customer base.
There can be no assurance that an adequate revenue base will be established from
each of the Company's networks or that the Company will achieve or sustain
profitability or generate sufficient positive cash flow, if any, to meet its
working capital requirements and to service its indebtedness.
HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION OF THE NOTES TO INDEBTEDNESS
OF SUBSIDIARIES
The Company is a holding company and, following the Offering, its only
material assets will consist of the equity interests of its operating
subsidiaries. TWT, a wholly owned subsidiary of the Company, has no operations
or assets and was formed solely for the purpose of serving as co-obligor of the
Notes. The Company will be required to rely upon dividends and other payments
from its subsidiaries or the proceeds of future debt or equity financings to
generate the funds necessary to pay the principal of and interest on the Notes.
There can be no assurance that such financing will be available on terms
acceptable to the Company or at all. The subsidiaries, however, are legally
distinct from the Company and, other than TWT, have no obligation, contingent or
otherwise, to pay amounts due pursuant to the Notes or to make funds available
for such payment. Neither the Company's subsidiaries nor any other entity has
guaranteed the Notes. The ability of the Company's subsidiaries to make such
dividends and other payments to the Company is subject to, among other things,
the availability of funds, the terms of such subsidiaries' indebtedness and
applicable state laws. Claims of creditors of the Company's subsidiaries,
including trade creditors, will generally have priority as to the assets of such
subsidiaries over the claims of the Company and the holders of the Company's
indebtedness, including the Notes. Accordingly, the Notes are and will be
effectively subordinated to all liabilities (including trade payables) of the
subsidiaries of the Company other than TWT. If the Company negotiates a bank
credit agreement to provide it with working capital and enhanced financial
flexibility, the Notes will be effectively subordinated to
11
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such credit agreement to the extent it is incurred at a subsidiary level. At
March 31, 1998, after giving effect to the issuance of the Notes, the
subsidiaries of the Company other than TWT had approximately $ million of
liabilities (excluding intercompany indebtedness), including $ million of
indebtedness. See 'Description of the Notes.'
SIGNIFICANT CAPITAL REQUIREMENTS
The development and expansion of the Company's existing and future networks
and services will require significant capital to fund capital expenditures,
working capital and debt service. The Company's principal capital expenditure
requirements over the next two years are expected to consist of approximately
(i) $290.0 million to purchase and install switches, electronics, fiber and
other additional technologies in existing networks and in additional networks to
be constructed in new service areas and (ii) $30.0 million for capital
expenditures with respect to the Company's management information system
infrastructure. The Company's expected expenditures for general corporate and
working capital purposes include $80.0 million for operating and administrative
expenses, including debt service. The Company will continue to evaluate
additional revenue opportunities in each of its service areas and, as
opportunities develop, the Company plans to make the additional capital
investments in its networks that are required to pursue such opportunities. The
Company, from time to time, evaluates potential acquisitions of, and joint
ventures relating to, networks currently owned and operated by other companies,
including affiliates of the Members, and expects to continue to do so. In the
event the Company enters into a definitive agreement with respect to any
acquisition or joint venture, it may require additional financing or it may
elect to use a portion of the proceeds of the Offering not theretofore expended
for other purposes. While the Company intends to continue to leverage its
relationship with TW Cable in pursuing expansion opportunities, to the extent
the Company seeks to expand into service areas where TW Cable does not conduct
cable operations, the Company may incur significant additional costs in excess
of those historically incurred by the Company when expanding into existing TW
Cable service areas. In addition, TW Cable is not obligated to construct or
provide additional fiber optic capacity in excess of what is already licensed to
the Company under the Capacity License (as defined). Accordingly, if the Company
is unable to lease such capacity at the same rates as are currently provided for
under the Capacity License, the Company may be required to obtain additional
capacity on more expensive terms. See 'Certain Relationships and Related
Transactions -- Certain Operating Agreements.'
The Company sustained significant working capital deficits in each year
since inception. The Company has historically been funded by capital
contributions and advances from the Parent Companies. As of March 31, 1998, the
Company had outstanding approximately $117.5 million of indebtedness to the
Parent Companies which is subordinated in right of payment to the Notes, bears
interest (payable in kind) at an annual rate equal to The Chase Manhattan Bank's
prime lending rate as in effect from time to time (which was 8.5% at March
31, 1998) and matures on , 2008, one month after the maturity of the
Notes. The principal amount of such Indebtedness to the Parent Companies is
expected to be approximately $ at June 30, 1998. The Indenture provides
that such indebtedness may be repaid with the net proceeds of any offering of
common stock or equivalent interests of the Company. See 'Certain Relationships
and Related Transactions -- Intercompany Subordinated Debt.' The Parent
Companies do not have any obligation to make additional equity investments in
or loans to the Company.
The Company expects that the net proceeds of the Offering, together with
internally generated funds, will provide sufficient funds for the Company to
expand its business as planned, pay interest on the Notes and fund its currently
expected losses through the end of 1999. Thereafter, the Company expects to
require additional financing. However, in the event that the Company's plans or
assumptions change or prove to be inaccurate, or the foregoing sources of funds
prove to be insufficient to fund the Company's growth and operations, or if the
Company consummates acquisitions or joint ventures, the Company may be required
to seek additional capital sooner than currently anticipated. The Company's
revenues and costs are dependent upon many factors that are not within the
Company's control, such as regulatory changes, changes in technology and
increased competition. Due to the uncertainty of these and other factors, actual
revenues and costs may vary from expected amounts, possibly to a material
degree, and such variations are likely to affect the level of the Company's
future capital expenditures and expansion plans. Sources of financing may
include public or private debt or equity financing by the Company or its
subsidiaries, vendor financing or other financing arrangements.
There can be no assurance that the Company will be successful in generating
sufficient cash flow or raising additional financing in sufficient amounts on
terms acceptable to it or within the limitations contained in its
12
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financing arrangements, or that the terms of any such additional financing will
not impair the Company's ability to develop its business. The failure to
generate sufficient cash flow or to raise sufficient funds may require the
Company to modify, delay or abandon some or all of its development and expansion
plans, which could have a material adverse effect on the Company's growth, its
ability to compete in the telecommunications services business and its ability
to service its debt. See 'Use of Proceeds' and 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources.'
SUBSTANTIAL LEVERAGE; INSUFFICIENCY OF EARNINGS TO COVER FIXED CHARGES
The Company will be highly leveraged after the consummation of the
Offering. As of March 31, 1998, after giving pro forma effect to the Offering,
the Company would have had approximately $ million of consolidated total debt,
including $117.5 million of debt to the Parent Companies, and $ million of
consolidated members' equity. Such indebtedness to the Parent Companies is
subordinated in right of payment to the Notes, bears interest (payable in kind)
at The Chase Manhattan Bank's prime rate (which was 8.5% at March 31, 1998)
and matures on , 2008, one month after the maturity of the Notes. The
principal amount of such indebtedness to the Parent Companies is expected to be
approximately $ million at June 30, 1998. The degree to which the Company is
leveraged could have a material adverse effect upon the Company, including:
(i) the Company's ability to obtain additional financing in the future for
capital expenditures, acquisitions, joint ventures, working capital or general
corporate or other purposes may be limited; (ii) a substantial portion of the
Company's cash flow from operations will be dedicated to the payment of the
principal of, and interest on, its debt; and (iii) the Company's substantial
leverage may make it more vulnerable to economic downturns, limit its ability
to withstand competitive pressures and reduce its flexibility in responding to
changing business and economic conditions. A failure by the Company to comply
with the covenants and other provisions of financing documents to which the
Company is a party, including the Indenture, or other debt instruments to which
the Company may become party in the future, could permit acceleration of the
debt under such instruments and, in some cases, acceleration of debt under other
instruments that contain cross-default or cross-acceleration provisions. The
Indenture contains certain restrictive covenants. Such restrictions will affect,
and in many respects will significantly limit or prohibit, among other things,
the ability of the Company to incur indebtedness, make prepayments of certain
indebtedness, pay dividends, make investments, engage in transactions with
shareholders and affiliates, issue capital stock of subsidiaries, create liens,
sell assets and engage in mergers and consolidations.
After giving pro forma effect to the Offering as if such transaction had
occurred at the beginning of the respective periods, the Company's earnings
would have been insufficient to cover its fixed charges by $ million and $
million for the three months ended March 31, 1998 and the year ended December
31, 1997, respectively. The ability of the Company to meet its debt service
obligations will be dependent upon the future performance of the Company, which,
in turn, will be subject to the Company's successful implementation of its
strategy, as well as to financial, competitive, business, regulatory, technical
and other factors, including factors beyond the control of the Company. In
general, the Company expects that the rate at which it implements its expansion
plans will be driven by the rate of growth in its cash flow. Although the
Company believes that it will be able to generate sufficient cash flow from
operations to meet its debt service obligations as they become due, if it is
unable to do so, it could face liquidity problems and be forced to modify, delay
or abandon some or all of its development and expansion plans. In such
circumstances, the Company may be required to renegotiate the terms of the
instruments governing its long-term debt or to refinance all or a portion of its
long-term debt. There can be no assurance, however, that the Company will be
able to renegotiate such terms or refinance its indebtedness successfully on
terms acceptable to it. If the Company were unable to refinance its indebtedness
or obtain new financing under these circumstances, the Company would have to
consider various other options such as the sale of certain assets to meet its
required debt service, the sale of additional equity, negotiations with its
lenders to restructure applicable indebtedness or other options available to it
under law.
RISKS OF EXPANSION; AND POSSIBLE INABILITY TO MANAGE GROWTH
Although the Company commenced operations in 1993, to date its business has
consisted primarily of offering dedicated point-to-point services. With the
adoption of the 1996 Act, the Company accelerated the implementation of switched
services in its markets. The Company expects that switched services will in the
future become the predominant source of its revenues. Switched services support
both analog and digital
13
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equipment compatible with the TDMA, FDMA and CDMA forms of digital telephone
technology. In addition to this transition to switched services, the Company
intends to enter into new geographic markets, expand its operations in existing
markets, interconnect its existing markets and offer additional
telecommunications services, when and if it becomes economically desirable to do
so. The Company's ability to manage the transition to switched services and the
continued expansion of its business will depend on, among other things, the
Company's ability to assess markets, design fiber optic network backbone routes,
acquire and install facilities, obtain and utilize rights-of-way and building
access, obtain any required governmental authorizations and permits and
implement interconnection with local exchange carriers, all in a timely manner,
at reasonable costs and on terms and conditions acceptable to the Company. A
substantial portion of the Company's network build-out plans are dependent upon
its continuing relationship with TW Cable. See ' -- Relationship with TW Cable.'
The successful implementation of the Company's expansion strategy will be
subject to a variety of risks, including operating and technical problems,
regulatory uncertainties, competition and the availability of capital. There can
be no assurance that any existing networks will be successfully expanded or any
new networks will be developed or, if developed, that such new networks will be
completed on schedule, at commercially reasonable costs or within the Company's
specifications. In addition, there can be no assurance that any new or expanded
networks will become profitable or generate positive cash flow at any time in
the future. The Company's inability to expand its existing networks and
operations or install new networks or manage effectively such expansion and
installation could have a material adverse effect upon the Company's business
operations, financial conditions and results of operations. In addition, the
expansion of the Company's business may involve acquisitions or joint ventures
which, if made or entered into, could divert the resources and management time
of the Company and could require integration with the Company's operations. See
' -- Acquisition Related Risks.'
The Company's future performance will depend, in part, upon its ability to
manage its growth effectively. The Company's rapid growth has placed, and in the
future may continue to place, a significant strain on its administrative,
operational and financial resources. The Company's ability to continue to manage
its growth successfully will require the Company to further enhance its
operations, management, financial and information systems and controls and to
expand, train and manage its employee base. In addition, as the Company
increases its service offerings and expands its targeted markets, there will be
additional demands on the Company's customer support, sales, marketing, and
administrative resources and network infrastructure. There can be no assurance
that the Company's administrative, operating and financial resources, systems
and controls will be adequate to manage the Company's growth effectively. The
Company's inability to manage its expansion effectively, including the emergence
of unexpected expansion difficulties, could have a material adverse effect on
the Company's business, results of operations and financial condition.
RELATIONSHIP WITH TW CABLE
The Company is largely dependent upon TW Cable's governmental licenses,
permits and rights-of-way to operate and expand the Company's current business.
TW Cable is principally managed by a management committee that includes
representatives of MediaOne and TW. The Company presently licenses pursuant to
the Capacity License, and may enter into future licenses for, the capacity of
significant numbers of optical fibers from TW Cable; however, TW Cable is not
obligated to license any additional fiber optic capacity not covered by the
Company's current licenses. See 'Certain Relationships and Related
Transactions -- Certain Operating Agreements.' Historically, the Company has
relied on TW Cable's fiber optics in constructing its own networks. In addition,
most of the new service areas in which management is considering operating or
constructing networks are located in areas where TW Cable has already made
substantial infrastructure investments. The inability of the Company to license
additional fiber optic capacity from TW Cable could materially affect the
Company's expansion plans, future business and operations. Any adverse changes
in the ability of TW Cable to obtain and maintain all necessary permits,
licenses, conduit agreements or pole attachment agreements from governmental
authorities or private rights-of-way providers necessary to effectuate such
license transactions may have a material adverse effect on the Company's
business and financial condition.
The Capacity License expires in 2028. Although TW Cable has agreed to
negotiate renewal or alternative provisions in good faith at that time, there
can be no assurance that the parties will agree on the terms of any renewal or
that the terms of any renewal or alternative provisions which may be agreed upon
by the parties will be favorable to the Company. If the Capacity License is not
renewed in 2028, the Company will have no residual interest in the capacity
under the Capacity License and may need to build, lease or otherwise obtain
transmission
14
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capacity in order to service its customers in the service areas covered by the
Capacity License; the terms of such arrangements could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Capacity License also provides that the license of fiber optic capacity
by the Company may be terminated by TW Cable upon (i) a material impairment or
termination of TW Cable's ability to provide such license under relevant law,
(ii) the Company's material breach of the terms and conditions of the Capacity
License or (iii) the institution of any proceedings to impose any public utility
or common carrier status or obligations on TW Cable or any other proceedings
challenging TW Cable's operating authority as a result of the services provided
to the Company under the Capacity License. In addition, under the terms of the
Capacity License, the Company is restricted from utilizing such capacity for
Residential Services (as defined) and Content Services (as defined) during the
term of such license. Although management does not believe that the restrictions
contained in the Capacity License will materially affect its business and
operations in the immediate future, the effect of such restrictions in the
rapidly changing telecommunications industry cannot be predicted. See 'Certain
Relationships and Related Transactions -- Certain Operating Agreements.' The
termination of a Capacity License would terminate the Company's ability to serve
its customers in the applicable market and would have a material adverse effect
on the Company's business, financial condition and results of operations.
RISKS RELATING TO LONG DISTANCE
Currently, the Company offers primarily local telecommunications services.
However, the Company continues to examine opportunities to expand into other
related telecommunications services. If the Company were to expand into new
categories of telecommunications services, it could incur certain additional
demands and risks in connection with such expansion, including demands on its
ability to manage growth, technological compatibility risks, legal and
regulatory risks and possible adverse reaction by some of its current customers.
The Company expects to increase its revenues by providing long distance
services. The long distance business is extremely competitive and prices have
declined substantially in recent years and are expected to continue to decline.
In addition, the long distance industry has historically had a high average
churn rate, as customers frequently change long distance providers in response
to the offering of lower rates or promotional incentives by competitors. The
Company intends to market its long distance services to smaller businesses, a
market segment that has not been a principal focus of the Company's business in
the past and thus one to which the Company has limited experience marketing. The
Company will rely on other carriers to provide transmission and termination
services for a majority of its long distance traffic. The Company will negotiate
resale agreements with long distance carriers to provide it with transmission
services. Such agreements typically provide for the resale of long distance
services on a per minute basis and may contain minimum volume commitments.
Negotiation of these agreements involves estimates of future supply and demand
for transmission capacity as well as estimates of the calling pattern and
traffic levels of the Company's future long distance customers. If the Company
were to fail to meet any minimum volume commitments, it could be obligated to
pay underutilization charges and in the event it underestimates its need for
transmission capacity, the Company may be required to obtain capacity through
more expensive means.
DEPENDENCE UPON INTERCONNECTION WITH ILECS; COMPETITION
The Company operates in an increasingly competitive environment. Services
substantially similar to those offered by the Company are also offered by ILECs
serving the markets currently served or intended to be served by the Company.
ILECs have long-standing relationships with their customers, have financial and
technical resources substantially greater than those of the Company, have the
potential to subsidize services of the type offered by the Company from service
revenues not subject to effective competition and currently benefit from certain
existing regulations that favor the ILECs over CLECs such as the Company in
certain respects. While recent regulatory initiatives, which allow CLECs such as
the Company to interconnect with ILEC facilities, provide increased business
opportunities for the Company, such interconnection opportunities have been
accompanied by increased pricing flexibility for and relaxation of regulatory
oversight of the ILECs.
To the extent the Company interconnects with and uses ILEC networks to
service its customers, the Company will be dependent upon the technology and
capabilities of the ILECs to meet certain telecommunications needs of the
Company's customers and to maintain its service standards. The Company will
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become increasingly dependent on interconnection with ILECs as switched services
become a greater percentage of the Company's business. The 1996 Act imposes
interconnection obligations on ILECs; however, such interconnection requires the
negotiation of interconnection and collocation agreements with the ILECs, which
can take considerable time, effort and expense and are subject to Federal, state
and local regulation. There can be no assurance that the Company will be able to
obtain the interconnection it requires at rates, and on terms and conditions,
that permit the Company to offer switched services at rates that are both
competitive and profitable. In the event that the Company experiences
difficulties in obtaining high quality, reliable and reasonably priced service
from the ILECs, the attractiveness of the Company's services to its customers
could be impaired.
In addition, the 1996 Act allows the Regional Bell Operating Companies
('RBOCs') and others such as electric utilities to enter the long distance
market. Certain of the RBOCs have begun providing out-of-region long distance
services across Local Access and Transport Areas ('interLATA'). When an RBOC
obtains authority to provide in-region interLATA services, it will be able to
offer customers both local and long distance telephone services. Given the
market power the RBOCs currently possess in the local exchange market, the
ability to provide both local and long distance services is expected to make the
RBOCs very strong competitors. Certain RBOCs are actively working to satisfy
prerequisites for entry into the in-region long distance business. Formal
applications by the RBOCs to provide long distance service have been denied by
the FCC and are being appealed. It is anticipated that new applications will be
filed by the RBOCs in coming months. In addition, in a decision that is
currently being appealed, a U.S. District Court in Texas held that the
provisions of Section 271 of the 1996 Act limiting the RBOCs' entry into the
long distance business violate the U.S. Constitution. In addition, two RBOCs,
Ameritech and U S West, recently have entered into agreements with a long
distance carrier, Qwest Communications Corp., under which they plan to jointly
market Qwest long distance service to local telephone service consumers in their
operating territories. Those agreements have been challenged by several long
distance carriers and competitive local exchange carriers before U.S. District
Courts and before the FCC. Those challenges are pending. Further, a continuing
trend toward consolidation, mergers, acquisitions and strategic alliances in the
telecommunications industry could also give rise to significant new competitors
to the Company or to the Company's customers. See 'Business -- Government
Regulation.'
In most of the areas in which the Company operates, at least one (and in
many markets several) other CAP or CLEC offers many local telecommunications
services similar to those provided by the Company, generally at similar prices.
Potential and actual new market entrants in the local telecommunications
services business include other CAPs and CLECs, ILECs entering new geographic
markets, cable television companies, electric utilities, long distance and
international carriers, microwave carriers, wireless telephone system operators
and private networks built by large end users. Many of these potential
competitors have financial, personnel and other resources substantially greater
than those of the Company. In addition, the current trend of business
combinations and alliances in the telecommunications industry, including mergers
between RBOCs, may create significant new competitors for the Company. For
example, on January 8, 1998, AT&T Corp. ('AT&T') announced that it had agreed to
acquire Teleport Communications Group Inc. ('TCG'), a competitor of the Company.
The 1996 Act has increased and will continue to increase competition in the
local telecommunications business. The 1996 Act requires all local exchange
providers, including new entrants, to offer their services for resale and
requires ILECs to offer their network facilities on an unbundled basis. Further,
pursuant to the 1996 Act, ILEC services provided to end users are required to be
made available to other telecommunications carriers for resale at wholesale
rates. There can be no assurance that any unbundled rates or facilities offered
by ILECs to the Company will be available in a timely manner or will be
economically attractive or technically viable. See 'Business -- Government
Regulation -- Telecommunications Act of 1996.' These requirements facilitate
entry by new competitors with reduced capital risk or investment. See
'Business -- Competition.'
The recent World Trade Organization ('WTO') agreement on basic
telecommunications services could increase the Company's competition for
telecommunications services both domestically and internationally. Under this
agreement, which became effective in 1998, the United States and other members
of the WTO committed themselves to opening their telecommunications markets to
competition and foreign ownership and to adopting regulatory measures to protect
competitors against anticompetitive behavior by dominant telephone companies. As
part of the U.S. government's implementation of the WTO Agreement, the FCC has
established
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new rules making it easier for foreign carriers to enter the U.S.
telecommunications market. See 'Business -- Competition' and ' -- Government
Regulation.'
DEPENDENCE ON INFORMATION BILLING SYSTEMS
Sophisticated information and processing systems are vital to the Company's
growth and its ability to monitor costs, bill customers, provision customer
orders and achieve operating efficiencies. Information systems for the Company's
business have historically been operated internally with limited reliance on
third party vendors. As the Company continues to grow, the need for more
sophisticated information systems will increase significantly. The Company has
recently entered into agreements with certain vendors providing for the
development and/or operation of back office systems including ordering,
provisioning and billing systems. The failure of such vendors to perform their
services in a timely and effective manner at acceptable costs could have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON SIGNIFICANT CUSTOMERS
The Company has substantial business relationships with a few large
customers, including the major long distance carriers. For the three months
ended March 31, 1998, the Company's top 10 customers accounted for 40.6% of the
Company's consolidated revenues. The top three customers, which are IXCs or
other telecommunications providers, accounted for 26.1% of the consolidated
revenues, and no other customer accounted for 5% or more of revenues. A
significant reduction in the level of services the Company performs for any of
these customers could have a material adverse effect on the Company's business,
results of operations or financial condition. Some of the Company's customer
arrangements are subject to termination on short notice and do not provide the
Company with guarantees that service quantities will be maintained at current
levels, and there can be no assurance that such customers will continue to
purchase the same service quantity levels. The Company believes that certain
IXCs are pursuing alternatives to their current practices with regard to
obtaining local telecommunications services, including acquisition or
construction of their own facilities. For example, on January 8, 1998, AT&T, a
customer of the Company, announced that it had agreed to acquire TCG, which is a
CLEC that operates in several of the Company's service areas. This type of
activity has accelerated as a result of the 1996 Act, which limits the authority
of states to impose legal restrictions that have the effect of prohibiting a
company, including an IXC, from providing any telecommunications service. In
addition, the 1996 Act requires ILECs to unbundle their network facilities and
to offer their services for resale by other companies at wholesale discounts.
Accordingly, long distance carriers soon will be able to provide local service
by reselling the facilities or services of an ILEC, which may be more
cost-effective for an IXC than using the services of the Company or another CAP
or CLEC. See 'Business -- Customers and Sales and Marketing.'
FEDERAL AND STATE REGULATION
The Company is subject to Federal and state regulation. In most states, the
Company is subject to certification and tariff filing requirements with respect
to intrastate services. Although many restrictions on the services that may be
provided by the Company were eliminated as a result of the 1996 Act, which
prohibits states from imposing legal restrictions that effectively prohibit the
provision of any telecommunications service, states retain authority under the
1996 Act to impose on the Company and other telecommunications carriers
competitively neutral requirements to preserve universal service, protect public
safety, ensure quality of service and protect consumers. States are also
responsible under the 1996 Act for mediating and arbitrating interconnection
arrangements between CLECs and ILECs if the carriers fail to agree on such
arrangements.
In the past, the Company had been required to offer its interstate services
pursuant to rates, terms, and conditions set forth in tariffs filed with the
FCC. However, on June 19, 1997, the FCC issued a memorandum opinion and order
granting the Company's request that the FCC forbear from imposing on the Company
the tariff filing requirements of the Communications Act of 1934 (the
'Communications Act'). Following that favorable ruling on the Company's request,
the Company has withdrawn its interstate tariff and will now offer its
interstate access services pursuant to contracts with each of its customers. The
Company is still required to offer any interstate services other than interstate
access services, including, for example, interstate and international long
distance telephone service, pursuant to tariffs filed with the FCC.
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Under the 1996 Act, the Company is subject to certain Federal regulatory
obligations when it provides local exchange service in a market. All local
exchange carriers, including CLECs, must interconnect with other carriers, make
their services available for resale by other carriers, provide nondiscriminatory
access to rights-of-way, offer reciprocal compensation for termination of
traffic and provide dialing parity and telephone number portability. The Company
is subject to requirements that the rates, terms, classifications and practices
with respect to its interstate access service be just and reasonable and may not
be unreasonably discriminatory. However, as a nondominant carrier, the Company's
rates, terms, classifications and practices are presumed to be lawful. The
Company's intrastate services, including local service and intrastate access,
are subject to similar requirements under state laws. In addition, as a
telecommunications carrier, the Company will be required to contribute to a fund
to preserve universal service and to enable schools, libraries and rural health
care centers to have access to telecommunications services and advanced
information services at discounted prices.
Prior to June 12, 1998, MediaOne was an affiliate of U S WEST
Communications, Inc. ('U S WEST'), an RBOC. As a result, pursuant to the 1996
Act, the Company was restricted from offering originating interLATA service in
the 14 states in which U S WEST provides local exchange telecommunications
services. On June 12, 1998, MediaOne and U S WEST were separated into two
independent companies. Accordingly, the Company is no longer an affiliate of an
RBOC under the 1996 Act. As a result, the Company is no longer restricted from
offering its services in the 14 states in which U S WEST currently operates. Any
determination of whether or not to operate in any of those states will be made
based on, among other things, demographic, economic and regulatory criteria.
However, TW Cable does not currently own any cable systems in 9 of such 14
states. See 'Business.'
In addition, no assurance can be given that changes to current regulations
or the adoption of new regulations by the FCC or state regulatory authorities or
legislative initiatives would not have a material adverse effect on the Company.
See 'Business -- Government Regulation.'
GOVERNMENTAL AND OTHER AUTHORIZATIONS
The development, expansion and maintenance of the Company's networks will
depend on, among other things, its ability to obtain rights-of-way and any other
required governmental authorizations and permits, all in a timely manner, at
reasonable costs and on satisfactory terms and conditions. In certain of the
cities or municipalities where the Company provides network services, it pays
license or franchise fees, usually based on a percentage of gross revenues or a
rate per circuit. The 1996 Act permits municipalities to charge such fees only
if they are competitively neutral and nondiscriminatory, but there can be no
assurance that municipalities that presently favor a particular carrier,
typically the ILEC, will conform their practices to the requirements of the 1996
Act in a timely manner or without legal challenge. Furthermore, there can be no
assurance that certain cities or municipalities that do not now impose such fees
will not seek to impose fees, nor can there be any assurance that, following the
expiration of existing franchises, fees will remain at their current levels or
that the franchises will be renewed. Some of the Company's franchise agreements
also provide for increases or renegotiation of fees at intervals prior to the
expiration thereof.
In addition, the Company currently licenses capacity of, and plans in the
future to enter into similar arrangements for, significant numbers of optical
fibers from TW Cable. See 'Certain Relationships and Related
Transactions -- Certain Operating Agreements.' There can be no assurance that
municipalities which regulate TW Cable will not seek to impose additional
franchise fees or otherwise charge TW Cable (subject to reimbursement by the
Company) in connection with such licenses. There can also be no assurance that
TW Cable or the Company will be able to obtain all necessary permits, licenses,
conduit agreements or pole attachment agreements from governmental authorities
or private rights-of-way providers necessary to effectuate future license
transactions. As a result, there can be no assurance that the Company will be
able to expand its existing networks or develop new networks successfully, which
would have a material adverse effect on the Company's growth and financial
condition.
There can be no assurance that the Company will be able to utilize TW
Cable's existing licenses, permits and rights-of-way or that it will be able to
obtain the governmental licenses and permits and rights-of-way required to enter
new markets on acceptable terms. The cancellation or non-renewal of existing
permits, licenses or rights-of-ways, or the inability to obtain the permits,
licenses or rights-of-ways to expand in accordance with its plans, could have a
material adverse effect on the Company's business, results of operations and
financial condition.
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ACQUISITION RELATED RISKS
The Company may, as part of its business strategy, acquire other businesses
that will complement its existing business. Management is unable to predict
whether or when any prospective acquisitions will occur or the likelihood of any
material transactions being completed on favorable terms and conditions. The
Company's ability to finance acquisitions may be constrained by, among other
things, its high degree of leverage following the Offering. The Indenture
significantly limits the Company's ability to make acquisitions and to incur
indebtedness in connection with acquisitions. Such transactions commonly involve
certain risks, including, among others: the difficulty of assimilating the
acquired operations and personnel; the potential disruption of the Company's
ongoing business and diversion of resources and management time; the possible
inability of management to maintain uniform standards, controls, procedures and
policies; the risks of entering markets in which the Company has little or no
prior experience; and the potential impairment of relationships with employees
or customers as a result of changes in management or business. There can be no
assurance that any acquisition will be made, that the Company will be able to
obtain additional financing needed to finance any acquisition and, if any
acquisitions are made, that the acquired business will be successfully
integrated into the Company's operations so that the acquired business will
perform as expected. The Company has no definitive agreement with respect to any
acquisition, although from time to time it has discussions with other companies,
including affiliates of the Members, and assesses opportunities on an ongoing
basis.
The Company may also enter into joint venture transactions. These
transactions present many of the same risks involved in acquisitions and may
also involve the risk that other joint venture partners may have economic,
business or legal interests or objectives that are inconsistent with those of
the Company. Joint venture partners may also be unable to meet their economic or
other obligations, thereby forcing the Company to fulfill these obligations.
VARIABILITY OF QUARTERLY OPERATING RESULTS
As a result of the limited revenues and significant expenses associated
with the expansion and development of its networks and services, the Company
anticipates that its operating results could vary from period to period. In
addition, the Company's revenues are, and may continue to be, dependent upon
certain significant customers and contracts and as a result, may vary from
quarter to quarter. See ' -- Dependence on Significant Customers.'
CONTROL BY MEMBERS; CONFLICTS OF INTEREST; POSSIBLE COMPETITION
The Members hold all the limited liability company interests in the Company
and have the collective ability to control all matters requiring member
approval, including the appointment of representatives (the 'Representatives')
to the Management Committee of the Company (the 'Management Committee'). See
'Principal Members' and 'Certain Relationships and Related Transactions -- LLC
Agreement.'
All of the Members are in the cable television business and may, now or in
the future, provide services which are the same or similar to those provided by
the Company. There is no restriction on the Members' ability to compete with the
Company and no assurance can be given that the Members will not compete with the
Company in its service areas or in the provision of certain telecommunications
services. The Company is subject to certain restrictions on offering Residential
Services (as defined) and Content Services (as defined). See ' -- Limitations on
Business Activity.' Representatives of the Company who are also directors,
officers or employees of the Members or any of their respective affiliates are
in positions that may create conflicts of interest with respect to certain
business opportunities available to and certain transactions involving the
Company. The Members have not adopted any special voting procedures to deal with
such conflicts of interest, and there can be no assurance that any such conflict
will be resolved in favor of the Company.
LIMITATIONS ON BUSINESS ACTIVITY
The Company is currently restricted from offering telecommunications
services to residences and from providing content services to its customers.
The LLC Agreement provides that the Company may not (i) engage in the business
of providing, offering, promoting or branding any wireline telecommunications
services or other services (including data services), directly or indirectly,
to residences (collectively, 'Residential Services') or (ii) engage in the
production, packaging, distribution, marketing, hosting, offering, promoting,
branding or other provision (excluding mere
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transport) of entertainment, information or any other content services
(collectively, 'Content Services'), in each case, without the affirmative vote
of all the Members. If the Reconstitution occurs, the Certificate of
Incorporation of the Company will continue the foregoing restrictions for a
maximum period of five years from the date of the Reconstitution. See
'Description of Capital Stock.' Similar restrictions against using fiber
capacity licensed from TW Cable under the Capacity License for Residential
Services and Content Services extend for the 30 year term of such license.
Accordingly, the Capacity License restrictions will apply after the restrictions
in the Certificate of Incorporation have terminated. See 'Certain Relationships
and Related Transactions -- Certain Operating Agreements'. Although management
does not believe that the restrictions contained in the LLC Agreement, the
Certificate of Incorporation or the Capacity License will materially affect
its business and operations in the immediate future, the effect of such
restrictions in the rapidly changing telecommunications industry cannot be
predicted.
DISCONTINUANCE OF USE OF 'TIME WARNER' NAME
Pursuant to a License Agreement (as defined) with TW, the Company is
required to discontinue use of the 'Time Warner' name upon expiration of the
initial four year term or any renewal term of such agreement or (i) TW's owning
Interests having an aggregate participation percentage of less than 30%, (ii) TW
having the right to appoint less than three Representatives to the Management
Committee of the Company, (iii) the Company's non-compliance with the
restrictions in the LLC Agreement regarding Residential Services and Content
Services or (iv) the transfer by a Member of its Class B Interests together with
its rights to appoint Representatives to the Management Committee under the LLC
Agreement. See 'Certain Relationships and Related Transactions -- LLC
Agreement.' Substantially equivalent provisions will apply if the Reconstitution
occurs. Under such circumstances, the Company may change its name to TW Telecom
LLC or TW Telecom Inc., as applicable, and the Company will no longer have the
right to use the 'Time Warner' name. Such name change, and the inability to use
the 'Time Warner' name could have an adverse effect on the Company's ability to
conduct its business and on its financial condition and results of operations.
See 'Certain Relationships and Related Transactions -- Certain Operating
Agreements.'
NEED TO ADAPT TO TECHNOLOGICAL CHANGES
The telecommunications industry has experienced, and is expected to
continue to experience, rapid and significant changes in technology. While the
Company believes that, for the foreseeable future, these changes will neither
materially affect the continued use of fiber optic cable or digital switches and
transmission equipment nor materially hinder the Company's ability to acquire
necessary technologies, the effect of technological changes on the Company's
business and operations cannot be predicted. The Company believes that its
future success will depend, in part, on its ability to anticipate or adapt to
such changes and to offer, on a timely basis, services that meet customer
demands on a competitive basis. There can be no assurance that the Company will
obtain access to new technologies on a timely basis or on satisfactory terms.
Any failure by the Company to obtain new technologies could have a material
adverse effect on the Company's business, financial condition and results of
operations. Also, alternative technologies may develop for the provision of
services to customers. The Company may be required to select in advance one
technology over another, but it will be impossible to predict with any
certainty, at the time the Company is required to make its investment, which
technology will prove to be the most economic, efficient or capable of
attracting customer usage.
DEPENDENCE ON KEY PERSONNEL; EXPERIENCE OF MANAGEMENT
The Company's business is managed by a small group of key executive
officers. The loss of the services of any of these key individuals could have an
adverse impact on the Company. Although the senior executives of the Company
have considerable experience in the telecommunications industry, they have
not previously operated a public company. Moreover, Ms. Herda was appointed
chief executive officer in June 1998, having previously served as Senior Vice
President, Sales prior to that time. The Company has employment agreements with
each of Ms. Herda, Messrs. Jones, Powers, Rayner and Whinery and Ms. Rich. See
'Management -- Employment Agreements.' The Company does not carry key man life
insurance on any of such personnel. The Company believes that its future success
will depend in large part on its continued ability to attract and retain highly
skilled and qualified personnel. The competition for qualified personnel in the
telecommunications industry is intense and,
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accordingly, there can be no assurance that the Company will be able to hire or
retain necessary personnel. See 'Management.'
PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the Notes may
require the Obligors to repurchase all or a portion of such holder's Notes at
101% of the principal amount of the Notes, together with accrued and unpaid
interest to the date of repurchase. If a Change of Control were to occur, the
Obligors may not have the financial resources to repay the Notes and any other
indebtedness that would become payable upon the occurrence of such Change of
Control. See 'Description of the Notes -- Certain Covenants -- Change of
Control.'
POTENTIAL LIMITED PUBLIC MARKET
The Notes are a new issue of securities for which there is currently no
trading market. The Company does not intend to apply for the listing of the
Notes on any securities exchange or any inter-dealer automated quotation system.
The Underwriters have advised the Company that they currently intend to make a
market in the Notes, although the Underwriters are not obligated to do so, and
any market making with respect to the Notes may be discontinued at any time
without notice. See 'Underwriters.' There can be no assurance as to the
liquidity of any market that may develop for the Notes, the ability of the
holders of the Notes to sell their Notes or the price at which such holders
would be able to sell their Notes. If a market were to exist, the Notes could
trade at prices that may be lower than the initial offering price thereof
depending on many factors, including prevailing interest rates and the markets
for similar securities, general economic conditions and the financial condition
and performance of, and prospects for, the Company.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus contains forward-looking statements, including statements
regarding the Company's expected financial position, business and financing
plans. These forward-looking statements reflect the Company's views with respect
to future events and financial performance. The words, 'believe,' 'expect,'
'plans' and 'anticipate' and similar expressions identify forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from such expectations (the
'Cautionary Statements') are disclosed in this Prospectus, including, without
limitation, in conjunction with the forward-looking statements included in this
Prospectus and under 'Risk Factors.' All subsequent written and oral
forward-looking statements attributable to the Company, its subsidiaries or
persons acting on the Company's behalf are expressly qualified in their entirety
by the Cautionary Statements. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of their dates. The
Company undertakes no obligations to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
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USE OF PROCEEDS
The net proceeds to be received by the Obligors from the sale of the Notes
in the Offering are estimated to be approximately $ million after deducting
estimated underwriting discounts and commissions and other expenses payable by
the Obligors.
The Company intends to use the net proceeds of the Offering to expand and
develop existing and new networks and for general corporate and working capital
purposes, which may include acquisitions and joint ventures. The Company intends
to use approximately (i) $290.0 million to purchase and install switches,
electronics, fiber and other additional technologies in existing networks and in
additional networks to be constructed in new service areas, (ii) $30.0 million
for capital expenditures with respect to the Company's management information
system infrastructure and (iii) $80.0 million for operating and administrative
expenses, including debt service. Pending such uses, the net proceeds of the
Offering will be invested in short-term, money market instruments.
The Company, from time to time, evaluates potential acquisitions of, and
joint ventures relating to, networks currently owned and operated by other
companies, including affiliates of the Members, and expects to continue to do
so. In the event the Company enters into a definitive agreement with respect to
any acquisition or joint venture, it may require additional financing or it may
elect to use a portion of the proceeds of the Offering not theretofore expended
for other purposes.
The Company expects that the net proceeds of the Offering, together with
internally generated funds, will provide sufficient funds for the Company to
expand its business as currently planned, pay interest on the Notes and fund its
currently expected losses through the end of 1999. Thereafter, the Company
expects to require additional financing. However, in the event that the
Company's plans or assumptions change or prove to be inaccurate, or the
foregoing sources of funds prove to be insufficient to fund the Company's growth
and operations, or if the Company consummates acquisitions or joint ventures,
the Company may be required to seek additional capital sooner than currently
anticipated. The Company's revenues and costs are dependent upon factors that
are not within the Company's control, such as regulatory changes, changes in
technology and increased competition. Due to the uncertainty of these and other
factors, actual revenues and costs may vary from expected amounts, possibly to a
material degree, and such variations are likely to affect the Company's future
capital requirements. Sources of financing may include public or private debt or
equity financing by the Company or its subsidiaries or other financing
arrangements.
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THE REORGANIZATION
The Company was recently formed in connection with the Reorganization of
the assets and liabilities of its business, which were previously owned by
subsidiaries and divisions of the Parent Companies. The business of developing
and operating local telecommunications networks in the Company's 19 markets has
been conducted through its 22 subsidiaries which will be consolidated into fewer
entities. In connection with the Reorganization, the Members received Class B
Interests having an aggregate participation percentage of 100%.
TWT has no operations or assets and was formed solely for the purpose of
serving as co-obligor of the Notes.
The Company has two authorized classes of limited liability interests,
designated as Class A and Class B. The Company has not issued any Class A
Interests and the Members hold 100% of the Class B Interests. Pursuant to an
option plan expected to be adopted by the Company, the Company expects to grant
to its employees options to purchase Class A Interests. See 'Management -- LLC
Option Plan.' The holders of the Class A Interests have virtually no voting or
approval rights, except with respect to an amendment of the LLC Agreement which
is adverse to the interests of the holders of such class, and the holders of
the Class B Interests have the voting rights set forth in the LLC Agreement.
Each Class B Interest is convertible under certain circumstances into a Class A
Interest. See 'Certain Relationships and Related Transactions -- LLC Agreement.'
Set forth below is the organizational structure of the Company immediately
following the Reorganization:
NETWORK MAP
[MAP]
[LOGO]
- ------------
(1) Excludes Class A Interests expected to have a maximum aggregate
participation percentage of % issuable upon the exercise of options
expected to be granted under an option plan expected to be adopted by the
Company which will not be immediately exercisable. See 'Management -- LLC
Option Plan.'
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CAPITALIZATION
The following table sets forth the cash position and capitalization of the
Company as of March 31, 1998, as adjusted to reflect the issuance of the Notes
in the Offering and the Reorganization. See 'Use of Proceeds.' This table should
be read in conjunction with 'Selected Financial and Other Operating Data,'
'Management's Discussion and Analysis of Financial Condition and Results of
Operations,' and the Company's financial statements, including the notes
thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
----------------------------
AS ADJUSTED
FOR THE
REORGANIZATION
ACTUAL AND THE OFFERING
-------- ----------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents(1)......................................................... $ -- $
-------- ----------------
-------- ----------------
Long-term debt:
Senior Notes Due 2008...........................................................
Subordinated loans payable to the Parent Companies (2).......................... 117,547
--------
Total long-term debt.................................................. 117,547
Members' equity:
Class A Interests having an aggregate participation percentage of 0% (3)........ --
Class B Interests having an aggregate participation percentage of 100%:
Contributed capital........................................................ 555,807
Accumulated deficit prior to Reorganization (4)............................ --
-------- ----------------
Total Class B Interests............................................... 555,807
Accumulated deficit (4)......................................................... (277,205)
-------- ----------------
Total members' equity........................................................... 278,602
-------- ----------------
Total capitalization.................................................. $396,149 $
-------- ----------------
-------- ----------------
</TABLE>
- ------------
(1) Historically, the Company has not maintained cash balances since all the
Company's cash receipts and funding requirements were provided to or from
the Parent Companies.
(2) As of March 31, 1998, the Company had outstanding approximately $117.5
million of indebtedness to the Parent Companies, all of which is
subordinated in right of payment to the Notes. This subordinated
indebtedness bears interest (payable in kind) at The Chase Manhattan Bank's
prime rate (which was 8.5% at March 31, 1998) and matures on , 2008,
one month after the maturity of the Notes. Such indebtedness is expected
to be approximately $ million at June 30, 1998.
(3) Excludes Class A Interests expected to have a maximum aggregate
participation percentage of % issuable upon the exercise of options
expected to be granted under an option plan, expected to be adopted by
the Company, which will not be immediately exercisable. See 'Management --
LLC Option Plan.'
(4) The As Adjusted Column reflects the reclassification of the accumulated
deficit of the Company to reduce the amounts of the Class B Interests,
which reduction will be recorded in connection with the Reorganization.
24
<PAGE>
<PAGE>
SELECTED COMBINED FINANCIAL AND OTHER OPERATING DATA
The selected statement of operations data for the years ended December 31,
1995, 1996 and 1997, and the selected balance sheet data as of December 31, 1996
and 1997, are derived from, and are qualified by reference to, the financial
statements of the Company, including the notes thereto, audited by Ernst & Young
LLP, independent auditors, appearing elsewhere in this Prospectus. The selected
statement of operations data for the year ended December 31, 1994 and the
selected balance sheet data as of December 31, 1994 and 1995 have been derived
from audited financial statements of the Company not included herein. The
selected statement of operations data for the year ended December 31, 1993 and
for the three months ended March 31, 1998 and 1997, and the selected balance
sheet data as of December 31, 1993 and as of March 31, 1998 have been derived
from the Company's unaudited internal financial statements, which in the opinion
of management, have been prepared on the same basis as the audited financial
statements and reflect all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the Company's results of
operations and financial position. Operating results for the three months ended
March 31, 1998 are not necessarily indicative of results that may be expected
for the full year. The selected other operating data have been derived from the
accounting records of the Company and have not been audited. The financial
statements of the Company reflect the 'carved out' historical financial
position, results of operations, cash flows and changes in members' equity of
the commercial telecommunications operations of the Parent Companies, as if they
had been operating as a separate company. The selected financial and other
operating data set forth below should be read in conjunction with 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
the Company's financial statements, including the notes thereto, appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- --------- --------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Dedicated transport
services................ $ 1,913 $ 2,169 $ 6,505 $ 20,362 $ 44,529 $ 8,301 $ 16,733
Switched services......... -- -- 350 3,555 10,872 1,852 5,315
-------- -------- --------- --------- --------- -------- --------
Total revenues........ 1,913 2,169 6,855 23,917 55,401 10,153 22,048
-------- -------- --------- --------- --------- -------- --------
Costs and expenses:
Operating (1)............. 3,219 10,454 15,106 25,715 40,349 8,384 13,519
Selling, general and
administrative (1)...... 7,035 26,066 34,222 60,366 54,640 11,985 16,316
Depreciation and
amortization (1)........ 578 1,213 7,216 22,353 38,466 8,842 11,932
-------- -------- --------- --------- --------- -------- --------
Total costs and
expenses............ 10,832 37,733 56,544 108,434 133,455 29,211 41,767
-------- -------- --------- --------- --------- -------- --------
Operating loss................ (8,919) (35,564) (49,689) (84,517) (78,054) (19,058) (19,719)
Gain on disposition of
investment (2).............. -- -- -- -- 11,018 -- --
Equity in losses of
unconsolidated affiliates... (392) (1,611) (1,391) (1,547) (2,082) (593) (58)
Interest expense, net (1)..... (81) (3) (25) (52) (1,538) -- (2,011)
-------- -------- --------- --------- --------- -------- --------
Net loss...................... $ (9,392) $(37,178) $ (51,105) $ (86,116) $ (70,656) $(19,651) $(21,788)
-------- -------- --------- --------- --------- -------- --------
-------- -------- --------- --------- --------- -------- --------
Deficiency in coverage of
fixed charges by earnings
before fixed charges (3).... $ (9,392) $(37,178) $ (51,075) $ (86,076) $ (70,629) $(19,641) $(21,788)
-------- -------- --------- --------- --------- -------- --------
-------- -------- --------- --------- --------- -------- --------
OTHER OPERATING DATA:
EBITDA (4).................... $ (8,341) $(34,351) $ (42,473) $ (62,164) $ (39,588) $(10,216) $ (7,787)
EBITDA Margin (5)............. (436.0)% (1,583.7)% (619.6)% (259.9)% (71.5)% (100.6)% (35.3)%
Capital expenditures.......... 7,154 50,293 141,479 144,815 127,315 14,261 24,961
Cash used in operations....... (3,100) (14,873) (35,605) (52,274) (29,419) (28,694) (15,103)
Cash used in investing
activities.................. (10,656) (52,632) (145,293) (149,190) (120,621) (14,233) (24,961)
Cash provided by financing
activities.................. 13,756 67,505 180,898 201,464 150,040 42,927 40,064
Pro forma interest expense
(6)(7)......................
Pro forma net loss (6)........ -- -- -- -- -- -- --
Pro forma deficiency in
coverage of fixed charges by
earnings before fixed
charges (3)(6).............. $ $
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------- ------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA (8):
Operating Networks............ 3 8 15 18 19 19
Route miles................... 168 880 3,207 5,010 5,913 6,240
Fiber miles................... 5,820 24,995 116,286 198,490 233,488 244,894
Voice grade equivalent
circuits.................... -- 39,002 158,572 687,001 1,702,431 1,904,420
Digital telephone switches.... -- -- 1 2 14 16
Employees..................... 78 239 508 673 714 739
Access lines.................. -- -- 493 2,793 16,078 23,702
</TABLE>
(footnotes on next page)
25
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------- ------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..... $ -- $ -- $ -- $ -- $ -- $ --
Property, plant and equipment,
net......................... 5,364 53,139 199,005 323,161 415,158 428,319
Total assets...... 10,129 60,604 214,963 341,480 438,077 453,475
Long-term debt (9)............ -- -- -- -- 75,475 117,547
Total members'
equity.......... 4,856 33,749 179,589 294,937 300,390 278,602
</TABLE>
- ------------
(1) Includes expenses resulting from transactions with affiliates of $168,000 in
1993, $1,901,000 in 1994, $6,507,000 in 1995, $11,023,000 in 1996 and
$15,306,000 in 1997 and $3,486,000 and $5,479,000 in the three months ended
March 31, 1997 and 1998, respectively.
(2) In September 1997, the Company completed a series of transactions related to
its interests in the Hyperion Partnerships, a group of unconsolidated
telecommunication partnerships serving the New York area, whereby it sold
its interests in the partnerships serving the Buffalo and Syracuse markets
in exchange for $7.0 million of cash and all of the minority interests in
the partnerships serving the Albany and Binghamton markets that were not
already owned by the Company. In connection with these transactions, the
Company recognized a gain of approximately $11.0 million.
(3) For purposes of this calculation, earnings were calculated by adding
(i) net loss; (ii) interest expense, including the portion of rents
representative of an interest factor and (iii) the amount of undistributed
losses of the Company's less than 50%-owned companies. Fixed charges
consist of interest expense and the portion of rents representative of an
interest factor.
(4) EBITDA consists of operating income (loss) before depreciation and
amortization. Industry analysts generally consider EBITDA to be an important
measure of comparative operating performance of the telecommunications
industry, and when used in comparison to debt levels or the coverage of
interest expense, as a measure of liquidity. However, EBITDA should be
considered in addition to, not as a substitute for, operating income, net
income, cash flow and other measures of financial performance and liquidity
reported in accordance with generally accepted accounting principles. EBITDA
as defined herein may not be comparable to similarly titled measures
reported by other companies. Additionally, certain covenants contained in
the Indenture are based on EBITDA. See the Combined Statements of Cash Flows
contained elsewhere in this Prospectus.
(5) EBITDA Margin represents EBITDA as a percentage of revenues.
(6) The pro forma data for the three months ended March 31, 1998 and the year
ended December 31, 1997 give effect to the Offering as if it occurred at the
beginning of 1997, with respect to statement of operations data. Such pro
forma amounts are presented for informational purposes only and are not
necessarily indicative of the actual amounts that would have been reported
if the transactions had been consummated at the dates indicated, nor are
they necessarily indicative of future results.
(7) Pro forma interest expense gives effect to the issuance of $400 million
principal amount of the Notes, assuming an interest rate of % on the
Notes, as if such transaction had occurred at the beginning of 1997,
assuming % of the interest on the Notes would have been capitalized under
FASB Statement No. 34 'Capitalization of Interest Costs.' A change of .125%
in the interest rate would change pro forma interest expense by $ for
the year ended December 31, 1997 and $ for the three months ended March
31, 1998.
(8) Includes all managed properties including unconsolidated affiliates
(MetroComm AxS, L.P. in Columbus, Ohio and the Albany and Binghamton, New
York networks). Albany and Binghamton were wholly owned at December 31,
1997.
(9) As of March 31, 1998, $117,547,000 of long-term debt consisted of
subordinated loans payable to the Parent Companies. All such indebtedness
to the Parent Companies pays interest in kind at an annual rate equal to
The Chase Manhattan Bank's prime lending rate as in effect from time to
time, is expressly subordinated to the Notes and matures one month following
the maturity of the Notes.
26
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Certain information contained in the discussion
and analysis set forth below and elsewhere in this Prospectus, including
information with respect to the Company's plans and strategy for its business
and related financing, includes forward-looking statements that involve risk and
uncertainties. See 'Risk Factors' for a discussion of important factors that
could cause actual results to differ materially from the results described in or
implied by the forward-looking statements contained herein.
OVERVIEW
The Company is a leading facilities-based CLEC in selected metropolitan
markets across the United States, offering a wide range of business telephony
services, primarily to medium- and large-sized business customers. The business
of the Company was commenced in 1993 by TW Cable and reflects the combined
commercial telecommunications operations under the ownership or management
control of TW Cable. These operations consist of the commercial
telecommunication operations of TW and TWE-A/N that were each acquired or formed
in 1995, as well as the pre-existing commercial telecommunication operations of
TWE. All intercompany accounts and transactions between the combined entities
have been eliminated.
In connection with the Reorganization that occurred in [June], 1998, the
Members contributed the assets and liabilities of the Company's business to the
Company in exchange for Class B Interests having an aggregate participation
percentage of 100%. The Company accounted for the Reorganization at each of the
Members' historical cost basis of accounting and accordingly, the Reorganization
had no effect on the Company's total Members' equity which has been presented on
a consistent basis. The primary change to the Company's operating structure
following the Reorganization was that the Company became directly accountable to
the Management Committee, instead of to TW Cable.
To date, the majority of the Company's revenues have been derived from the
provision of 'private line' and 'direct access' telecommunications services.
Because the Company has deployed switches in 16 of its 19 service areas as of
March 31, 1998, management expects that a growing portion of its revenues will
be derived from providing switched services. The Company's customers are
principally telecommunications-intensive business end-users, IXCs, ISPs,
wireless communications companies and governmental entities. Such customers are
offered a wide range of integrated telecommunications products and services,
including dedicated transmission, local switched, data and video transmission
services and Internet services. In addition, the Company benefits from its
strategic relationship with TW Cable both through network facilities access and
cost-sharing. As a result, the Company's networks have been constructed
primarily through the use of fiber capacity licensed from TW Cable. As of March
31, 1998, the Company operated networks in 19 metropolitan service areas that
spanned 6,239 route miles, contained 244,894 fiber glass miles and offered
service to 2,711 buildings. The Company's 19 service areas include 18 networks
that are wholly owned and one that is owned through a 50% joint venture and is
not consolidated into the Company's financial results. The Company's
consolidated revenues were $55.4 million for the year ended December 31, 1997
and $22.0 million for the 3 months ended March 31, 1998. As of March 31, 1998,
the Parent Companies had invested $555.8 million in the Company.
To date, the Company's revenues have been derived primarily from end user
to end user private line connections and from a variety of services including:
(i) access between IXCs, (ii) access between end users and IXCs, (iii)
collocated special access, (iv) collocated points of presence ('POP') to LECs
switched access transport and (v) local switched services. Since its inception
in 1993, the Company has experienced significant growth in revenues and in the
geographic scope of its operations. Management believes an increasing portion of
the Company's future growth will come from the provision of local switched
services as a result of the 16 switches deployed as of March 31, 1998. The
Company believes that switched services provide the opportunity for higher
profit margins than those expected from transport services, however the shift of
the revenue growth to switched services may cause the Company's revenues to
become less predictable since a portion of such services are billed to customers
on a usage basis. Dedicated transport customers are typically billed a flat
monthly rate which produces a less variable stream of revenues for the Company.
Furthermore, it is expected that the growth in the switched services offerings
will expand the Company's customer base by making more services available to
customers that are generally smaller than those who purchase dedicated transport
27
<PAGE>
<PAGE>
services. These smaller customers are also expected to be the principal users of
the Company's long distance service. The Company expects to experience a higher
churn rate for these customers than it has traditionally experienced with
transport services. The Company intends to minimize this churn for long distance
service to smaller customers by offering such service under minimum one year
contracts.
The Company plans to expand its revenue base by fully exploiting available
network capacity in its existing markets and by continuing to develop and
selectively tailor new services in competitively-priced packages to meet the
needs of its medium- and large-sized business customers. The Company plans on
selectively entering new markets and intends to have networks under construction
or operational in several additional cities by the end of 1999.
Operating expenses consist of costs directly related to the operation and
maintenance of the networks and the provision of the Company's services. This
includes the salaries and related expenses of operations and engineering
personnel as well as costs from the ILECs and other competitors for facility
leases and interconnection. These costs have increased over time as the Company
has increased its operations and revenues. It is expected that these costs will
continue to increase, but at a slower rate than revenue growth.
Selling, general and administration expenses consist of salaries and
related costs for employees other than those involved in operations and
engineering. Such expenses also include costs related to non-technical facility,
sales and marketing, regulatory and legal costs. These costs have increased over
time as the Company has increased its operations and revenues. The Company
expects these costs to continue to increase as the Company's revenue growth
continues, but at a slower rate than revenue growth.
In the normal course of conducting its businesses, the Company has various
transactions with the Parent Companies, generally on terms resulting from
negotiation between the affected units that, in management's view, result in
reasonable allocations. The Company's selling, general and administrative
expenses include an allocation of certain general and administrative expenses,
primarily including office rent and overhead charges for various administrative
functions performed by TW Cable. These allocations were required to reflect all
costs of doing business and have been based on various methods, which management
believes results in reasonable allocations of such costs that were necessary to
present the Company's operations as if they had been operated on a stand alone
basis. In addition, the Company licenses the right to use the majority of its
fiber optic cable capacity from TW Cable and reimburses it for facility
maintenance and pole rental costs. Finally, effective July 1, 1997, all of the
Company's financing requirements began to be funded with loans from the Parent
Companies. This indebtedness is subordinated in right of payment to the Notes,
bears interest (payable in kind) at an annual rate equal to The Chase Manhattan
Bank's prime lending rate as in effect from time to time (which was 8.5% at
March 31, 1998) and matures on , 2008, one month after the maturity of
the Notes. See 'Certain Relationships and Related Transactions.' The Company
believes that this rate is comparable to rates which could have been obtained
from unrelated third parties during such nine month period.
The Company has not historically, and does not currently, generate positive
operating cash flow. However, for the year ended December 31, 1997, twelve of
the Company's nineteen markets generated positive operating cash flow and the
Company, as a whole, expects to begin generating positive operating cash flow by
the second quarter of 1999. The following comparative discussion of the results
of financial condition and results of operations of the Company includes an
analysis of changes in revenues and operating income (loss) before depreciation
and amortization. Industry analysts generally consider EBITDA to be an important
measure of comparative operating performance for the telecommunications
industry, and when used in comparison to debt levels or the coverage of interest
expense, as a measure of liquidity. However, EBITDA should be considered in
addition to, not as a substitute for, operating income, net income, cash flow
and other measures of financial performance and liquidity reported in accordance
with generally accepted accounting principles. EBITDA as defined herein may not
be comparable to similarly titled measures reported by other companies.
The Company has had and will continue to have significant capital
expenditures. These expenditures pertain to the historical construction and
expansion of the networks and to the future expansion of the existing networks
as well as the construction of new networks.
28
<PAGE>
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statement of operations
data of the Company, in thousands of dollars and expressed as a percentage of
net revenues, for each of the periods presented. This table should be read in
conjunction with the Company's financial statements, including the notes
thereto, appearing elsewhere in this Prospectus:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------- ---------------------------------------
1995 1996 1997 1997 1998
----------------- ----------------- ----------------- ----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Dedicated transport
services.......... $ 6,505 94.9% $ 20,362 85.1% $ 44,529 80.4% $ 8,301 81.8% $ 16,733 75.9%
Switched services... 350 5.1 3,555 14.9 10,872 19.6 1,852 18.2 5,315 24.1
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total
revenues...... 6,855 100.0 23,917 100.0 55,401 100.0 10,153 100.0 22,048 100.0
Costs and expenses:
Operating (1)....... 15,106 220.4 25,715 107.5 40,349 72.8 8,384 82.6 13,519 61.3
Selling, general and
administrative
(1)............... 34,222 499.2 60,366 252.4 54,640 98.6 11,985 118.0 16,316 74.0
Depreciation and
amortization
(1)............... 7,216 105.3 22,353 93.5 38,466 69.4 8,842 87.1 11,932 54.1
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total costs and
expenses...... 56,544 824.9 108,434 453.4 133,455 240.9 29,211 287.7 41,767 189.4
Operating loss.......... (49,689) (724.9) (84,517) (353.4) (78,054) (140.9) (19,058) (187.7) (19,719) (89.4)
Gain on disposition of
investment (2)........ -- -- -- 11,018 19.9 --
Equity in losses of
unconsolidated
affiliates............ (1,391) (20.3) (1,547) (6.5) (2,082) (3.8) (593) (5.8) (58) (.3)
Interest, net (1)....... (25) (.3) (52) (.2) (1,538) (2.8) -- (2,011) (9.1)
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Net loss (3)............ $(51,105) (745.5)% $(86,116) (360.1)% $(70,656) (127.5)% $(19,651) (193.5)% $(21,788) (98.8)%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
</TABLE>
- ------------
(1) Includes expenses resulting from transactions with affiliates of $6,507,000
in 1995, $11,023,000 in 1996 and $15,306,000 in 1997 and $3,486,000 and
$5,479,000 in the three months ended March 31, 1997 and 1998, respectively.
(2) In September 1997, the Company completed a series of transactions related to
its interests in a group of unconsolidated telecommunication partnerships
serving the New York area (the 'Hyperion Partnerships'), whereby it sold its
interests in the partnerships serving the Buffalo and Syracuse markets in
exchange for $7.0 million of cash and all of the minority interests in the
partnerships serving the Albany and Binghamton markets that were not already
owned by the Company (collectively, the 'Hyperion Transactions'). In
connection with these transactions, the Company recognized a gain of
approximately $11.0 million.
(3) The Company is a limited liability company that has operated as a
partnership for tax purposes during the periods presented herein.
Accordingly, the Company is not subject to Federal and state income
taxation.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues. Revenue increased $11.9 million, or 117.2%, to $22.0 million for
the three months ended March 31, 1998, from $10.2 million for the same period in
1997. Revenues from the provision of dedicated transport services increased $8.4
million, or 101.6%, to $16.7 million in 1998, from $8.3 million in 1997.
Revenues from dedicated transport service increased 97.4% in those markets in
which dedicated transport services were offered as of March 31, 1997. Switched
service revenue increased $3.5 million, or 187.0%, to $5.3 million in 1998, from
$1.9 million in 1997. Switched services revenue increased 298.6% in those
markets in which switched services were offered as of March 31, 1997. The
increase in revenues from dedicated transport services primarily reflects growth
of services offered in existing markets. The increase in switched services
resulted from the offering of services in new markets and the growth of services
in existing markets. At March 31, 1998 the Company offered dedicated transport
services in 18 consolidated markets (excluding MetroComm AxS, L.P., which is a
50% owned entity of the Company) and switched services in 15 markets, as
compared to offering dedicated transport services in 15 markets and switched
services in 3 markets at March 31, 1997.
Operating Expenses. Operating expenses increased $5.1 million, or 61.2%, to
$13.5 million for the three months ended March 31, 1998, from $8.4 million for
the same period in 1997. As a percentage of revenues,
29
<PAGE>
<PAGE>
operating expenses decreased to 61.3% in 1998 from 82.6% for the same period in
1997. The increase in operating expenses was primarily attributable to the
Company's expansion of its business, principally switched services, and the
ongoing development of existing markets resulting in higher LEC charges for
circuit leases and interconnection, higher technical personnel costs, and higher
data processing costs.
Selling, General and Administrative. Selling, general and administrative
expenses increased $4.3 million, or 36.1%, to $16.3 million for the three months
ended March 31, 1998, from $12.0 million for the same period in 1997. As a
percentage of revenues, selling, general and administrative expenses decreased
to 74.0% in 1998 from 118.0% for the same period in 1997. The increase in
selling, general and administrative expenses was primarily attributable to an
increase in consulting expenses relating to local regulatory matters and
implementing new billing and system software, and higher direct sales costs
associated with the increase in revenues.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased $3.1 million, or 34.9%, to $11.9 million for the three months
ended March 31, 1998, from $8.8 million for the same period in 1997. As a
percentage of revenues, depreciation and amortization expenses decreased to
54.1% in 1998, from 87.1% for the same period in 1997. The increase in
depreciation and amortization expense was primarily attributable to higher
capital expenditures related to the ongoing construction and expansion of the
Company's telecommunications networks in both 1997 and 1998.
EBITDA. The EBITDA loss for the three months ended March 31, 1998 decreased
$2.4 million, or 23.8%, to $7.8 million in 1998, from a loss of $10.2 million
for the same period in 1997. This improvement was primarily the result of
increased revenue due to the Company's expansion of local telecommunications
networks in new and existing markets and growth of the Company's customer base,
partially offset by higher operating expenses in support of the larger customer
base, and higher selling, general and administrative expenses required to
support the expansion.
Interest Expense. Effective July 1, 1997, all of the Company's financing
requirements began to be funded with loans from the Parent Companies. Interest
expense relating to these loans totaled $2.0 million for the three months ended
March 31, 1998.
Net Loss. Net loss increased $2.1 million, or 10.9%, to $21.8 million for
the three months ended March 31, 1998, from a net loss of $19.7 million for the
same period in 1997. This increase resulted from higher operating, selling,
general and administrative and depreciation and amortization expenses relating
to the Company's expansion of telecommunications networks in new and existing
markets, as well as interest expense on the loans payable to the Parent
Companies, partially offset by the increase in revenues generated by the
Company's expansion.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues. Revenues increased $31.5 million, or 131.6%, to $55.4 million in
1997, from $23.9 million in 1996. Revenues from the provision of dedicated
transport services increased $24.1 million, or 118.7%, to $44.5 million in 1997,
from $20.4 million in 1996. Revenue from dedicated transport service increased
115.9% in those markets in which dedicated transport services were offered as of
December 31, 1996. Switched service revenue increased $7.3 million, or 205.8%,
to $10.9 million in 1997, from $3.6 million in 1996. Switched services revenue
increased 183.9% in those markets in which switched services were offered as of
December 31, 1996. The increase in revenues from dedicated transport services
primarily reflected growth of services offered in existing markets. The increase
in switched services resulted from the offering of services in new markets and
the growth of services in existing markets. At December 31, 1997, the Company
offered dedicated transport services in 18 consolidated markets and switched
services in 14 markets, as compared to offering dedicated transport services in
15 markets and switched services in 2 markets at December 31, 1996.
Operating Expenses. Operating expenses increased $14.6 million, or 56.9%,
to $40.3 million in 1997, from $25.7 million in 1996. As a percentage of
revenues, operating expenses decreased to 72.8% in 1997 from 107.5% in 1996. The
increase in operating expenses was primarily attributable to the Company's
expansion of its business, principally switched services, and the ongoing
development of existing markets resulting in higher technical personnel costs,
higher LEC charges for circuit leases and interconnection and higher data
processing costs.
Selling, General and Administrative. Selling, general and administrative
expenses decreased $5.8 million, or 9.5%, to $54.6 million in 1997, from $60.4
million in 1996. As a percentage of revenues, selling, general and
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administrative expenses decreased to 98.6% in 1997 from 252.4% in 1996. The
decrease in selling, general and administrative expenses was primarily
attributable to the absence of a $5.5 million charge recorded in 1996 to
terminate certain employees as well as the on-going cost reduction due to lower
employee headcount, partially offset by higher direct sales costs associated
with the increase in revenues.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased $16.1 million, or 72.1%, to $38.5 million in 1997, from $22.4
million in 1996. As a percentage of revenues, depreciation and amortization
expenses decreased to 69.4% for 1997 from 93.5% for the same period in 1996. The
increase in depreciation and amortization expense was primarily attributable to
higher capital expenditures related to the ongoing construction and expansion of
the Company's telecommunications networks in both 1997 and 1996.
Gain on Disposition of Investments. In September 1997, the Company
completed the Hyperion Transactions. In connection with these transactions, the
Company recognized a gain of approximately $11.0 million.
EBITDA. The EBITDA loss in 1997 decreased $22.6 million, or 36.3%, to $39.6
million, from a loss of $62.2 million in 1996. This improvement was primarily
the result of increased revenues due to the Company's expansion of local
telecommunications networks in new and existing markets and growth of the
Company's customer base, partially offset by higher operating expenses in
support of the larger customer base.
Interest Expense, Net. Effective July 1, 1997 all of the Company's
financing requirements began to be funded with loans from the Parent Companies.
Interest expense relating to these loans totaled approximately $1.5 million in
1997.
Net loss. Net loss decreased $15.4 million, or 18.0%, to $70.7 million in
1997, from a net loss of $86.1 million in 1996. This improvement principally
resulted from the one-time $11.0 million gain resulting from the Hyperion
Transactions and from increased revenues generated by the Company's expanded
networks, partially offset by increased operating and depreciation and
amortization expenses relating to the Company's expansion of telecommunications
networks in new and existing markets.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. Revenues increased $17.0 million, or 248.9%, to $23.9 million in
1996, from $6.9 million in 1995. This increase reflected increased sales of
services in existing and new markets and growth of the Company's customer base.
Revenues from the provision of dedicated transport services increased $13.9
million, or 213.0%, to $20.4 million, in 1996, from $6.5 million in 1995.
Switched service revenue increased $3.2 million, or 915.7%, to $3.6 million in
1996, from $0.4 million in 1995. The increase in revenues from dedicated
services reflected growth in the existing markets and the commencement of
services in new markets. The increase in switched services reflected growth in
the existing markets. At December 31, 1996, the Company offered dedicated
transport services in 15 consolidated markets and switched services in 2
markets, as compared to offering dedicated transport services in 12 markets and
switched services in 1 market at December 31, 1995.
Operating Expenses. Operating expenses increased $10.6 million, or 70.2%,
to $25.7 million in 1996, from $15.1 million in 1995. As a percentage of
revenues, operating expenses decreased to 107.5% in 1996 from 220.4% in 1995.
The increase in operating expenses was primarily attributable to higher
technical personnel costs, LECs charges for circuit leases and interconnection,
data processing costs associated with the Company's expansion into new markets
and the ongoing development of existing markets.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $26.2 million, or 76.4%, to $60.4 million in
1996, from $34.2 million in 1995. As a percentage of revenues, selling, general
and administrative expenses decreased to 252.4% in 1996 from 499.2% in 1995. The
increase in selling, general and administrative expense was primarily due to
higher personnel compensation costs necessary to support the continued expansion
of the Company's telecommunications networks and customer base. In addition, the
Company incurred a $5.5 million charge to terminate certain employees. See
'Business.'
Depreciation and Amortization Expense. Depreciation and amortization
expense increased $15.2 million, or 209.8%, to $22.4 million in 1996, from $7.2
million in 1995. As a percentage of revenues, depreciation and amortization
expense decreased to 93.5% in 1996 from 105.3% in 1995. The increase in
depreciation and amortization expense was primarily attributable to the ongoing
construction and expansion of the Company's telecommunications networks in both
1995 and 1996.
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EBITDA. The EBITDA loss for 1996 increased $19.7 million, or 46.4%, to
$62.2 million, from a loss of $42.5 million in 1995. Overall, increased
operating and selling, general and administrative expenses resulting from the
Company's development of local telecommunications networks in new and existing
markets more than offset increased revenues.
Net loss. Net loss increased $35.0 million, or 68.5%, to $86.1 million in
1996, from $51.1 million in 1995. This increase resulted principally from
increased expenses relating to the Company's expansion of telecommunications
networks in new and existing markets. These increased expenses were partially
offset by increased revenues generated by the Company's expanded networks.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
For the first three months of 1998, the Company's cash used in operations
decreased to $15.1 million from $28.7 million for the first three months of
1997. This decrease in cash used in operations of $13.6 million principally
resulted from lower EBITDA losses and working capital requirements in the first
three months of 1998. The Company expects to continue to have operating cash
flow deficiencies for the near future as it develops and expands its business.
For the year ended December 31, 1997, the Company's cash used in operations
decreased to $29.4 million from $52.3 million for the year ended December 31,
1996. This decrease in cash used in operations of $22.9 million principally
resulted from lower EBITDA losses during 1997. Cash used in operations increased
$16.7 million in 1996 from $35.6 million in 1995, primarily as a result of
increased EBITDA losses partially offset by other balance sheet changes.
Cash used in investing activities increased $10.8 million to $25.0 million
for the first three months of 1998, as compared to $14.2 million for the first
three months of 1997, principally as a result of higher capital expenditures.
Cash used in investing activities decreased $28.6 million to $120.6 million
in 1997, as compared to $149.2 million in 1996. This decrease resulted
principally from lower capital expenditures due to a slower rate of expansion
and $7.0 million of cash proceeds received in 1997 relating to the Hyperion
Transactions. Cash used in investing activities in 1996 increased $3.9 million
to $149.2 million from $145.3 million in 1995, principally as a result of higher
capital expenditures used to build the Company's networks. As discussed more
fully above, the Company has made substantial capital expenditures in order to
develop and expand its business.
For the first three months of 1998, net cash provided by financing
activities reflects the receipt of interest bearing loans from the Parent
Companies amounting to $40.1 million. Prior to July 1, 1997, the Company's cash
flow deficiencies were entirely funded by non-interest bearing capital
contributions from the Parent Companies. For the first three months of 1997, net
capital contributions amounted to $42.9 million. This decrease of $2.8 million
was primarily due to lower cash funding requirements principally due to
operating cash flow associated with the Company's expansion of its customer base
and services in new and existing markets and lower working capital requirements,
partially offset by higher capital expenditure requirements for the first three
months of 1998.
Net cash provided by financing activities reflects the receipt of
non-interest bearing capital contributions from the Parent Companies to fund the
Company's cash flow deficiencies through June 30, 1997. Effective July 1, 1997,
all of the Company's financing requirements were funded with interest bearing
loans from the Parent Companies. This indebtedness is subordinated in right of
payment to the Notes, bears interest (payable in kind) at an annual rate equal
to The Chase Manhattan Bank's prime lending rate as in effect from time to time
(which was 8.5% at March 31, 1998) and matures on , 2008, one month
after the maturity of the Notes. The aggregate of net capital contributions and
loans from the Parent Companies decreased $51.5 million to $150.0 million in
1997 as compared to $201.5 million in 1996. This decrease was primarily due to
lower cash funding requirements principally due to operating cash flow
associated with the Company's expansion of its customer base and services in new
and existing markets and lower capital expenditure requirements. Net capital
contributions in 1996 increased to $201.5 million from $180.9 million in 1995.
The increase in net capital contributions is primarily due to higher cash
funding requirements principally due to an increase in cash used in operations
associated with the Company's expansion of its customer base and services in new
and existing markets and higher capital expenditures requirements.
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FINANCING
Historically, the Company has not maintained cash balances since all the
Company's cash receipts and funding requirements were provided to or from the
Parent Companies. The proceeds from the Offering, cash flow from operations and
future financings are expected to fund the Company's future cash requirements
through the end of 1999. Upon completion of the Offering, the Parent Companies
and the Members will not be under any obligation to make any additional equity
investments in or loans to the Company. At a future date, the Company may
negotiate a bank credit facility to provide it with working capital and enhance
its financial flexibility. There can be no assurance that such financing will be
available on terms acceptable to the Company or at all.
The development of the Company's business and the installation and
expansion of the Company's communications networks, combined with the
development and operation of the Company's network operations center ('NOC'),
have resulted in substantial capital expenditures. These capital expenditures,
as well as the Company's historical operating losses, have resulted in
substantial negative cash flow for the Company since inception in 1993. Funding
of this historical cash flow deficiency has been primarily accomplished through
the receipt of capital contributions from the Parent Companies through June 30,
1997. From July 1, 1997, the deficiency has been funded through interest bearing
loans from the Parent Companies. This indebtedness is subordinated in right of
payment to the Notes, bears interest (payable in kind) at an annual rate equal
to The Chase Manhattan Bank's prime lending rate as in effect from time to time
(which was 8.5% at March 31, 1998) and matures on , 2008, one month
after the maturity of the Notes. The net balance of amounts due to the Parent
Companies, including interest accrued thereon, under this funding arrangement
was $117.5 million and $75.5 million as of March 31, 1998 and December 31, 1997,
respectively. The average net capital contributions from the Parent Companies
were $517.8 million for the six months ended June 30, 1997 and $379.0 million
and $179.8 million for the years ended December 31, 1996 and 1995, respectively.
Additional paid-in capital balances, which include all capital contributions
from the Parent Companies have remained at $555.8 million since June 30, 1997
and totaled approximately $479.7 million and $278.2 million at December 31, 1996
and 1995, respectively.
The net proceeds to the Company from the sale of the Notes are estimated to
be approximately $ million. The Company intends to use the net proceeds of the
Offering to expand and develop existing and new networks and for other general
corporate and working capital purposes, which may include payment of interest on
the Notes and acquisitions and joint ventures. Pending the foregoing uses, the
net proceeds of the Offering will be invested in short-term, money market
instruments. While the primary use of such proceeds will be to fund ongoing
business operations of the Company's subsidiaries which own and operate its
networks, the Company intends to continue to evaluate potential acquisitions and
joint ventures. The Company has no definitive agreement with respect to any
acquisition or joint venture, although from time to time it may discuss and
assess opportunities with other companies, including affiliates of the Members,
on an ongoing basis.
The Company expects that its future cash requirements will principally be
for working capital, capital expenditures and to fund its operating losses. The
Company expects that the net proceeds of the Offering, together with internally
generated funds, will provide sufficient funds for the Company to meet the
Company's expected capital and liquidity needs to expand its business as
currently planned, pay interest on the Notes and fund its currently expected
losses through the end of 1999. Thereafter, the Company expects to require
additional financing. However, in the event that the Company's plans or
assumptions change or prove to be inaccurate, or the foregoing sources of funds
prove to be insufficient to fund the Company's growth and operations, or if the
Company consummates acquisitions or joint ventures, the Company may be required
to seek additional capital sooner than currently anticipated. The Company's
revenues and costs are dependent upon factors that are not within the Company's
control, such as regulatory changes, changes in technology and increased
competition. Due to the uncertainty of these and other factors, actual revenues
and costs may vary from expected amounts, possibly to a material degree, and
such variations are likely to affect the level of the Company's future capital
expenditures and expansion plans. Sources of financing may include public or
private debt or equity financing by the Company or its subsidiaries or other
financing arrangements.
CAPITAL EXPENDITURES
The facilities-based telecommunications service business is a capital
intensive business. The Company's operations have required and will continue to
require substantial capital investment for: (i) the purchase and installation of
switches, electronics, fiber and other technologies in existing networks and in
additional networks to be constructed in new service areas; and (ii) the
acquisition and expansion of networks currently owned and operated by other
companies. The Company's expected capital expenditures for general corporate and
working
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capital purposes include (i) expenditures with respect to the Company's
management information system and corporate service support infrastructure and
(ii) operating and administrative expenses with respect to new networks and debt
service. The Company plans to make substantial capital investments in connection
with the deployment of switches in all of its existing networks, and plans to
construct and develop new networks. Expansion of the Company's networks will
include the geographic expansion of the Company's existing operations and will
consider the development of new markets. In addition, the Company may acquire
existing networks in the future.
During the first three months of 1998, capital expenditures were $25.0
million, an increase of $10.7 million from the first three months in 1997. This
increase resulted from unusually low capital expenditures for the first three
months of 1997, principally due to the Company's new management team put into
place in January 1997, which required time to formulate the Company's current
business strategy focusing exclusively on business customers. During the year
ended December 31, 1997, capital expenditures were $127.3 million, a decrease of
$17.5 million from $144.8 million in 1996. The decrease was principally due to a
slower rate of expansion into new markets in 1997. Capital expenditures in 1996
increased $3.3 million from $141.5 million in 1995. Based on expansion plans
comparable to the historical expansion of the Company and the continuation of
the Company's relationship with TW Cable with respect to additional fiber
capacity, the Company estimates it will require $147.7 million in 1998 and
$152.8 million in 1999 to fund its capital expenditures. See 'Certain
Relationships and Related Transactions -- Certain Operating Agreements.'
YEAR 2000
The Company is currently working to resolve the potential impact of the
year 2000 on the processing of time-sensitive information by its computerized
information systems. Year 2000 issues may arise if computer programs have been
written using two digits (rather than four) to define the applicable year. In
such case, programs that have time-sensitive logic may recognize a date using
'00' as the year 1900 rather than the year 2000, which could result in
miscalculations or system failures. Management is in the process of completing a
review of significant software and equipment used in the Company's operations
and, to the extent practicable, in the operations of its key business partners,
in order to determine if any year 2000 risks exist that may be material to the
Company as a whole. This process includes an assessment of year 2000 risks on an
ongoing basis and the identification of practical remediation measures that
could be taken on a timely basis to alter, validate or replace time-sensitive
software and equipment. Management has already begun implementing certain of
these measures and intends to complete its remediation efforts prior to any
anticipated material impact on its computerized information systems. Costs of
addressing potential problems have not been material to date and, based on
preliminary information from the Company, its customers and vendors, are not
currently expected to have a material adverse impact on the Company's financial
position, results of operations or cash flows in future periods. However, if the
Company, its customers or vendors are unable to resolve such processing issues
in a timely manner, it could result in a material financial risk. Accordingly,
management plans to devote the resources it concludes are appropriate to resolve
all significant year 2000 issues in a timely manner.
EFFECTS OF INFLATION
Historically, inflation has not had a material effect on the Company.
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BUSINESS
OVERVIEW
The Company is a leading facilities-based CLEC in selected metropolitan
areas across the United States, offering a wide range of business telephony
services, primarily to medium- and large-sized business customers and other
carriers. The Company's customers are principally telecommunications-intensive
business end-users, IXCs, ISPs, wireless communications companies and
governmental entities. Such customers are offered a wide range of integrated
telecommunications services, including dedicated transmission, local switched,
data and video transmission services and certain Internet services. The Company
has deployed switches in 16 of its 19 service areas as of March 31, 1998, and
management expects that a growing portion of the Company's revenues will be
derived from providing switched services. In addition, the Company benefits from
its strategic relationship with TW Cable both through network facilities access
and cost-sharing. As a result, the Company's networks have been constructed
primarily through licensing the use of fiber capacity from TW Cable. As of March
31, 1998, the Company operated networks in 19 metropolitan areas that spanned
6,239 route miles, contained 244,894 fiber glass miles and offered service to
2,711 buildings. Consolidated revenues for the Company, which have historically
been primarily derived from private line services, grew by 117.2% for the three
months ended March 31, 1998 as compared to the same period in 1997.
The business of the Company was commenced in 1993 by TW Cable, originally
to provide certain telephony services together with cable television. In January
1997, the Company put in place a new management team that is implementing a
business strategy focused exclusively on serving business customers, rapidly
providing switched services in all the Company's service areas and expanding the
range of business telephony services offered by the Company.
The Company believes that the 1996 Act and certain state regulatory
initiatives provide increased opportunities in the telecommunications
marketplace by opening all local service areas to competition and requiring
ILECs to provide increased direct interconnection. According to the FCC, in 1996
the total revenues for the telecommunications industry amounted to approximately
$222 billion, of which approximately $122 billion was local service and
approximately $100 billion was long distance. To capitalize on these significant
opportunities, the Company has accelerated its deployment of high capacity
digital switches in its service areas and is aggressively marketing switched
services to medium- and large-sized businesses.
BUSINESS STRATEGY
The Company's primary objective is to be a leading CLEC in its existing and
future service areas offering medium- and large-sized businesses superior
telecommunications services through advanced networks. The key elements of the
Company's business strategy include the following:
Leverage Existing Fiber Optic Networks. The Company has designed and built
its networks to serve geographic locations where management believes there are
large numbers of potential customers. As of March 31, 1998, the Company operated
networks that spanned over 6,239 route miles and contained over 244,894 fiber
miles. The Company's highly concentrated networks have yet to be fully exploited
and provide the capacity to serve a substantially larger base of customers.
Management believes that the Company's extensive fiber network capacity allows
it to: (i) increase orders substantially from new and existing customers without
incurring significant additional capital expenditures and operating expenses;
(ii) emphasize its facilities-based services rather than resales of network
capacity of other providers; and (iii) exert greater control over its services
than the Company's competitors that are dependent upon off-net facilities,
thereby providing better customer service.
Expand Switched Services. The Company provided a broad range of switched
services in 16 of its service areas as of March 31, 1998, and plans to provide
switched services in all of its current service areas by the end of 1999. For
the three months ended March 31, 1998, consolidated revenues from switched
service grew by 187.0% as compared to the same period in 1997. Because the
demand for switched services is greater than for dedicated transport services
and the Company has been rapidly installing switches in its markets, management
expects the Company to derive a growing portion of its revenues from switched
services. The Company utilizes high capacity digital 5-ESS switches manufactured
by Lucent.
Target Medium- and Large-Sized Business Customers. The Company operates
networks in metropolitan areas that have high concentrations of medium- and
large-sized businesses. Such businesses tend to be
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telecommunications-intensive and are more likely to seek the greater reliability
provided by an advanced network such as the Company's. Thus, management believes
that significant economies of scale may be achieved by focusing and intensifying
its sales and marketing efforts on such businesses as they are potentially high
volume users of the Company's services. To drive revenue growth in these
markets, the Company is aggressively expanding its direct sales force to focus
on such business customers.
Interconnect Service Areas within Clusters. The 19 service areas in which
the Company currently operates are grouped in six geographic clusters across the
United States. See ' -- Telecommunications Networks and
Facilities -- Telecommunications Networks.' The Company plans to interconnect
each service area within a cluster with broadband, fiber optic facilities of its
own or licensed from TW Cable and/or third parties. Interconnecting service
areas within a cluster will enable the Company to increase its revenue potential
by addressing customers' regional long distance voice, data and video
requirements. In 1998, management plans to begin interconnecting service areas
within the Company's Midwest, Southwest and Southeast clusters.
Utilize Strategic Relationships with TW Cable. The Company has benefited
from and continues to leverage its relationships with TW Cable, the second
largest multiple system cable operator in the U.S., by licensing and sharing the
cost of digital fiber optic facilities. This licensing arrangement allows the
Company to benefit from TW Cable's access to rights-of-way, easements, poles,
ducts and conduits. See 'Certain Relationships and Related
Transactions -- Certain Operating Agreements.' By leveraging its existing
relationship with TW Cable, the Company believes that it can increase revenues,
benefit from existing regulatory approvals and licenses, derive economies of
scale in network costs and extend its existing networks in a rapid, efficient
and cost-effective manner. Furthermore, management believes that the strong
awareness and positive recognition of the 'Time Warner' brand name significantly
contributes to its marketing programs and sales efforts by distinguishing it
from its competitors.
Expand Product Offerings. The Company intends to increase revenues and cash
flows by developing and tailoring diversified bundles of telephony services for
its customers. The services currently offered by the Company include a wide
range of dedicated transmission, local switched, data and video transmission
services and certain Internet services. The Company intends to offer additional
services including long distance service and other high speed data transport
services. The Company generally develops its customer base by first offering
basic telecommunications services to its new customers. As the needs of such
customers change and develop, the Company selectively bundles and offers more
sophisticated, higher margin products and services to them.
Enter into New Geographic Areas. The Company's strategy is to target
metropolitan areas possessing demographic, economic and telecommunications
demand profiles that it believes provide it with the potential to generate an
attractive economic return. Currently, the Company operates networks in a total
of 19 metropolitan areas. Management plans to have networks in operation or
under construction in several additional service areas by the end of 1999, most
of which will be in service areas where TW Cable has already made substantial
infrastructure investments. By licensing capacity from TW Cable's existing fiber
optic networks, the Company can develop new networks quickly and
cost-effectively, thereby giving it a competitive advantage over other CLECs.
See 'Certain Relationships and Related Transactions -- Certain Operating
Agreements.'
Continue Disciplined Expenditure Program. The Company increases operational
efficiencies by pursuing a disciplined approach to capital expenditures. This
capital expenditure program requires that prior to making any expenditure on a
project, the project must be expected to meet stringent financial criteria such
as minimum recurring revenue, cash flow margins and rate of return. In addition,
to control capital expenditures and share the risks of developing costly new
networks, management is considering establishing strategic alliances with other
telecommunications providers in the form of joint ventures and possible
co-branding marketing programs.
MARKET OPPORTUNITY
The Company believes that the 1996 Act and certain state regulatory
initiatives provide increased opportunities in the telecommunications market
place by opening all local markets to competition and requiring ILECs to provide
increased direct interconnection. According to the FCC, in 1996 the total
revenues for the telecommunications industry amounted to approximately $222
billion, of which approximately $122 billion was local service and approximately
$100 billion was long distance. To capitalize on these significant
opportunities, the Company accelerated its deployment of high capacity digital
switches in its markets and is aggressively marketing switched services to its
customers.
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SERVICES
The Company provides its customers with a wide range of telecommunications
services, including dedicated transmission, local switched, data and video
transmission services and certain Internet services. The Company's dedicated
services, which include private line and special access services, use
high-capacity digital circuits to carry voice, data and video transmissions from
point-to-point in multiple configurations. Switched voice services offered by
the Company use high-capacity digital switches to route voice transmissions
anywhere on the public switched telephone network. In offering its dedicated
transmission and switched services, the Company also provides private network
management and systems integration services for businesses that require
combinations of various dedicated and switched telecommunications services. Data
services provided by the Company allow customers to create their own internal
computer networks and access external computer networks and the Internet. The
Company can provide its customers, including companies in the media industry,
with advanced video transport services such as point-to-point, broadcast-quality
video channels for video transmissions between two or more locations, including
video links to all the major television networks as well as to advertising
agencies and other customers. Internet services provided by the Company include
dedicated Internet access, website hosting, access and upstream transport for
local ISPs and electronic commerce services.
Dedicated Transport Services
The Company currently provides a complete range of dedicated transport
services with transmission speeds from 2.4 Kbps to 2.488 Gbps to its IXC and
end-user customers. All products and services can be used for voice, data, image
and video transmission.
The Company offers the following dedicated transport links:
POP-to-POP Special Access. Telecommunications lines linking the POPs
of one IXC or the POPs of different IXCs in a market, allowing the POPs to
exchange transmissions for transport to their final destinations.
End-User/IXC Special Access. Telecommunications lines between an end
user, such as a large business, and the local POP of its selected IXC.
Private Line. Telecommunications lines connecting various locations of
a customer's operations, suitable for transmitting voice and data traffic
internally.
Transport Arrangement Service. Provides dedicated transport between
LEC central offices and customer designated POPs of an IXC for transport of
LEC provided switched access or LEC provided special access. This
point-to-point service is available at DS1 or DS3 interfaces at both ends.
The Company's Broadcast Video TV-1, STS-1 and Private Network Transport
services use high-capacity digital circuits to carry voice, data and video
transmissions from point-to-point in flexible configurations involving different
standardized transmission speeds and circuit capacities, including analog voice
grade, DS0, DS1, DS3 and Sonet OC-N.
Switched Services
The Company's switched services provide business customers with local
calling capabilities and connections to their IXCs. The Company owns, houses,
manages and maintains the switch used to provide the services. The Company's
switched services include the following:
Business Access Line Service. This service provides voice and data
customers quality analog voice grade telephone lines for use at any time.
Business Access Line Service provides customers with flexibility in network
configurations because lines can be added, deleted and moved as needed.
TW Access Trunks. TW Access Trunks provide communication lines between
two switching systems. These trunks are utilized by PBX users to provide
access to the local, regional and long distance telephone networks. PBX
customers may use either the Company's telephone numbers or their
ILEC-assigned telephone numbers. Customer access to the Company's local
exchange services is accomplished by a DS1 digital connection or DS0 analog
trunks between the customer's PBX port and the Company's switching centers.
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TW Local Toll Service. This service provides customers with a
competitive alternative to ILEC service for intraLATA toll calls. It is a
customized, high-quality local calling plan available to Business Access
Line and TW Access Trunk customers. The Company works with customers to
devise cost-saving programs based on actual usage and calling patterns.
Local Telephone Service. Local telephone service is basic local
exchange service which can be tailored to a customer's particular calling
requirements. Local telephone service includes operator and directory
assistance services, as well as an optional intraLATA toll plan.
Switched Access Service. Switched Access Services provide IXCs with a
switched connection to their customers for the origination and termination
of long distance telephone calls.
Other services offered by the Company include telephone numbers,
listings, customized calling features, voice messaging, hunting, blocking
services and ISDN.
Data Transmission Services
The Company offers its customers a broad array of data transmission
services that enable customers to create their own internal computer networks
and access external computer networks and the Internet. In 1996, the Company
introduced its native speed LAN inter-networking data service which is used to
connect workstations and personal computer users on one or more LANs. Native
speed services avoid the bottleneck problems that are frequently encountered
with customary DS1 connections by providing the customer with a circuit that
matches the transmission speeds of its LAN. The Company's LAN service provides
dedicated circuits, guaranteed transmission capacity and guaranteed bandwidth
for virtually all LAN applications. Users can share files and databases as if
they were all working on the same computer, or within the same LAN.
As companies and communications become more sophisticated, there is an
increased need for customer access to superior traffic management of sensitive
data, video and voice transmission within a single metropolitan area, or between
various company operations. The Company's switched data services offer
sophisticated switching technology and provide high standards in reliability and
flexibility while enabling users to reduce the costs associated with
interconnecting architecturally diverse information systems. The Company's data
service offerings support evolving high-speed applications, such as multimedia,
desktop video conferencing and medical imaging. The Company offers native speed
connections to both end-users as well as interexchange data carriers. The
Company's services allow users to interconnect both high speed and low speed LAN
environments and to benefit from flexible billing, as well as detailed usage
reports.
Video Transmission Services
The Company provides broadcast quality digital and analog video link
services to its video services customers, including media industry customers,
such as television networks, and advertising agencies. The Company's video
services include offering broadcast quality, digital channel transmissions that
can be provided on a point-to-point or point-to-multipoint basis.
Internet Services
In most of its service areas, the Company currently offers Internet
services such as dedicated Internet access, access and upstream transport for
local ISPs and for electronic commerce services. The Company believes that these
services will continue to be an important component of the Company's overall
product offerings and intends to continue to expand the offering of Internet
services within its service areas.
PLANNED/FUTURE SERVICES
Long Distance Services
The Company intends to offer basic and enhanced long distance services,
such as toll free, calling card and international gateways to Europe and the
Pacific, targeting medium- and small-size business customers. Generally, large
businesses tend to obtain their long distance needs directly from the major
IXCs. The Company believes medium- and small-size businesses are more likely to
obtain their long distance services from CLECs rather than the major IXCs. As a
result, management believes that such medium- and small-sized end-users
represent a potential customer base for developing a market for the Company's
long distance services. The
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Company will purchase long distance capacity under agreements, currently in
negotiation, with major IXCs that provide the Company capacity at competitive
rates for resale and all support and billing services. Management believes that
the offering of long distance services will contribute to revenue growth with
profitable margins and will also add strategic sales and marketing value as a
bundled product.
Road Runner 'Work at Home' Services
TW Cable operates a high speed online content service, currently branded
'Road RunnerTM,' primarily to residential customers in a number of its cable
operating areas. There are currently active Road Runner operations in Albany,
Binghamton, San Diego, Memphis, Columbus, Tampa and Honolulu. As of December 31,
1997, TW Cable's Road Runner subscribers totaled approximately 27,000. The
Company expects that it and TW Cable will cooperate in providing services to or
on behalf of each other where advantageous Road Runner-related business
opportunities arise. See 'Certain Relationships and Related
Transactions -- Certain Operating Agreements.' For example, the Company may have
the first opportunity to provide network facilities to TW Cable for transport of
the Road Runner service where facilities are not internally available. Further,
the Company may be able to act as a sales agent for (or otherwise team with) TW
Cable for the Road Runner residential services as part of an overall 'work at
home' solution for the Company's large business customers. However, in light of
the restrictions in the LLC Agreement on Residential Services and Content
Services, any sales agent services provided by the Company will require a waiver
by the Members of the Content Services and the Residential Services restrictions
in accordance with the LLC Agreement provisions. As these services are in the
developmental stage, it is not possible to predict how significant the Road
Runner teaming arrangements with TW Cable will become.
TELECOMMUNICATIONS NETWORKS AND FACILITIES
Overview
The Company uses the latest technologies and network architectures to
develop a highly reliable infrastructure for delivering high-speed, quality
digital transmissions of voice, data and video telecommunications. The Company's
basic transmission platform consists primarily of optical fiber equipped with
high capacity SONET equipment deployed in fully redundant, self-healing rings.
These SONET rings give the Company the capability of routing customer traffic in
both directions around the ring, thereby eliminating loss of service in the
event of a cable cut. The Company's networks are designed for remote automated
provisioning, which allows the Company to meet customers' real time service
needs. The Company extends SONET rings or point to point links from rings to
each customer's premises over its own fiber optic cable and unbundled facilities
obtained from ILECs. The Company also installs diverse building entry points
where a customer's security needs require such redundancy. The Company then
places necessary customer-dedicated or shared electronic equipment at a location
near or in the customer's premises to terminate the link.
The Company serves its customers from one or more central offices or hubs
strategically positioned throughout its networks. The central offices house the
transmission and switching equipment needed to interconnect customers with each
other, the IXCs and other local exchange networks. Redundant electronics, with
automatic switching to the backup equipment in the event of failure, protects
against signal deterioration or outages. The Company continuously monitors
system components from its NOC and proactively focuses on avoiding problems
rather than upon merely reacting upon failure.
The Company adds switched, dedicated and data services to its basic fiber
optic transmission platform by installing sophisticated digital electronics at
its central offices and nodes and at customer locations. The Company's advanced
Lucent 5-ESS digital telephone switches are connected to multiple ILEC and long
distance carrier switches to provide the Company's customers access to
telephones in the local market as well as the public switched telephone network.
Similarly, in certain markets, the Company provides ATM switched and LAN
multiplexers at its customers' premises and in its central offices to provide
high speed LAN interconnection services.
The Company's strategy for adding customers is designed to maximize the
speed and impact of its marketing efforts while maintaining attractive rates of
return on capital invested to connect customers directly to its networks. To
initially serve a new customer, the Company may use various transitional links,
such as reselling a portion of an ILEC's network. Once the new customer's
communications volume and product needs
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are identified, the Company may build its own fiber optic connection between the
customer's premises and the Company's network to accommodate: (i) the customer's
needs; and (ii) the Company's efforts to maximize return on network investment.
Telecommunications Networks
The following chart sets forth information regarding each of the Company's
telecommunications networks as of March 31, 1998:
<TABLE>
<CAPTION>
Network Switch Commercial
Commercially Commercially Fiber Route Buildings MSA Business
Metropolitan Area Available Available(1) Miles(2) On-Net Lines(3)
- ------------------------------- ------------- ------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
NEW YORK REGION
Albany, New York............... Jul. 95 TBD 42 8 178,332
Binghamton, New York........... Jan. 95 TBD 73 16 70,301
Manhattan, New York............ Feb. 96 Feb. 96 157 52 2,375,192
Rochester, New York............ Dec. 94 Feb. 95 275 38 260,423
SOUTHWEST REGION
Austin, Texas.................. Sep. 94 Apr. 97 242 75 321,030
Houston, Texas................. Jan. 96 Sep. 97 418 96 1,133,864
San Antonio, Texas............. May 93(4) Nov. 97 481 145 394,536
SOUTHEAST REGION
Charlotte, N. Carolina......... Sep. 94 Dec. 97 672 160 372,714
Greensboro, N. Carolina........ Jan. 96 TBD 94 7 265,080
Memphis, Tennessee............. May 95 May 97 467 105 225,342
Raleigh, N. Carolina........... Oct. 94 Sep. 97 430 102 224,596
MIDWEST REGION
Cincinnati, Ohio............... Jul. 95 Nov. 97 271 66 493,850
Columbus, Ohio(5).............. Mar. 91(4) Jul. 97 339 112 393,791
Indianapolis, Indiana.......... Sep. 87(4) Dec. 97 224 105 370,621
Milwaukee, Wisconsin........... Feb. 96 Sep. 97 376 71 399,555
SOUTH REGION
Tampa, Florida................. Dec. 97 Jan. 98 228 7 626,709
Orlando, Florida............... Jul. 95 Jul. 97 859 131 439,238
WESTERN REGION
Honolulu, Hawaii............... Jun. 94 Jan. 98 398 173 197,823
San Diego, California.......... Jun. 95 Jul. 97 193 74 1,005,994
----------- ---------- ------------
Total.......................... 6,239 1,543 9,748,991
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
- ------------
(1) Date of switch commercially available is the first date on which switched
services were provided to a customer of the Company.
(2) Licensed and owned fiber optic route miles.
(3) Metropolitan Statistical Areas ('MSA') business lines data are from ABI 1996
Business Data.
(4) The networks in Columbus, Ohio, San Antonio, Texas and Indianapolis, Indiana
were built by certain predecessor companies prior to the commencement of the
Company's business.
(5) The Columbus market is operated under a partnership, MetroComm AxS, L.P.,
which is a 50% owned entity of the Company. However, the switch is owned by
the Company.
Information Systems Infrastructure
The Company uses advanced technology in its information systems
infrastructure. The Company also uses an integrated, nationwide client server
platform and coherent relational databases to increase employee productivity,
link itself electronically to its customers and develop real time data and
information. The
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architecture also enables the Company to rapidly re-engineer its processes and
procedures to lower its costs and to respond rapidly to changing industry
conditions. The Company's information systems deliver data at the network,
regional or corporate level, and also by customer and vendor. The Company's
information systems assist in the delivery of superior customer service and real
time support of network operations. The systems, which were developed by an
outside vendor but are operated internally, utilize open system standards and
architecture. As a result, the Company is positioned to either purchase from
third parties or develop in-house supplementary information support systems as
its needs arise.
Network Monitoring and Management
The Company provides a single point of contact for all of its customers and
consolidates all of its systems support, expertise and technical training at its
NOC in Greenwood Village, Colorado. With over 365 technicians, customer service
representatives and administrative support staff dedicated to providing superior
customer service, the Company is able to quickly correct, and often anticipate,
any problems that may arise in its networks. The Company provides 24 hour-a-day,
7 days-a-week surveillance and monitoring of networks to achieve the Company's
99.98% network reliability and performance. Network analysts monitor real-time
alarm, status and performance information for each circuit and the network
equipment and react swiftly to repair network failures.
Network Development and Application Laboratory
The Company's Network Development and Application Laboratory is a
comprehensive telecommunications technology, applications and services
development laboratory, equipped with advanced systems and equipment, including
those used by the Company in the operation of its local digital networks. The
center is designed to provide a self-contained testing and integration
environment, fully compatible with the Company's digital networks, for the
purposes of: (i) verifying the technical and operational integrity of new
equipment prior to installation in the networks; (ii) developing new services
and applications; (iii) providing a realistic training environment for
technicians, engineers and others; and (iv) providing a network simulation
environment to assist in fault isolation and recovery.
Billing Systems
The Company has historically developed its back office support functions
internally with limited reliance on outside vendors. Recently, the Company
entered into agreements with outside vendors for the development, operation and
maintenance of its billing systems. See 'Risk Factors -- Dependence on
Information Billing Systems' and 'Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000.'
Agreements with TW Cable
The Company has entered into several agreements with TW Cable for the
license of fiber optic networks and certain facilities, administrative and
operating services, residential telephony support services and high speed online
transport services. See 'Certain Relationships and Related
Transactions -- Certain Operating Agreements.'
NETWORK DESIGN AND CONSTRUCTION
In order to leverage its relationship with TW Cable, the Company has
constructed its existing networks in selected metropolitan areas served by TW
Cable's fiber optic infrastructure. This has allowed the Company to develop, in
a cost-efficient way, an extensive network in each of its service areas. As of
March 31, 1998, the Company's networks spanned 6,239 route miles, contained
244,894 fiberglass miles and offered service to 2,711 buildings with 1,904,420
VGE circuits and 23,702 access lines in service.
Before deciding to construct or acquire a network in a particular city, the
Company's corporate development staff reviews the demographic, economic,
competitive and telecommunications demand characteristics of the city, including
its location, the concentration of potential business, government and
institutional end-user customers, the economic prospects for the area, available
data regarding IXC and end-user special access
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and switched access transport demand and actual and potential CAP/CLEC
competitors. Market demand is estimated on the basis of market research
performed by Company personnel and others, utilizing a variety of data including
estimates of the number of interstate access and intrastate private lines in the
city based primarily on FCC reports and commercial databases. This process has
enabled the Company to reduce its start-up costs and expedite lead times.
If a particular city targeted for development is found to have sufficiently
attractive demographic, economic, competitive and telecommunications demand
characteristics, the Company's network planning and design personnel design a
network targeted to provide access to the major IXC, POPs and the ILEC's
principal central office(s) in the city. Consistent with the Company's
disciplined capital expenditure program, distribution rings are designed to
cover strategic or highly concentrated business parks and downtown metropolitan
areas, and build-out to 100% of the identified end users is generally not
considered to be cost-effective since a portion of the end-users are located in
low density areas.
Based on the data obtained through the foregoing process, in connection
with either the construction or an acquisition of a network, the Company
develops detailed financial estimates based on the anticipated demand for the
Company's current services. If the financial estimates meet or exceed the
Company's minimum rate of return thresholds using a discounted cash flow
analysis, the Company's corporate planning personnel prepare a detailed business
and financial plan for the proposed network.
Prior to commencing construction, the Company's local staff, working
together with TW Cable, where applicable, obtains any needed city franchises,
permits, or other municipal requirements to initiate construction and operate
the network. In some cities, a construction permit is all that is required. In
other cities, a license agreement or franchise may also be required. Such
licenses, agreements and franchises are generally for a term of limited
duration. In addition, the 1996 Act requires that local governmental authorities
treat all telecommunications carriers in a competitively neutral,
non-discriminatory manner. The Company's current licenses and franchises expire
in years ranging from 1999 to 2015. City franchises often require payment of
franchise fees which in some cases can be directly passed through on customers'
invoices. The Company's local staff also finalizes arrangements for needed
rights-of-way. Rights-of-way are typically licensed from TW Cable under
multi-year agreements with renewal options and are generally non-exclusive. See
'Certain Relationships and Related Transactions -- Certain Operating
Agreements.' The Company leases underground conduit and pole space and other
rights-of-way from entities such as LECs and other utilities, railroads, long
distance providers, state highway authorities, local governments and transit
authorities. The 1996 Act requires most utilities, including most LECs and
electric companies, to afford CAPs/CLECs access to their poles, conduits and
rights-of-way at reasonable rates on non-discriminatory terms and conditions.
The Company's networks are constructed to cost-effectively access areas of
significant commercial end-user telecommunications traffic, as well as the POPs
of most IXCs and cellular companies and the principal LEC central offices in a
city. The Company establishes general requirements for network design, and
internally engineers the contemplated network and the required deployment.
Construction and installation services are provided by independent contractors,
including TW Cable, selected through a competitive bidding process. Company
personnel provide project management services, including contract negotiation
and supervision of the construction, testing and certification of all
facilities. The construction period for a new network varies depending upon the
number of route miles to be installed, the initial number of buildings targeted
for connection to the network, the general deployment of the network and other
field conditions. Networks that the Company has installed to date generally have
become operational within six to nine months after the beginning of
construction.
EQUIPMENT SUPPLY
The Company acquires Lucent 5-ESS digital switches pursuant to an exclusive
vendor agreement (the 'Lucent Agreement'), which provides for discounted
pricing. The Lucent Agreement expires in June of 1999 and is renewable for up to
three additional years upon the parties' mutual agreement. The Lucent Agreement
provides that if the Company purchases digital switches from a vendor other than
Lucent during the term of such agreement, Lucent, among other things, may
discontinue the agreed upon discounted pricing on all future orders, renegotiate
higher prices for digital switches and may not be liable for failures to meet
certain delivery and installation schedules on future orders.
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CUSTOMERS AND SALES AND MARKETING
The Company's customers are principally telecommunications-intensive
medium- and large-sized businesses, long distance carriers, ISPs, wireless
communications companies and various government entities. Historically, the
Company's customers were primarily long distance carriers. While the Company's
carrier business has continued to grow in absolute numbers, it has declined as a
proportion of total business such that in 1997 end user customers accounted for
47.8% of the Company's revenues. For the three months ended March 31, 1998, the
Company's top 10 customers accounted for 40.6% of the Company's total revenues.
The top three customers, which are IXCs or other telecommunications providers,
accounted for 26.1% of total revenues, and no other customer accounted for 5% or
more of revenues. See 'Risk Factors -- Dependence on Significant Customers.'
The Company's marketing emphasizes its: (i) reliable, facilities-based
networks, (ii) flexibly priced, bundled products and services; (iii) responsive
customer service orientation; and (iv) integrated operations, customer support
and network monitoring and management systems. The Company's centrally managed
customer support operations are designed to facilitate the processing of orders
for changes and upgrades in customer services. To reduce the inherent risk in
bringing new and untested telecommunications products and services to a
dynamically changing market, the Company introduces its products and services
once market demand develops and offers them in diversified, competitively-priced
bundles, thereby increasing usage among its existing customers and attracting
new customers. The services offered by the Company are typically priced at a
discount to the prices of the ILECs.
With a direct sales force in each of its service areas along with regional
and national sales support, the Company targets medium- and large-sized
telecommunications-intensive businesses in the areas served by its networks.
Compensation for the Company's sales representatives is based primarily on
commissions that are tied to sales generated. The Company's customers include
financial services firms, health care, media, telecommunications services and
high tech companies and various governmental institutions. In addition, the
Company markets its services through sales agents, landlords, advertisements,
trade journals, media relations, direct mail and participation in trade
conferences.
The Company also targets long-distance carriers, ISPs, large, strategic
business accounts and wireless telephone companies through its national sales
organization. The Company has master services agreements (which generally set
forth technical standards, ordering processes, pricing methodologies and service
grade requirements, but do not guarantee any specified level of business for the
Company) with a significant number of the long-distance carriers, including
AT&T, MCI Communications Corporation, Sprint Corporation, WorldCom, Inc. and
LCI, Inc. By providing long-distance companies with a local connection to their
customers, the Company enables them to avoid complete dependence on the ILECs
for access to customers and to obtain a high quality and reliable local
connection. The Company provides a variety of transport services and
arrangements that allow long distance carriers to connect their own switches in
both local areas (intra-city) and in wide areas (inter-city). Additionally, long
distance companies may purchase the Company's transport services that allow them
to connect their switch to an ILEC switch and to end user locations directly.
The Company's advanced networks allow it to offer high volume business customers
and long-distance carriers uniformity of services, pricing, quality standards
and customer service.
CUSTOMER SERVICE
With over 365 expert technicians, customer service representatives and
administrative support staff, the Company provides its customers with continuous
support and superior service. To serve its customers, account representatives
are assigned to the Company's customers to act as effective liaisons with the
Company. Technicians and other support personnel are available in each of the
Company's markets to react to any network failures or problems. In addition, the
NOC provides 24 hour-a-day, 7 days-a-week surveillance and monitoring of
networks to maintain the Company's network reliability and performance. See
' -- Telecommunications Networks and Facilities -- Network Monitoring and
Management.'
COMPETITION
The Company believes that the principal competitive factors affecting its
business are, and will continue to be, (i) the availability of proven support
systems for the Company's back office systems, including provisioning
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and billing, (ii) competition for skilled, experienced personnel, and (iii)
regulatory decisions and policies that promote competition. The Company believes
that it competes favorably with other companies in the industry or is impacted
favorably with respect to each of these factors. The technologies and systems
which provide back office support for the CLEC industry are nascent and may not
keep pace with the growth of order volume, integration with other systems, and
production of required information for systems managers. The best personnel in
all areas of the Company's operations are in demand by the numerous participants
in the highly specialized CLEC industry. While the Company's employee base is
very stable, it is anticipated that others in the industry will continue to
demand high quality personnel and will thus drive pressure to maintain extremely
competitive compensation and benefits packages in addition to an attractive work
environment. Regulatory environments at both the state and Federal level differ
widely and have considerable influence on the Company's market and economic
opportunities and resulting investment decisions. The Company believes it must
continue monitoring regulatory developments and remain active in its
participation in regulatory issues.
Services substantially similar to those offered by the Company are also
offered by the ILECs, which include Ameritech Corporation, Bell Atlantic
Corporation, BellSouth Corporation, SBC Communications Inc. ('SBC') and GTE
Corporation. The Company believes that ILECs generally benefit from their
long-standing relationships with customers, substantial technical and financial
resources greater than those of the Company, have the potential to subsidize
services of the type offered by the Company from service revenues not subject to
effective competition and currently benefit from certain existing regulations
that favor the ILECs over CLECs such as the Company in certain respects. In
addition, in most of the metropolitan areas in which the Company currently
operates, at least one, and sometimes several, other CAPs or CLECs offer
substantially similar services at substantially similar prices to those of the
Company. Other CLECs, CAPs, cable television companies, electric utilities, long
distance carriers, microwave carriers, wireless telephone system operators and
private networks built by large end users currently do, and may in the future,
offer services similar to those offered by the Company.
The Company believes that the 1996 Act will provide increased business
opportunities by opening all local markets to competition and requiring ILECs to
provide increased direct interconnection. However, under the 1996 Act, the FCC
and some state regulatory authorities may provide ILECs with increased
flexibility to reprice their services as competition develops and as ILECs allow
competitors to interconnect to their networks. In addition, some new entrants in
the local market may price certain services to particular customers or for
particular routes below the prices charged by the Company for services to those
customers or for those routes, just as the Company may itself underprice those
new entrants for other services, customers or routes. If the ILECs and other
competitors lower their rates and can sustain significantly lower prices over
time, this may adversely affect revenues of the Company if it is required by
market pressure to price at or below the ILECs' prices. If regulatory decisions
permit the ILECs to charge CAPs/CLECs substantial fees for interconnection to
the ILECs' networks or afford ILECs other regulatory relief, such decisions
could also have a material adverse effect on the Company. However, the Company
believes that the negative effects of the 1996 Act may be more than offset by
(i) the increased revenues available as a result of being able to address the
entire local exchange market, (ii) mutual reciprocal compensation with the ILEC
that results in the Company terminating its local exchange traffic on the ILEC's
network at little or no net cost to the Company, (iii) obtaining access to off-
network customers through more reasonably priced expanded interconnection with
ILEC networks and (iv) a shift by IXCs to purchase access services from
CAPs/CLECs instead of ILECs. There can be no assurance, however, that these
anticipated results will offset completely the effects of increased competition
as a result of the 1996 Act.
Historically, the Company has been able to build new networks and expand
existing networks in a timely and economical manner through strategic
arrangements such as leasing fiber optic cable from TW Cable, which already
possesses rights-of-way and has facilities in place. The Company intends to use
its experience and presence in the telecommunications industry to fully exploit
its available capacity, further develop and expand its existing
telecommunications infrastructure and offer a diversified range of products and
services in competitively priced bundles.
GOVERNMENT REGULATION
Historically, interstate and foreign communication services were subject to
the regulatory jurisdiction of the FCC, and intrastate and local
telecommunications services were subject to regulation by state public service
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commissions. With the enactment of the 1996 Act, competition in all
telecommunications market segments, including interstate and intrastate, local
and long distance, became matters of national policy. As described below, the
respective roles of Federal and state regulators to establish rules and pricing
requirements to implement that policy remain the subject of litigation.
Nonetheless, the Company believes that the national policy fostered by the 1996
Act should contribute to an increase in the market opportunities for the
Company. Because these developments require numerous actions to be implemented
by individual Federal and state regulatory commissions, and are subject to
particular legal, political and economic conditions, it is not possible to
predict the pace at which regulatory liberalization will occur.
Telecommunications Act of 1996
In early 1996, President Clinton signed the 1996 Act, the most
comprehensive reform of the nation's telecommunications laws since the
Communications Act. The 1996 Act prohibits state and local governments from
enforcing any law, rule or legal requirement that prohibits or has the effect of
prohibiting any person from providing any interstate or intrastate
telecommunications service. This provision of the 1996 Act should enable the
Company to provide a full range of local telecommunications services in any
state. States retain jurisdiction under the 1996 Act to adopt competitively
neutral regulations necessary to preserve universal service, protect public
safety and welfare, ensure the continued quality of telecommunications services
and safeguard the rights of consumers. States are also responsible for mediating
and arbitrating CLEC-ILEC interconnection arrangements if voluntary agreements
are not reached. Therefore, the degree of state regulation of local
telecommunications services may be substantial.
The 1996 Act imposes a number of access and interconnection requirements on
all local exchange providers, including CLECs, with additional requirements
imposed on ILECs. The 1996 Act requires CLECs and ILECs to attempt to resolve
interconnection issues through negotiations for at least 135 days. During these
negotiations, the parties may submit disputes to state regulators for mediation
and, after the negotiation period has expired, the parties may submit
outstanding disputes to state regulators for arbitration. As of December 31,
1997, the Company has executed 33 definitive interconnection agreements with
ILECs, covering 18 of its markets. The Company has executed interconnection
agreements with the ILECs in each of its markets in which it offers switched
services and has negotiated, or is negotiating, secondary interconnection
arrangements with carriers whose territories are adjacent to the Company's for
intrastate intraLATA toll traffic and extended area services.
Under the 1996 Act, the FCC was required to establish rules and regulations
to implement the local competition provisions of the 1996 Act within six months
of enactment. In August 1996, the FCC issued two reports and orders. In the
First Report and Order, the FCC promulgated rules to govern interconnection,
resale, unbundled network elements, and the pricing of those facilities and
services, as well as the negotiation and arbitration procedures to be utilized
by states to implement those requirements. In the Second Report and Order, the
FCC adopted rules to govern the dialing parity requirements of the 1996 Act.
In July 1997, the Eighth Circuit Court of Appeals issued a decision in
which it affirmed certain portions of the FCC's rules and vacated others. It
vacated the FCC rules governing the pricing of interconnection, resale, and
unbundled network elements on the basis that the FCC lacks jurisdiction to
establish pricing rules for intrastate service. It also vacated rules allowing
requesting carriers to select from among various provisions of individual
interconnection agreements between ILECs and other carriers, and rules
permitting the combining of network elements. In a subsequent decision, the
court vacated the FCC's dialing parity rules with respect to intraLATA service.
In October 1997, the Eighth Circuit Court of Appeals issued an order on
rehearing in which it vacated one additional FCC rule. The vacated rule
prohibited ILECs from separating network elements that they currently combine,
except upon request. Although the FCC's rules governing the pricing of
interconnection, unbundled network elements, and resale have been vacated by the
Eighth Circuit Court of Appeals, interconnection and arbitration proceedings at
the state level have continued with the states implementing their own pricing
standards.
Several entities, including the United States government, have submitted
petitions for certiorari asking the U.S. Supreme Court to review the orders of
the Eighth Circuit Court of Appeals. Those petitions ask the Supreme Court to
review the Court of Appeals' ruling that the FCC lacks jurisdiction to establish
pricing rules for intrastate services and facilities as well as to establish
dialing parity requirements for intrastate (including most intraLATA) service.
In addition, the petitions ask the Supreme Court to review the Court of Appeals'
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decision to vacate the so-called 'pick and choose' rule established by the FCC.
That rule required LECs to make available to requesting carriers (including the
Company) any provision from any interconnection, unbundled network element or
resale agreement between an ILEC and any requesting carrier approved by a state
commission. Finally, several of the petitions (including that of the U.S.
government) have asked the Supreme Court to review the October 1996 rehearing
order vacating the FCC rule which required ILECs to make available combined
packages of network elements.
On January 26, 1998, the Supreme Court issued an order granting all of the
petitions for certiorari seeking its review of the order of the Eighth Circuit
Court of Appeals. The case will not be heard until autumn 1998, and may not be
decided until 1999. Unless the Supreme Court reverses the rulings of the Eighth
Circuit Court of Appeals, interconnection, resale and unbundled network element
pricing questions will continue to be determined solely by state commissions
based upon each state's own pricing rules and standards. The obligation to
provide dialing parity for intrastate services will remain a requirement of the
1996 Act, although it will be left to the states to establish rules to implement
that requirement. In addition, there will be no Federal obligation for ILECs to
offer combined platforms of network elements, although state commissions may
impose such a requirement. The Company believes that the availability of
combined platforms of network elements could create economic incentives for new
competitors to enter local markets through acquisition of ILEC network element
platforms rather than by investing in their own network facilities as the
Company does.
The 1996 Act provides a detailed list of items which are subject to these
interconnection negotiations, as well as a detailed set of duties for all
affected carriers. All local exchange carriers, including CLECs, have a duty to
(i) not unreasonably limit the resale of their services, (ii) provide number
portability if technically feasible, (iii) provide dialing parity to competing
providers, (iv) provide access to poles, ducts and conduits and (v) establish
reciprocal compensation arrangements for the transport and termination of
telecommunications.
Under the 1996 Act and rules established by the FCC in 1996 (and modified
on reconsideration in 1997), LECs, including the Company, are required to make
available number portability. Number portability refers to the ability of users
of telecommunications services to retain, at the same location, existing
telecommunications numbers without impairment of quality, reliability, or
convenience when switching from one telecommunications carrier to another. Under
the schedule for number portability implementation established by the FCC, LECs
are required to implement number portability in the 100 largest Metropolitan
Statistical Areas ('MSAs') over a 5-phase period which begins on October 1, 1997
and concludes December 31, 1998. Thereafter, in areas outside the 100 largest
MSAs, LECs are required to make available number portability within 6 months of
receipt of a specific request from another telecommunications carrier.
The 1996 Act and the FCC's rules also require LECs to implement dialing
parity. Dialing parity refers to the ability of a person that is not an
affiliate of a LEC to be able to provide telecommunications services in such a
manner that customers have the ability to route automatically without the use of
any access code, their telecommunications to the telecommunications service
provider of the customer's designation from among 2 or more telecommunications
service providers (including such LEC). Under rules promulgated by the FCC in
1996, all LECs, including the Company, are required to provide intraLATA and
interLATA dialing parity not later than February 8, 1999. However, if a LEC also
provides interLATA service as the Company does, that LEC was required to provide
dialing parity by August 8, 1997. LECs unable to comply with that August 8, 1997
deadline were required to have notified the FCC by May 8, 1997. As indicated
above, the Eighth Circuit Court of Appeals has vacated the FCC's dialing parity
rules with respect to intraLATA dialing.
In addition to those general duties of all LECs, ILECs have additional
duties to (i) interconnect at any technically feasible point and provide service
equal in quality to that provided to their customers or the ILEC itself, (ii)
provide unbundled access to network elements at any technically feasible point,
(iii) offer retail services at wholesale prices for the use of competitors, (iv)
provide reasonable public notice of changes in the network or the information
necessary to use the network and (v) provide for physical collocation. The 1996
Act further imposes various pricing guidelines for the provision of certain of
these services. Both the ILECs and the requesting carriers have a statutory duty
to negotiate in good faith regarding these arrangements, and the RBOCs, in
particular, must successfully achieve agreements, leading to the development of
facilities based competition for business and residential users, in order to
enter the long distance markets within their regions. The Company has
successfully concluded interim agreements governing interconnection arrangements
in all of the states in which it holds CLEC authority. A number of the Company's
competitors are arbitrating issues governing interconnection. The Company's
interim agreements will be replaced by final arrangements which
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will reflect the outcome of arbitration and utility commission proceedings
concerning pricing and other terms of interconnection. The Company cannot
predict the outcome of such arbitration and utility commission proceedings.
As noted above, the Company, in those states in which it is a CLEC, is
subject to five obligations under the 1996 Act. Specifically, the Company must
(i) not unreasonably limit the resale of its services, (ii) provide number
portability if technically feasible, (iii) provide dialing parity to competing
providers, (iv) provide access to poles, ducts and conduits owned by it and (v)
establish reciprocal compensation arrangements for the transport and termination
of telecommunications. The Company does not restrict the resale of its services,
engages in reciprocal compensation arrangements, and provides dialing parity,
satisfying three of the five requirements. The Company generally licenses poles,
ducts and conduits, and therefore owns few such rights-of-way subject to the
requirement to make them available to other carriers. Finally, the Company now
provides interim number portability and is prepared to provide full number
portability in 1998, in compliance with FCC requirements.
The 1996 Act establishes procedures under which BOCs may apply to the FCC
for authority to provide interLATA service from states within their operating
regions. A BOC seeking in-region interLATA authority must demonstrate that it is
subject to competition from a competitor in the state with whom it has entered
into an interconnection agreement and which is providing service to business and
residential customers within the state exclusively or predominantly over its own
facilities. Alternatively, the BOC may seek in-region interLATA authority if no
provider has requested access and interconnection, and the BOC has in place a
state commission-approved statement of generally available terms and conditions
for access and interconnection which is available to competitors. Further,
access and interconnection agreements must comply with each point of a 14 point
competitive checklist. To date, four applications by BOCs for in-region
interLATA authority have been filed with the FCC. An application filed by SBC
for authority in Oklahoma was denied by the FCC in June 1997. In March of 1998,
SBC's appeal was denied. In addition, in a decision that is currently being
appealed, SBC recently prevailed in a civil lawsuit in U.S. District Court that
challenged the constitutionality of the provisions of the 1996 Act governing BOC
entry into the long distance market. Ameritech applied for authority to provide
interLATA service in Michigan. That application has been denied. The Company
anticipates that the RBOCs will eventually comply with the competitive
checklists and that their applications to provide interLATA service will
ultimately be approved. BellSouth applied for authority to provide in-region,
interLATA services in both Louisiana and South Carolina. Those applications were
denied and are currently being appealed.
If the BOCs become authorized to provide in-region interLATA service, they
will be able to offer customers a full range of local and long distance
services. BOC entry into the interLATA services markets may reduce the market
shares held by major IXCs, which are among the Company's largest customers.
However, the Company believes that BOC entry into the interLATA market will
encourage IXCs to increase their use of exchange access services offered by the
Company and by other CLECs rather than the exchange access services of the BOCs.
When BOCs provide long distance services outside their local telephone service
areas, they will be potential customers of the Company's services as well as
services of other CLECs and CAPs.
The 1996 Act obligates the FCC to establish mechanisms for ensuring that
consumers, including low income consumers and those located in rural, insular
and high cost areas, have access to telecommunications and information services
at rates reasonably comparable to those charged for similar services in urban
areas. The 1996 Act also requires the FCC to establish funding mechanisms to
make available access to telecommunications services, including advanced
services, to schools, libraries and rural health care centers. These
requirements are generally referred to as the universal service requirements of
the 1996 Act. In May 1997, the FCC adopted rules to implement the universal
service requirements. Under those rules, all telecommunications carriers,
including the Company, are required to contribute to support universal service.
If the Company offers to provide local exchange service to all customers within
certain geographic areas, it may be deemed to be an 'Eligible Carrier' and
therefore entitled to subsidy funds under the program established by the FCC.
Certain aspects of universal service, including the formulas to be used to
quantify local service costs remain under study by the FCC.
FEDERAL REGULATION
Through a series of regulatory proceedings, the FCC has established
different levels of regulation for 'dominant carriers' and 'nondominant
carriers.' For domestic interstate telecommunications purposes, the
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ILECs are generally classified as dominant carriers, and all other carriers,
including the Company and other CLECs are classified as nondominant carriers. As
a nondominant carrier, the Company has been required to file tariffs and
periodic reports with the FCC concerning the Company's interstate circuits and
deployment of network facilities. The FCC has proposed eliminating this
reporting requirement for IXCs, and the Company and another CAP have filed
petitions with the FCC asking that it permit CAPs to dispense with filing of FCC
tariffs, at the option of the carrier. On June 19, 1997, the FCC issued a
memorandum opinion and order granting the Company's petition that the FCC
forbear from requiring it and other nonincumbent LECs to file tariffs for their
interstate access services. Thus, the Company now provides interstate access
service to customers pursuant to contracts. This will improve the Company's
flexibility in implementing changes to its interstate access service prices in
response to competition and will reduce the Company's regulatory compliance
costs. Tariffs must still be filed with respect to other interstate services,
such as long distance services.
The FCC's action does not, however, impact the Company's state public
utility commission tariff requirements. Whether or not the Company is subject to
a tariff filing requirement, the Company must offer its interstate services on a
nondiscriminatory basis, at just and reasonable rates, and it is subject to the
complaint provisions of the Communications Act. For its current offering of
interstate services as a nondominant carrier, the Company is not subject to rate
of return or price cap regulation by the FCC and may install and operate digital
facilities for the transmission of interstate communications without prior FCC
authorization. Pursuant to the 1996 Act, the Company will become subject to
additional Federal regulatory obligations when it provides local exchange
service in a market, such as the access and interconnection requirements that
are imposed on all local exchange providers. See ' -- Telecommunications Act of
1996.'
STATE REGULATION
The Company has acquired all state government authority needed to conduct
its business as currently contemplated to be conducted. Most state public
service commissions require carriers that wish to provide local and other
jurisdictionally intrastate common carrier services to be authorized to provide
such services. The Company's operating subsidiaries and affiliates are
authorized as common carriers in ten states. This certification covers the
provision of switched services including local basic exchange service, point to
point private line, competitive access services, and in five states long
distance services. The certification process has become fairly routine since the
passage of the 1996 Act.
LOCAL GOVERNMENT AUTHORIZATIONS
The Company may be required to obtain from municipal authorities street
opening and construction permits and other rights and other rights-of-way to
install and expand its networks in certain cities. In some cities, the Company's
affiliates or subcontractors may already possess the requisite authorizations to
construct or expand the Company's networks.
In some of the metropolitan areas where the Company provides network
services, the Company pays license or franchise fees based on a percent of gross
revenues. There can be no assurance that municipalities that do not currently
impose fees will not seek to impose fees in the future, nor is there any
assurance that, following the expiration of existing franchises, fees will
remain at their current levels. Under the 1996 Act, municipalities are required
to impose such fees on a competitively neutral and nondiscriminatory basis.
There can be no assurance, however, that municipalities that currently favor the
ILECs will conform their practices in a timely manner or without legal
challenges by the Company or another CAP or CLEC.
If any of the Company's existing franchise or license agreements for a
particular metropolitan area were terminated prior to its expiration date and
the Company were forced to remove its fiber optic cables from the streets or
abandon its network in place, even with compensation, such termination could
have a material adverse effect on the Company's operation in that metropolitan
area and could have a material adverse effect on the Company.
The Company is party to various regulatory and administrative proceedings,
however, subject to the discussion above, the Company does not believe that any
such proceedings will have a material adverse effect on its business.
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COMPANY NAME
The use of the 'Time Warner' name by the Company is subject to a certain
license agreement with TW. See 'Risk Factors -- Discontinuance of Use of `Time
Warner' Name' and 'Certain Relationships and Related Transactions -- Certain
Operating Agreements.'
EMPLOYEES
As of March 31, 1998, the Company employed approximately 739 full-time
employees, none of whom are represented by a union or covered by a collective
bargaining agreement. The Company believes that its relations with its employees
are good. In connection with the construction and maintenance of its networks
and the conduct of its other business operations, the Company uses third party
contractors, some of whose employees may be represented by unions or collective
bargaining agreements. The Company believes that its success will depend in part
on its ability to attract and retain highly qualified employees and maintain
good working relations with its current employees.
PROPERTIES
The Company leases network hub sites and other facility locations and sales
and administrative offices, substantially all of which are leased from TW Cable,
in each of the cities in which it operates networks. During 1996 and 1997,
rental expense for the Company's facilities and offices totaled approximately
$3.9 million and $4.7 million, respectively. The Company owns no material real
estate. Management believes that its properties, taken as a whole, are in good
operating condition and are suitable and adequate for the Company's business
operations. The Company currently leases approximately 130,000 square feet of
space in Greenwood Village, Colorado, where its corporate headquarters are
located.
LEGAL PROCEEDINGS
The Company is a party to various claims and legal and regulatory
proceedings arising in the ordinary course of business. The Company does not
believe that such claims or proceedings, individually or in the aggregate, will
have a material adverse effect on the Company's business, financial condition or
results of operations.
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MANAGEMENT
REPRESENTATIVES, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information (as of June 22, 1998)
with respect to the persons who are Representatives on the Management Committee,
executive officers or key employees of the Company (each of such persons holds
a similar position at TWT):
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ----------------------------------------------------------------------
<S> <C> <C>
Larissa L. Herda.................... 40 President and Chief Executive Officer(1)
Paul B. Jones....................... 50 Senior Vice President, Legal and Regulatory
A. Graham Powers.................... 51 Senior Vice President, Engineering and Technology
David J. Rayner..................... 41 Senior Vice President and Chief Financial Officer
Raymond H. Whinery.................. 43 Senior Vice President, Technical Operations
Julie A. Rich....................... 44 Vice President, Human Resources and Business Administration
Richard J. Bressler................. 40 Representative(2)
Peter R. Haje....................... 63 Representative(2)
Spencer B. Hays..................... 53 Representative(2)
</TABLE>
- ------------
(1) Prior to June 22, 1998, Stephen A. McPhie served as President and Chief
Executive Officer of the Company. He resigned his position on that date to
accept a position with MediaOne. Prior to joining the Company in January
1997, Mr. McPhie was Vice President of Business Development of US WEST, Inc.
(the predecessor of MediaOne).
(2) Prior to the completion of the Offering, the Management Committee will be
reconstituted and the Representatives will be selected and nominated in
accordance with the LLC Agreement.
Ms. Herda has served as President and Chief Executive Officer of the
Company since June 22, 1998. From March 1997 to June 21, 1998, Ms. Herda served
as Senior Vice President, Sales of the Company. From 1989 to 1997, Ms. Herda was
employed by MFS Telecom Inc., a CLEC, most recently as Southeast Regional Vice
President and General Manager.
Mr. Jones has served as Senior Vice President, Legal and Regulatory of the
Company since October 1993. From 1992 to 1993, Mr. Jones served as Senior Vice
President, Corporate Development of Time Warner Cable Ventures. Mr. Jones was
Senior Vice President and General Counsel of Warner Cable from 1987 to 1992 and
Vice President, Strategy and Development of CBS Publishing Group from 1985 to
1986. From 1977 to 1979, Mr. Jones was the Assistant General Counsel for the
FCC.
Mr. Powers has served as Senior Vice President, Engineering and Technology
of the Company since June 1996. From August 1993 to May 1996, Mr. Powers served
as Senior Vice President, Operations Development and Business Implementation.
Prior to joining the Company, Mr. Powers was the President of Telecommunications
Strategy Inc., a technology consulting service, from May 1992 to July 1993 and
previously held various management positions at American Television and
Communications Corporation, a subsidiary of Time Warner Inc.
Mr. Rayner has served as Senior Vice President and Chief Financial Officer
of the Company since June 1998. From February 1997 to May 1998, Mr. Rayner
served as Vice President, Finance. From May 1994 to February 1997, Mr. Rayner
served as Controller. From 1982 to 1994, Mr. Rayner held various financial and
operational management positions in TW Cable.
Mr. Whinery has served as Senior Vice President, Technical Operations of
the Company since January 1997. From May 1994 to January 1997, Mr. Whinery
served as the Senior Director of Engineering and Planning. Prior to May 1994,
Mr. Whinery was employed by U S WEST, Inc. (the predecessor of MediaOne) from
1978 and served as General Manager for Idaho, Montana, North Dakota and South
Dakota from 1992 to 1994.
Ms. Rich has served as Vice President, Human Resources and Business
Administration of the Company since March 1998. From June 1996 to February 1998,
she owned an independent human resources consulting practice. From 1984 to 1996
she was a founder of XEL Communications, Inc., a telecommunications
manufacturer, and held positions of Director and Vice President of Human
Resources.
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Mr. Bressler has served as a Representative of the Company since June 1998
and as Executive Vice President and Chief Financial Officer of Time Warner Inc.
since January 1998. Prior to that, he served as Time Warner Inc.'s Senior Vice
President and Chief Financial Officer from March 1995; as Senior Vice President,
Finance from January 1995; and as a Vice President prior to that.
Mr. Haje has served as a Representative of the Company since June 1998
and as Executive Vice President and General Counsel of Time Warner Inc. since
October 1990 and Secretary since May 1993.
Mr. Hays has served as a Representative of the Company since June 1998
and as Vice President and Deputy General Counsel of Time Warner Inc. for more
than the past five years.
MANAGEMENT COMMITTEE COMPOSITION
Representatives are appointed by the Members. The LLC Agreement provides
that the Management Committee will consist of 10 Representatives as follows: (i)
up to seven Representatives appointed by the Members, (ii) the Chief Executive
Officer of the Company (the 'CEO') and (iii) two Representatives who are neither
employed by nor affiliated with the Company or any Member and who are appointed
by a subcommittee comprised of the Representatives other than the CEO and the
independent Representatives. The independent Representatives are expected to be
nominated within a reasonable time after the Reorganization and, in any event,
before , 1998. See 'Certain Relationships and Related
Transactions -- LLC Agreement.'
COMPENSATION OF REPRESENTATIVES
Representatives who are employees of the Company or of any of the Members
or their affiliates shall not be entitled to any fee, remuneration, compensation
or expense reimbursement in connection with their service at Management
Committee meetings as Representatives. It is currently anticipated that each
Representative who is not affiliated with the Company or any of the holders
of Class B Interests will be entitled to receive an annual retainer of [$25,000]
(to be paid [50]% in cash and [50]% in Class A Interests) and an additional
$[1,000] plus reasonable expenses for attending each meeting of the Management
Committee.
EFFECT OF THE RECONSTITUTION
Pursuant to the Stockholders Agreement to be entered into by the Existing
Stockholders in connection with the Reconstitution, the following provisions
regarding the Board of Directors will be applicable to the Company.
BOARD COMPOSITION
Following the Reconstitution, directors will be elected annually. The
Stockholders Agreement provides that the Board of Directors will consist of up
to 10 directors and that at each annual meeting of the Company's stockholders at
which directors are elected, the holders of the Class B Common Stock will vote
their shares in favor of the following nominees: (i) up to seven nominees
selected by the holders of Class B Common Stock, (ii) the CEO and (iii) two
nominees who are neither employed by nor affiliated with the Company or any
holder of Class B Common Stock and who are selected by a committee comprised of
the members of the Board of Directors other than the CEO and the independent
directors. See 'Certain Relationships and Related Transactions -- Stockholders
Agreement.'
The holders of the Class A Common Stock will not have the right, as a
class, under the Company's Certificate of Incorporation or the Stockholders
Agreement to nominate any individuals for election to the Board of Directors.
COMMITTEES OF BOARD OF DIRECTORS
The Board of Directors will have two committees: (i) an Audit Committee and
(ii) a Compensation Committee.
The Audit Committee will be comprised of a majority of independent
directors. The Audit Committee reviews and recommends to the Board, as it deems
necessary, the internal accounting and financial controls for
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the Company and the accounting principles and auditing practices and procedures
to be employed in preparation and review of financial statements of the
Company. The Audit Committee makes recommendations to the Board concerning
the engagement of independent public accountants and the scope of the audit
to be undertaken by such accountants. Ernst & Young LLP presently serves as
the independent auditors of the Company.
The Compensation Committee will be comprised solely of independent
directors. The Compensation Committee reviews and, as it deems appropriate,
recommends to the Board policies, practices and procedures relating to the
compensation of the officers and other managerial employees and the
establishment and administration of employee benefit plans. The Compensation
Committee will have such additional powers and be granted additional authority
as may be conferred upon it from time to time by the Board.
Compensation of Directors
Directors who are employees of the Company or of any of the holders of
Class B Common Stock or their affiliates will receive no compensation for their
services as directors. It is currently anticipated that each director who is not
affiliated with the Company or any of the holders of Class B Common Stock will
be entitled to receive an annual retainer of [$25,000] (to be paid [50]% in cash
and [50]% in Class A Common Stock) and an additional $[1,000] plus reasonable
expenses for attending each meeting of the Board of Directors. Each such
director is also entitled to be paid $[1,000] annually for each committee of the
Board of Directors for which such director serves as chairman.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning total compensation
paid to the Company's current Chief Executive Officer and each of its four
remaining most highly compensated current executive officers (the 'named
executive officers') for services rendered to the Company during 1998 in their
capacities as executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------
AWARDS(2)
----------
ANNUAL SECURITIES PAYOUTS
COMPENSATION UNDERLYING ----------
------------ OPTIONS LTIP ALL OTHER
NAME & PRINCIPAL POSITION SALARY(1) AWARDED(2) PAYOUTS(3) COMPENSATION(4)
- -------------------------------------------------------- ------------ ---------- ---------- ---------------
<S> <C> <C> <C> <C>
Larissa L. Herda ....................................... $176,800 3,800 $ -- $ --
President and Chief Executive Officer
Paul B. Jones .......................................... $259,242 8,350 $ 150,000 $ --
Senior Vice President,
Legal & Regulatory
A. Graham Powers ....................................... $175,479 3,800 $ 67,500 $ 1,620
Senior Vice President,
Engineering & Technology
David J. Rayner ........................................ $171,000 3,800 $ -- $ 1,200
Senior Vice President and Chief
Financial Officer
</TABLE>
------------
(1) The information provided under the heading 'Salary' is the current annual
salary prior to the Reorganization. Once the Reorganization is completed,
the named executive officers will receive the annual salaries set forth in
their employment agreements with the Company as follows: Ms. Herda,
$300,000; Mr. Jones, $259,000; Mr. Powers, $175,000; Mr. Rayner, $171,000;
and , $ . These
(footnotes continued on next page)
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(footnotes continued from previous page)
employment agreements also provide for an annual bonus target of
50% of each executive's annual salary. See 'Employment Agreements.'
In accordance with rules of the Securities and Exchange Commission
('SEC'), amounts of personal benefits totalling less than 10% of
the total annual salary and bonus reported in the Table have
been omitted.
(2) All of these options are exercisable for the common stock of Time Warner
Inc. ('TW common stock'). None of these options was awarded with tandem
stock appreciation rights. For information regarding awards of options
exercisable for Class A Interests, see ' -- LLC Option Plan.' For
information regarding stock options with respect to Class A Common Stock in
connection with an Initial Public Offering, see ' -- Effect of the
Reconstitution.'
(3) These payouts were made in 1998 to participants in the TW Cable Long-Term
Cash-Flow Incentive Plan for the 1994 to 1997 four-year cycle.
(4) The amounts shown in this column include the following:
(a) Pursuant to the TWC Savings Plan (the 'Savings Plan'), a defined
contribution plan available generally to employees of the Company, each
executive named above, if eligible, may defer a portion of his or her annual
compensation and the Company contributes an additional two-thirds of that
contribution so deferred by the executive ('Matching Contribution'). These
Matching Contributions were invested under the Savings Plan. The amount
contributed on behalf of each named executive officer for 1998, through
April 30, 1998, is disclosed under the heading 'All Other Compensation.'
(b) The Company maintains a program of life and disability insurance
generally available to all salaried employees on the same basis. For 1998,
prior to the Reorganization, group term life insurance was reduced to
$50,000 for Mr. Jones, who is given an annual cash payment equal to the cost
of replacing coverage amounting to three times base salary and annual bonus
less $50,000.
LLC OPTION PLAN
The Company intends to adopt an option plan (the 'LLC Option Plan') to
provide for the granting of options to purchase Class A Interests to
Representatives and employees of the Company and its subsidiaries. The LLC
Option Plan is expected to provide for the granting of options to purchase
Class A Interests representing approximately _____% of the equity in the
Company, in the aggregate. It is anticipated that the LLC Option Plan would
provide that the purchase price of the Class A Interests covered by each option
granted thereunder will be determined by the Management Committee based upon an
appraisal procedure, and would provide the recipient with liquidity through a
repurchase of the Class A Interests acquired thereunder by the Company under
certain specified circumstances. In connection with the Reconstitution, any
such options would automatically be converted into options to purchase shares
of Class A Common Stock pursuant to the Corporate Option Plan (as defined
below).
Any awards under the LLC Option Plan will be determined by the Management
Committee in its discretion. It is not possible to predict the awards that will
be made to particular officers in the future under the LLC Option Plan, except
that in connection with the consummation of the Offering, it is expected that
Ms. Herda and Messrs. Jones, Powers, Rayner and will be awarded
options with respect to Class A Interests having participation percentages of
, , , and , respectively. These awards will become
exercisable in installments over the four years following the date of grant
(subject to acceleration upon the occurrence of certain events) and will
expire ten years from the date of the grant.
EFFECT OF THE RECONSTITUTION
Following the Reconstitution, the Company expects to adopt the Time Warner
Telecom Inc. Corporate Stock Option Plan (the 'Corporate Option Plan') which
will provide for the granting of stock options to purchase shares of Class A
Common Stock to directors and employees of the Company and its subsidiaries. The
Company believes that the stock options to be granted under the Corporate Option
Plan will be an important part
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of the compensation of the Company's key employees. The Board of Directors and
the stockholders of the Company are expected to approve the Corporate Option
Plan immediately prior to an Initial Public Offering.
Stock Option Plan
Stock Subject to the Plan
The Corporate Option Plan is expected to provide for the granting of
options ('Options') to purchase a maximum of shares (approximately
____% of the Class A Common Stock expected to be outstanding) of the Company's
Class A Common Stock (the 'Awards'). The shares of Class A Common Stock issued
under the Corporate Option Plan may be either authorized and unissued shares or
issued shares held in treasury, or both. The Company will reserve the number of
shares necessary to satisfy the maximum number of shares that may be issued
under the Corporate Option Plan. The Class A Common Stock underlying any Option
that expires, terminates or is canceled for any reason without being exercised
will again become available for Awards under the Corporate Option Plan. Cash
payments received by the Company upon the exercise of Options will be used for
general corporate purposes.
Administration and Eligibility
The Board of Directors intends to delegate authority to administer the
Corporate Option Plan to its Compensation Committee (the 'Committee'). Members
of the Committee will be 'non-employee directors' within the meaning of the SEC
Rule 16b-3 and 'outside directors' within the meaning of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the 'Code').
Awards may be made to employees and directors whether or not they
participate or are entitled to participate in any other option, restricted stock
or other compensation plan of the Company. The maximum number of shares that may
be awarded to any one person, is . The exercise of Options granted to a
prospective employee will be conditioned upon such person becoming an employee
of the Company or one of its subsidiaries.
Except as expressly provided by the Corporate Option Plan, the Board of
Directors, or to the extent delegated to the Committee, the Committee will have
the plenary authority in its discretion, to grant Awards under the Corporate
Option Plan and to determine the terms and conditions (which need not be
identical) of such Awards, including without limitation, (a) the employees and
directors to whom, and the time or times at which, Awards will be granted, (b)
the number of Awards to be granted, (c) whether an Option will be an incentive
stock option, within the meaning of Section 422A of the Code ('ISO') or a
nonqualified stock option ('NSO'), (d) the exercise price of any such Award, (e)
when an Option can be exercised and whether in whole or in installments, and (f)
the form, terms and provisions of any agreement in which Awards of Options are
made (an 'Award Agreement').
Options
Purchase Price. Subject to the limitations set forth below, the purchase
price of the shares of Class A Common Stock covered by each Option will be
determined by the Board of Directors, or to the extent delegated to the
Committee, the Committee on the date of grant. The purchase price of the shares
of Class A Common Stock covered by each Option will not be less than the fair
market value of the Class A Common Stock on the date of grant of such Option. In
addition, an ISO may not be granted to any person who owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company unless the purchase price is at least 110% of the fair market value of
the Class A Common Stock at the time the ISO is granted and the ISO is not
exercisable after the expiration of five years from the date it is granted.
Term and Exercise. The duration of each Option will be for a period of up
to ten years as the Board of Directors, or to the extent delegated to the
Committee, the Committee determines at the time of grant and may
be exercised in whole or in part any time or only after a period of time or in
installments, as determined by the Board of Directors or Committee at the time
of grant, or by the Board of Directors' or Committee's subsequent acceleration.
Under the terms of the Corporate Option Plan, Options become immediately
exercisable in full if the optionee's employment terminates by reason of death
or total disability.
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The Board of Directors, or to the extent delegated to the Committee, the
Committee will establish Option exercise procedures. Payments may be made in
cash or, unless otherwise determined by the Board of Directors or Committee, in
shares of Class A Common Stock already owned by the optionee or partly in cash
and partly in such Common Stock.
Options may be exercised after termination of employment only to the extent
provided in the Award Agreement; provided, however, that (i) if employment
terminates by reason of death or total disability, Options will remain
exercisable for a period of at least one year after such termination (but not
later than the scheduled expiration of such Options) and (ii) if employment
terminates for cause, then all such Options will terminate immediately.
Transferability. To the extent permitted by the Award Agreement, Options
will be transferable by gift to members of a holder's immediate family. Options
will also be transferable to a designated beneficiary or by will or the laws of
descent and distribution upon the death of the holder.
Acceleration of Options
Unless otherwise provided in Award Agreement, each Award will vest upon the
occurrence of any of the following change-of-control transactions: (i) the Board
of Directors (or stockholders if required) approves a consolidation or merger in
which the Company is not the surviving corporation, the sale of all or
substantially all of the assets of the Company, or the liquidation or
dissolution of the Company or (ii) (a) TW, directly or indirectly, no longer has
the right under the Stockholders Agreement, or any other agreement or
arrangement, to cause at least three of its nominees to be elected to the
Company's Board of Directors and (b) any person or entity, other than an
Existing Stockholder, or any affiliate of an Existing Stockholder, owns more
than 20% of the common equity of the Company.
Under Section 4999 of the Code, an optionee may be required to pay an
excise tax on certain cash or stock received in connection with the optionee's
termination of employment following any such change-of-control transaction, and,
under Section 280G of the Code, the Company, may not be entitled to a deduction
for Federal income tax purposes for certain of such cash or stock paid to an
optionee. However, the Corporate Option Plan provides that Award Agreements may
contain provisions relating to the applicability of the penalty provisions of
Section 4999 of the Code to any such cash or stock received by an optionee.
Additional Provisions
Change in Capitalization. In the event of stock split, stock dividend,
recapitalization, merger, consolidation or other similar transaction which
affects the character or amount of the outstanding shares of Class A Common
Stock, the Board of Directors, or to the extent delegated to the Committee, the
Committee will equitably adjust the purchase price of each Award and the number
of shares subject to each such Award, and the number of shares for which Awards
may be granted under the Corporate Option Plan will be appropriately adjusted.
Other. The obligations of the Company with respect to Awards granted under
the Corporate Option Plan are subject to all applicable laws. Unless otherwise
provided by the Board of Directors, or to the extent delegated to the Committee,
the Committee, the payment of withholding taxes due in respect of an Award under
the Corporate Option Plan may be made with shares of Class A Common Stock.
Amendment and Termination
No Awards may be granted under the Corporate Option Plan on or after the
tenth anniversary of an Initial Public Offering. The Board of Directors may
terminate or amend the Corporate Option Plan at any time, provided that the
Board of Directors must comply with all applicable laws, applicable stock
exchange listing requirements and applicable requirements for the Corporate
Option Plan to qualify as 'performance based' under Section 162(m) of the Code.
Termination or amendment of the Corporate Option Plan or any outstanding Award
may not adversely affect the rights of any holder without his or her consent.
EMPLOYMENT AGREEMENTS
The Company is a party to employment agreements with the named executive
officers of the Company. These agreements have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part.
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Among other things, the agreements with the Company's named executive
officers provide for: a three-year term of employment in a specified executive
post, commencing on the date of the Reorganization; an annual salary; an annual
bonus in the discretion of the Company, generally targeted at 50% of the named
executive officer's salary; and participation in any pension, profit-sharing,
employee equity ownership, vacation, insurance, hospitalization, medical,
health, disability and other employee benefit or welfare plan, program or policy
whether now existing or established hereafter, to the extent that employees at
such executive's level are generally deemed eligible under the general
provisions thereof. The minimum annual salaries under these agreements are
$300,000 for Ms. Herda; $259,000 for Mr. Jones; $175,000 for Mr. Powers;
$171,000 for Mr. Rayner and $ for .
Generally, such agreements include a narrow definition of the 'cause' for
which an executive's employment may be terminated and in that event, the
executive will only receive earned and unpaid base salary accrued through such
date of termination.
These agreements typically provide that in the event of the Company's
material breach or termination of the executive's employment during the term of
employment without cause, the executive will be entitled to continue to receive
the base salary and annual bonus otherwise payable during the remaining portion
of the executive's term of employment, provided that such amount shall not be
less than the sum of such salary and bonus prorated for an 18-month period.
In addition, to the extent exercisable, any options will remain exercisable
for 12 months after any such termination. Executives are not generally required
to mitigate damages after such a termination, other than as necessary to prevent
the Company from losing any tax deductions to which it otherwise would have been
entitled for any payments deemed to be 'contingent on a change' under the Code.
If an executive becomes disabled during the term of his or her employment
agreement, the executive typically will receive 75% of the executive's then
current salary and his or her applicable target annual bonus amount prorated for
an 18-month period. Any such payments will be reduced by amounts received from
Worker's Compensation, Social Security and disability insurance policies
maintained by the Company.
If an executive dies during the term of an employment agreement, generally
the executive's beneficiaries will receive the executive's earned and unpaid
salary to the last date of the month in which the death occurs and a pro rata
portion of the executive's bonus for the year of his death.
STOCK OPTIONS AWARDED BY THE MEMBERS DURING 1998
The following table sets forth certain information with respect to employee
options to purchase shares of TW common stock ('TW Options') awarded by TW
during 1998 (through May 31, 1998) to the named executive officers. All such TW
options were nonqualified options and no stock appreciation rights ('SARs'),
alone or in tandem with stock options, were awarded during 1998. No options to
purchase MediaOne common stock were awarded to the named executive officers
during 1998.
STOCK OPTION GRANTS DURING 1998 BY THE MEMBERS
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1)
--------------------------------------------------
PERCENT OF
TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO EXERCISE STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE OPTION TERM
OPTIONS IN 1998 PRICE EXPIRATION ------------------------------
NAME GRANTED (2) ($ /SH) DATE 5% ($) 10% ($)
- ------------------ ---------- ---------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larissa L. Herda.. 3,800 .04% $72.06 3/17/08 $ 172,512 $ 435,387
Paul B. Jones..... 8,350 .1% $72.06 3/17/08 $ 379,072 $ 956,705
A. Graham Powers.. 3,800 .04% $72.06 3/17/08 $ 172,512 $ 435,387
David J. Rayner... 3,800 .04% $72.06 3/17/08 $ 172,512 $ 435,387
</TABLE>
- ------------
(1) These TW options were awarded pursuant to stock option plans of Time Warner
Inc. and the terms are governed by such plans and the recipient's option
agreement. The option exercise price is the fair market
(footnotes continued on next page)
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(footnotes continued from previous page)
value of the TW common stock on the date of grant. The TW options shown in
the table become exercisable in installments of one-third on the first
three anniversaries of the date of grant. Payment of the exercise price
of a TW option may be made in cash or, in whole or in part, in full shares
of TW common stock already owned by the holder of the TW option. The
payment of withholding taxes due upon exercise of a TW option may generally
be made with shares of TW common stock.
(2) Represents a percentage of all options granted to employees of TW during
1998 (through May 29, 1998).
As required by SEC rules, the dollar amounts in the last two columns
represent the hypothetical gain or 'option spread' that would exist for the
options based on assumed 5% and 10% annual compounded rates of TW common stock
price appreciation over the full ten-year option term (resulting in 63% and 159%
appreciation, respectively). These assumed rates of appreciation applied to the
price on the date of the awards would result in a TW common stock price on March
17, 2008 of $117.46 and $186.64, respectively. These prescribed rates are not
intended to forecast possible future appreciation, if any, of the TW common
stock.
OPTION EXERCISES AND VALUES IN 1998
The following table sets forth as to each of the named executive officers
information with respect to option exercises during 1998 (through May 29, 1998)
and the status of their options on May 29, 1998: (i) the number of shares of TW
common stock underlying options exercised during 1998; (ii) the aggregate dollar
value realized upon exercise of such options; (iii) the total number of shares
of TW common stock underlying exercisable and nonexercisable stock options held
on May 29, 1998; and (iv) the aggregate dollar value of in-the-money exercisable
and nonexercisable stock options on May 29, 1998. None of the named executive
officers has been awarded SARs alone or in tandem with stock options.
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AGGREGATE OPTION EXERCISES DURING 1998 AND
OPTION VALUES ON MAY 29, 1998
<TABLE>
<CAPTION>
DOLLAR VALUE OF
NUMBER OF NUMBER OF SHARES UNEXERCISED
SHARES DOLLAR UNDERLYING UNEXERCISED IN-THE-MONEY
UNDERLYING VALUE OPTIONS ON MAY 29, 1998 OPTIONS ON MAY 29, 1998*
OPTIONS REALIZED ON ---------------------------- ----------------------------
NAME EXERCISED EXERCISE EXERCISABLE NONEXERCISABLE EXERCISABLE NONEXERCISABLE
- -------------------------------------- ---------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Larissa L. Herda...................... -- -- 1,667 7,133 $ 57,099 $136,023
Paul B. Jones......................... -- -- 43,148 18,090 $ 1,718,140 $389,012
A. Graham Powers...................... -- -- 14,068 8,232 $ 518,148 $177,015
David J. Rayner....................... -- -- 1,134 4,466 $ 41,105 $ 44,672
</TABLE>
- ------------
* Based on a closing price of $77.8125 per share of TW common stock, on
May 29, 1998 as reported on the New York Stock Exchange Composite Listing.
The option exercise price of all options held by the named executive
officers is the fair market value of the stock on the date of grant. All of the
options held by the named executive officers become immediately exercisable in
full upon the occurrence of certain events, including the death or total
disability of the option holder, certain change-of-control transactions and, in
most cases, the Company's breach of the holder's employment agreement. The TW
options held by the named executive officers generally remain exercisable for
three years after their employment is terminated without cause, for one year
after death or total disability, for five years after retirement and for three
months after termination for any other reason, except that such stock options
awarded before 1996 are exercisable for three months after a termination without
cause and after retirement and those awarded after July 1997 are exercisable for
three years after death or disability. All TW options terminate immediately if
the holder's employment is terminated for cause. The terms of the options shown
in the chart are ten years.
PENSION COVERAGE
Although the Company does not currently expect to have its own pension
plan, Messrs. Jones, Powers and Rayner will, upon retirement, be entitled to
receive benefits under the Time Warner Cable Pension Plan (the 'TW Cable Pension
Plan') based on service to the Company and/or TW Cable prior to ,
1998. Set forth below is a brief description of the TW Cable Pension Plan.
A participant accrues benefits under the TW Cable Pension Plan on the basis
of 1 1/4% of the average annual compensation (defined as the highest average
annual compensation for five consecutive full years of employment in the last
ten years, which includes regular salary, overtime and shift differential
payments, and non-deferred bonuses paid according to a regular program) up to
the average Social Security Wage Base plus 1 2/3% in excess of the average
Social Security Wage Base for each year of service up to 35 years and 1/2% for
each year of service over 35 years. In addition, there is a supplemental benefit
of $60 per year times years of service up to thirty years. Compensation for
purposes of calculating average annual compensation under the TW Cable Pension
Plan is limited to $200,000 per year for 1989 through 1993 and $150,000 per year
for 1994 and thereafter (each subject to adjustments provided in the Code).
Eligible employees become vested in all benefits under the TW Cable Pension Plan
on the earlier of five years of service or certain other events.
Federal law limits both the amount of compensation that is eligible for the
calculation of benefits and the amount of benefits derived from employer
contributions that may be paid to participants under the TW Cable Pension Plan.
However, as permitted by the Employee Retirement Income Security Act of 1974, as
amended ('ERISA'), TW Cable has adopted the Time Warner Cable Excess Benefit
Pension Plan (the 'Excess Plan'), which provides for payments by TW Cable of
certain amounts which employees of TW Cable would have received under the TW
Cable Pension Plan if eligible compensation were limited to $250,000 in 1994
(increased 5% per year thereafter, to a maximum of $350,000) and there were no
payment restrictions.
The following table shows the estimated annual pension payable upon
retirement to employees in specified remuneration and years-of-service
classifications. The amount of the estimated annual pension is based upon a
pension formula which applies to all participants in both the TW Cable Pension
Plan and the Excess Plan. The
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estimated amounts are based on the assumption that payments under the TW Cable
Pension Plan will commence upon normal retirement (generally age 65), that the
TW Cable Pension Plan will continue in force in its present form and that no
joint and survivor annuity will be payable (which would on an actuarial basis
reduce benefits to the employee but provide benefits to a surviving
beneficiary). Amounts calculated under the pension formula which exceed
ERISA limits will be paid under the Excess Plan from TW Cable's assets and are
included in the amounts shown in the following table.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL PENSION FOR YEARS OF CREDITED SERVICE
HIGHEST CONSECUTIVE FIVE YEAR ------------------------------------------------------------------
AVERAGE COMPENSATION 10 15 20 25 30 35
- ------------------------------------------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$50,000.................................... $ 7,036 $10,555 $ 14,073 $ 17,591 $ 21,109 $ 24,627
$100,000................................... 15,370 23,055 30,740 38,425 46,110 53,795
$150,000................................... 23,703 35,555 47,407 59,268 71,110 82,962
$200,000................................... 32,037 48,055 64,074 80,092 96,111 112,129
$250,000................................... 40,370 60,556 80,741 100,926 121,111 141,296
$300,000................................... 48,704 73,056 97,408 121,760 146,112 170,464
$350,000................................... 57,037 85,556 114,075 142,593 171,113 199,631
</TABLE>
The estimated annual benefits payable under the TW Cable Pension Plan and
the Excess Plan, as of May 1, 1998, would be based on average compensation of
$ for Mr. Jones, $ for Mr. Powers and $ for Mr. Rayner
with , and years of credited service, respectively.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LLC AGREEMENT
In connection with the Reorganization, the Company was formed under the
laws of the State of Delaware on June 18, 1998. The following summary
description of the LLC Agreement does not purport to be complete and is
qualified in its entirety by reference to the text of such agreement, which is
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part. Additionally, there is no assurance that the Members will not cause the
LLC Agreement to be amended, modified or terminated or waive any provision of
such agreement.
The LLC Agreement provides that the Members will appoint the
Representatives as follows: (i) up to seven Representatives appointed by the
Members, (ii) the CEO and (iii) two Representatives who are neither employed by
nor affiliated with the Company of any Member and who are appointed by a
subcommittee comprised of the Representatives other than the CEO and the
independent Representatives.
Under the LLC Agreement, the Representatives will be selected as follows:
initially three Representatives will be appointed by TW, three by MediaOne and
one by Newhouse. Under the LLC Agreement, the ability of the Members to appoint
any Representatives depends on the identity of the particular member and the
participation percentage of Interests owned by it. Generally, each Member must
own Interests having an aggregate participation percentage of at least 9.44% to
appoint one Representative. In the case of TW, so long as it owns Interests
having an aggregate participation percentage of at least 18.88% it will be
entitled to appoint three Representatives. In the event that TW owns Interests
having an aggregate participation percentage of less than 18.88% (such event, an
'LLC TW Step Event') the number of Representatives which TW may appoint will
decrease proportionally with its ownership of participation percentages of the
Interests until it owns Interests having an aggregate participation percentage
of less than 9.44%, at which point it will not be entitled to appoint any
Representatives. In the case of MediaOne, so long as an LLC TW Step Event has
not occurred and it owns Interests having an aggregate participation percentage
of at least 9.44%, MediaOne will be entitled to appoint three Representatives.
If an LLC TW Step Event has occurred, the number of Representatives that
MediaOne is entitled to appoint will decrease proportionally with its ownership
of Interests (in accordance with the same percentage thresholds as apply to TW)
until it owns Interests having an aggregate participation percentage of less
than 9.44%, at which point it will not be entitled to appoint any
Representatives. If an LLC TW Step Event has not occurred but MediaOne owns
Interests having an aggregate participation percentage of less than 9.44%, it
will not be entitled to appoint any Representatives. In the case of Newhouse, so
long as it owns Interests having an aggregate participation percentage of at
least 9.44%, Newhouse will be entitled to appoint one Representative. The
foregoing percentages shall be decreased in the aggregate, from time to time, in
the event that the Company issues additional Interests, by an amount equal to
the participation percentage so issued, in proportion to their relative
participation percentages immediately before such issuance. The foregoing
percentages shall be increased in the aggregate, from time to time, in the event
that the Company repurchases Interests, by an amount equal to the participation
percentage of such repurchased Interest, in proportion to their relative
participation percentages immediately before such repurchase.
The LLC Agreement prohibits any transfer of Class B Interests held by the
Members, unless expressly permitted under the terms thereof. In addition, voting
agreements relating to the Class B Interests with any third party are
prohibited.
After the expiration of years from the date of the LLC Agreement (the
'Restricted Period'), in the event that a holder of Class B Interests proposes
to sell all of its Class B Interests (a 'Selling Class B Member') pursuant to a
bona fide offer from an unaffiliated third party, such Selling Class B Member
shall give notice (the 'Refusal Notice') to all other holders of Class B
Interests, which notice shall contain the identity of the offeror and an offer
to sell such Interests to such holders of Class B Interests upon the terms and
subject to the conditions set forth in the offer from the third party. The
non-selling holders of Class B Interests will have the right (the 'LLC Right of
First Refusal') to purchase pro rata all, but not less than all, of such Class B
Interests. If the non-selling holders fail to exercise their LLC Right of First
Refusal with respect to all of such interests, the LLC Selling Class B Member
shall be free, for a period of 90 days thereafter, to sell such Class B
Interests (as Class B Interests) to a third party on terms and conditions that
are no less favorable to the LLC Selling Class B Member than those contained in
the LLC Refusal Notice. In connection with the sale by a holder of all, but not
less than all, of its Class B Interests, such holder shall have the right to
transfer all of its right, if any, to
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appoint Representatives to the Management Committee. In addition, after the
expiration of the Restricted Period, if TW proposes to sell all, but not less
than all, of its Class B Interests and/or all or a portion of its Class A
Interests that represent an aggregate of more than one-third of the
participation percentage of the Company's Interests, then other holders of Class
B Interests will have certain 'tag-along' rights that provide them with the
right to sell their Class A Interests and/or Class B Interests on a pro rata
basis along with, and on the same terms and conditions as TW, provided that such
'tag-along' rights shall be applied to all Class B Interests prior to being
applied to any Class A Interests. In connection with such sale, TW (and any
other member transferring all of its Class B Interests) shall have the right to
transfer all of its right, if any, to appoint Representatives to the Management
Committee. In addition, TW and the other selling members will not be required to
convert their Class B Interests to Class A interests prior to such sale.
Except for transfers to affiliates and any other transfers described above,
immediately prior to any direct transfer of Class B Interests or certain
indirect transfers of Class B Interests all such Class B Interests will be
required to be converted to Class A Interests. In addition, except for transfers
described above, a Member will not have the right to transfer its right to
appoint Representatives to the Management Committee. A holder of Class B
Interests will not be required to convert into Class A Interests, and such
holder's right to appoint Representatives to the Management Committee will not
terminate, if such holder is acquired by a third party or such holder
distributes to its equityholders a company holding its Class B Interests (as
well as other assets).
STOCKHOLDERS AGREEMENT
Following the Reconstitution, the Existing Stockholders will enter into the
Stockholders Agreement. The following summary description of the Stockholders
Agreement does not purport to be complete and is qualified in its entirety by
reference to the text of such agreement, which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. Additionally,
there can be no assurance that the Existing Stockholders will not cause the
Stockholders Agreement to be amended, modified or terminated or cause the
Company to waive any provision of such agreement.
The Stockholders Agreement provides that at each annual meeting of the
Company's stockholders at which directors are elected, the holders of the Class
B Common Stock will vote their shares in favor of the following nominees: (i) up
to seven nominees selected by the holders of Class B Common Stock (the 'Class B
Nominees') as described in the next paragraph, (ii) the CEO and (iii) two
nominees who are neither employed by nor affiliated with the Company or any
holder of Class B Common Stock and who are selected by a committee comprised of
the members of the Board of Directors, other than the CEO and the independent
directors. Solely as a result of the agreement of each Existing Stockholder to
vote in favor of the other Existing Stockholders' director nominees under the
Stockholders Agreement, the Existing Stockholders may be deemed to share
beneficial ownership of the shares beneficially owned by each of them.
Under the Stockholders Agreement, the Class B Nominees will be selected as
follows: initially three Class B Nominees will be designated by TW, three by
MediaOne and one by Newhouse. Under the Stockholders Agreement, the ability of
the Existing Stockholders to designate any Class B Nominees depends on the
identity of the particular stockholder and the percentage of shares of Common
Stock owned by it. Generally, each Existing Stockholder must own at least 9.44%
of the Common Stock to appoint one director. In the case of TW, so long as it
owns at least 18.88% of the Common Stock it will be entitled to nominate three
directors. In the event that TW owns less than 18.88% of the Common Stock (such
event, a 'TW Step Event'), the number of directors which TW may nominate will
decrease proportionally with its ownership of the Common Stock until it owns
less than 9.44%, at which point it will not be entitled to nominate any
directors. In the case of MediaOne, so long as a TW Step Event has not occurred
and it owns at least 9.44% of the Common Stock, MediaOne will be entitled to
nominate three directors. If a TW Step Event has occurred, the number of
directors that MediaOne is entitled to nominate will decrease proportionally
with its ownership of the Common Stock (in accordance with the same percentage
thresholds as apply to TW) until it owns less than 9.44%, at which point it will
not be entitled to nominate any directors. If a TW Step Event has not occurred
but MediaOne owns less than 9.44% of the Common Stock, it will not be entitled
to nominate any directors. In the case of Newhouse, so long as it owns at least
9.44% of the Common Stock, Newhouse will be entitled to nominate one director.
The foregoing percentages shall be adjusted, from time to time, in the event
that the Company issues additional shares of Common Stock or takes actions in
respect of Common Stock (such as stock splits or
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recapitalizations) to reflect the percentages that would have been in effect had
such action been taken as of the closing of the Reorganization and prior to the
computation of such percentages.
The Stockholders Agreement prohibits any transfer of Class B Common Stock
held by the Existing Stockholders, unless expressly permitted under the terms
thereof. In addition, voting agreements relating to the Class B Common Stock
with any third party are prohibited.
In the event that a selling Class B Stockholder proposes to sell all of the
shares of Class B Common Stock owned by such holder pursuant to a bona fide
offer from an unaffiliated third party, such stockholder shall give notice (the
'Refusal Notice') to all other holders of Class B Common Stock, which notice
shall contain the identify of the offeror and an offer to sell such stock to
such holders of Class B Common Stock upon the terms and subject to the
conditions set forth in the offer from the third party. The non-selling holders
of Class B Common Stock will have the right (the 'Right of First Refusal') to
purchase pro rata all, but not less than all, of such Class B Common Stock. If
the non-selling holders fail to exercise their Right of First Refusal with
respect to all of such shares, the selling Class B Stockholder shall be free,
for a period of 90 days thereafter, to sell such shares of Class B Common Stock
(as shares of Class B Common Stock) to a third party on terms and conditions
that are no less favorable to the selling Class B Common Stockholder than those
contained in the Refusal Notice. In connection with the sale by a holder of all,
but not less than all, of the shares of Class B Common Stock owned by such
holder, such holder shall have the right to transfer all of its right, if any,
to nominate Class B Nominees for election to the board. In addition, if TW
proposes to sell shares of all, but not less than all, of its Class B Common
Stock and/or shares of its Class A Common Stock that represent an aggregate of
more than one-third of the outstanding shares of Common Stock, then other
holders of Class B Common Stock will have certain 'tag-along' rights that
provide them with the right to sell their shares of Class A Common Stock and/or
Class B Common Stock on a pro rata basis along with, and on the same terms and
conditions as, TW provided that such 'tag-along' rights shall be applied to all
Class B Common Stock prior to being applied to any Class A Common Stock. In
connection with such sale, TW (and any other stockholder transferring all of its
shares of Class B Common Stock) shall have the right to transfer all of its
right, if any, to nominate Class B Nominees for election to the board. In
addition, TW and the other selling stockholders will not be required to convert
their shares of Class B Common to Class A Common Stock prior to such sale.
Except for transfers to affiliates and any other transfer described above,
immediately prior to any direct transfer of Class B Common Stock or certain
indirect transfers of Class B Common Stock all such shares of Class B Common
Stock will be required to be converted to Class A Common Stock. In addition,
except for transfers described above, a stockholder will not have the right to
transfer its right to nominate Class B Nominees. A holder of Class B Common
Stock will not be required to convert its shares into Class A Common Stock, and
such holder's right to nominate Class B Nominees will not terminate, if such
holder is acquired by a third party or such holder distributes to its
stockholders a company holding its shares of Class B Common Stock (as well as
other assets).
The Existing Stockholders will have demand registration rights with respect
to shares of Class A Common Stock (including shares of Class A Common Stock
issuable or issued upon the conversion of shares of Class B Common Stock) on the
following terms: (i) no demand may be made during the first 180 days after the
closing date of the Stock Offering, (ii) the Company shall not be obligated to
effect a demand within 180 days from the effective date of the previous demand
registration, (iii) the Company will not be required to effect a demand
registration unless the aggregate number of shares of Class A Common Stock to be
registered is, at any given time, at least 1% of the Class A Common Stock then
outstanding and (iv) the demand registration may be postponed for up to two
months if the Company believes that such registration would have a material
adverse effect on any proposal or plan to engage in any financing, acquisition
of assets or any merger, consolidation, tender offer or other significant
transaction. In addition, each Existing Stockholder may cause the Company to
include such stockholder's shares in certain other registered offerings under
the Securities Act, subject to certain conditions. Each Existing Stockholder
will pay all underwriting discounts and commissions and any transfer taxes
attributable to the sale of its shares. The Company will pay all expenses
relating to its obligations to file and maintain the effectiveness of a
registration statement, the legal fees of one counsel to represent the Existing
Stockholders and the fees and expenses of its auditors.
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CERTAIN OPERATING AGREEMENTS
Capacity License Agreements. Each of the Company's local operations is
party to a certain Capacity License Agreement (collectively, the 'Capacity
License') with the local cable television operation of TW Cable, providing the
Company with a 30 year exclusive right to utilize all of the capacity of
specified fiber-optic cable owned and maintained by the respective TW Cable
operation. For the Company's existing networks, such Capacity License has been
fully paid and does not require additional license fees (although certain
maintenance fees and fees for splicing and similar services are payable
periodically). The Company may request that the TW Cable construct and provide
additional fiber-optic cable capacity to meet the Company's future needs. TW
Cable is not obligated to provide such fiber capacity to the Company; however,
the Capacity License provides for the sharing of construction costs between the
Company and TW Cable to the extent that such costs are incurred to build
additional fiber optic cable capacity which is licensed to the Company. See
'Risk Factors -- Relationship with TW Cable.' If TW Cable provides such
additional capacity, the Company will pay an allocable share of the cost of
construction of the fiber upon which capacity is to be provided, plus a
permitting fee. Such payments are due one-half upon commencement of construction
and the remainder upon initial acceptance of the capacity by the Company. The
Company is responsible for all taxes and franchise or similar fees arising out
of its utilization of the capacity, and a portion of other out-of-pocket
expenses incurred by TW Cable with regard to the cable upon which such capacity
is made available. The Company is permitted to use the capacity for
telecommunications services and any other lawful purpose, except for the
provision of Residential Services and Content Services. The Capacity License
does not restrict the Company from licensing fiber optic capacity from parties
other than TW Cable. The Capacity License expires in 2028. Although TW Cable has
agreed to negotiate renewal or alternative provisions in good faith at that
time, there can be no assurance that the parties will agree on the terms of any
renewal or alternative provisions or that the terms of any renewal or
alternative provisions which may be agreed upon by the parties will be favorable
to the Company. If the Capacity License is not renewed in 2028, the Company will
have no residual interest in the capacity under the Capacity License and may
need to build, lease or otherwise obtain transmission capacity in order to
service its customers in the service areas covered by the Capacity License; the
terms of such arrangements could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company has the
right to terminate a Capacity License in whole or in part at any time upon 180
days' notice and payment of any outstanding fees regarding the terminated
capacity. TW Cable has the right to terminate a Capacity License upon 180 days'
notice in the event of, among other things, certain governmental proceedings or
third party challenges to TW Cable's franchises or the Capacity License. The
Capacity License includes substantial limitations on liability in the event of
service interruptions. See 'Risk Factors -- Relationship with TW Cable.'
Facility Lease Agreements. The Company leases or subleases physical space
located at TW Cable's facilities for various purposes pursuant to certain
Facility Lease Agreements (the 'Facility Agreements'). In the event that at
least a majority of the ownership of any TW Cable system is not owned by one or
more Parent Companies or of (i) TW's owning Interests having an aggregate
participation percentage of less than 30%, (ii) TW having the right to appoint
less than three Representatives to the Management Committee of the Company,
(iii) the Company's non-compliance with the restrictions in the LLC Agreement
regarding Residential Services and Content Services or (iv) the transfer by a
Member of its Class B Interests together with its rights to appoint
Representatives to the Management Committee under the LLC Agreement,
the Company will be required, at its own expense, to
segregate and partition in a reasonable, secure manner its leased or subleased
space. See '--LLC Agreement.' The lease rates for properties owned by TW Cable
and leased to the Company are based upon comparable rents in the local market,
taking into account other factors such as the term of the lease, type of space,
square footage, location and leasehold improvements funded to date by TW Cable.
Generally, the term of such leases are for 15 years, with two five year options
to renew. With respect to properties leased by TW Cable, the Company is charged
a pro rata portion of the rent and fees payable under the primary lease. The
duration of the Company's subleases are coextensive with TW Cable's primary
lease.
Services Agreement. TW Cable provides certain administrative and operating
services, including certain payroll, tax, management information systems, and
legal support services, to the Company pursuant to a certain Administrative
Services Agreement (the 'Services Agreement'). The costs for such services are
determined by TW Cable based upon the Company's historical and projected usage,
depending on the amount and type of administrative services to be provided.
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Residential Support Agreements. Pursuant to certain residential support
agreements ('Residential Agreements'), the Company will provide certain support
and interconnection services or service elements, on an unbundled basis, to TW
Cable for its residential telephony business. Generally, all rates for such
residential support services offered to TW Cable may be adjusted annually by the
Company, but may not be less favorable than the wholesale rates charged to the
Company's other customers.
Road Runner Agreement. The Company expects to enter into an agreement with
TW Cable (the 'Road Runner Agreement') covering principles they intend to follow
to cooperate in the marketing and provision of TW Cable's high speed online
'Road Runner' services ('Road Runner Services'). The Company is expected to have
a right of first opportunity to provide TW Cable with any transport services for
Road Runner Services to businesses, provided that TW Cable does not choose to
provide such services directly over its own network and that the Company's
pricing for such services is no less favorable than those offered by the
Company's competitors. Road Runner Services for residential end-users that are
provided by TW Cable may be jointly marketed with the Company's offering of Road
Runner Services to business customers where mutually advantageous work at home
opportunities arise, subject to the requisite approval of the Existing Members.
See 'Business -- Planned/Future Services.'
TW License Agreement. The use of the 'Time Warner' name by the Company is
subject to a certain License Agreement with TW (the 'License Agreement'). The
Company may change its name to 'TW Telecom LLC' and the Company will no longer
have the right to use of the 'Time Warner' name upon expiration of the initial
four year term or any renewal term of such agreement or (i) TW's owning
Interests having an aggregate participation percentage of less than 30%, (ii) TW
having the right to appoint less than three Representatives to the Management
Committee of the Company, (iii) the Company's non-compliance with the
restrictions in the LLC Agreement regarding Residential Services and Content
Services or (iv) the transfer by a Member of its Class B Interests together with
its rights to appoint Representatives to the Management Committee under the LLC
Agreement. See ' -- LLC Agreement.' After the Reconstitution, the Company will
be required to discontinue use of the 'Time Warner' name upon expiration of the
intitial four year term or any renewal term of such agreement or (i) TW's owning
less than 30% of the Common Stock, (ii) TW having the right to nominate less
than three nominees to the Board of Directors of the Company, (iii) the
Company's non-compliance with the restrictions in the Restated Certificate of
Incorporation regarding Residential Services and Content Services or (iv) the
transfer by an Existing Stockholder of its Class B Common Stock together with
its rights to designate nominees to the Board of Directors under the
Stockholders Agreement. See ' -- Stockholders Agreement.'
The Company believes that the terms and conditions, taken as a whole, of
the transactions described under the headings 'Capacity License Agreements,'
'Facility Lease Agreements,' 'Services Agreement,' 'Residential Support
Agreements,' 'Road Runner Agreement' and the 'TW License Agreement' were no less
favorable to the Company than could have been obtained from unaffiliated
parties.
INTERCOMPANY SUBORDINATED DEBT
As of March 31, 1998 the Company had outstanding approximately
$117.5 million of subordinated indebtedness to the Parent Companies, all of
which is subordinated in right of payment to the Notes. This subordinated
indebtedness bears interest (payable in kind) at an annual rate equal to
The Chase Manhattan Bank's prime lending rate as in effect from time to time
(which was 8.5% at March 31,1998) and matures on , 2008, one month
after the maturity of the Notes. Such indebtedness may be declared immediately
due and payable if the maturity of the Notes is similarly accelerated.
Indebtedness to the Parent Companies is expected to be approximately
$ at June 30, 1998. The Indenture provides that such subordinated
indebtedness may be repaid with the net proceeds of any offering of common
stock or equivalent interests of the Company. Additional advances by the Parent
Companies to finance the Company's operations prior to the closing of the
Offering will increase the amount of such indebtedness outstanding as of the
closing of the Offering.
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PRINCIPAL MEMBERS
Prior to the Reorganization, the Parent Companies beneficially owned all of
the assets and liabilities of the Company's business. In connection with the
Reorganization, the Parent Companies contributed such assets and liabilities to
the Company and in return received all the Class B Interests having an aggregate
participation percentage of 100%, and the Parent Companies distributed such
Interests to the Members. TWT is a wholly owned subsidiary of the Company. The
following table sets forth certain information regarding the beneficial
ownership of the Interests of the Company immediately following the
Reorganization by: (i) each of the Representatives and the named executive
officers; (ii) all Representatives and executive officers as a group; and
(iii) each owner of more than 5% of any class of Interests of the Company
('5% Owners'). Unless otherwise noted, the address for each executive officer
of the Company is c/o the Company, 5700 S. Quebec Street, Greenwood Village,
CO 80111.
<TABLE>
<CAPTION>
CLASS A CLASS B
INTERESTS (1)(2) INTERESTS (1)
---------------- -------------
PARTICIPATION PARTICIPATION
PERCENTAGE PERCENTAGE
---------------- -------------
<S> <C> <C>
TW (3).............................................................................. 0% 61.95%
MediaOne (4)........................................................................ 0 18.88
Newhouse (5)........................................................................ 0 19.17
All Representatives and executive officers as a group
( persons) (6)(7)............................................................ * *
</TABLE>
- ------------
* Represents less than one percent.
(1) The Company has two classes of Interests, the Class A Interests and the
Class B Interests. Beneficial ownership of the Interests has been determined
in accordance with the rules of the SEC. See 'Description of Interests.'
(2) Excludes Class B Interests which are convertible into an equal amount
of Class A Interests. The Class B Interests held by TW, MediaOne and
Newhouse represented participation percentages on a converted basis of
61.95%, 18.88% and 19.17%, respectively, of the Class A Interests.
(3) Owned by Time Warner Companies, Inc., American Television and Communications
Corporation, Warner Communications Inc., TW/TAE Inc., FiberComm Holdings,
L.P. and Paragon Communications, each a direct or indirect wholly owned
subsidiary of Time Warner Inc. The business address of TW is 75 Rockefeller
Plaza, New York, NY 10019.
(4) Owned by MediaOne Group, Inc., a Colorado corporation and wholly owned
subsidiary of MediaOne Group, Inc., a Delaware corporation. The business
address of MediaOne is 188 Inverness Drive West, Englewood, CO 80112.
(5) Owned by Newhouse. The business address of Newhouse is 5015 Campuswood
Drive, East Syracuse, NY 13057.
(6) None of the Representatives or executive officers of the Company
beneficially owns any Class A Interests or Class B Interests.
(7) As of , 1998, all Representatives and executive officers held an
aggregate of shares of tw common stock and shares of common stock
of MediaOne. In addition, such persons held (i) options which, on
, 1998, were exercisable within 60 days to purchase shares
of TW common stock and (ii) options which, on , 1998, were
exercisable within 60 days to purchase shares of common stock of MediaOne.
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DESCRIPTION OF THE NOTES
The Notes are to be issued under an Indenture, to be dated as of the
Closing Date (the 'Indenture'), among the Company and TWT, as joint and several
obligors, and The Chase Manhattan Bank, as Trustee (the 'Trustee'). A copy of
the Indenture has been filed with the Commission as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summaries of certain provisions of the Indenture do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all the
provisions of the Indenture, including the definitions of certain terms therein
and those terms made a part thereof by reference to the Trust Indenture Act of
1939, as amended ('TIA'). For purposes of this section, all references to the
Company are to Time Warner Telecom LLC (or any corporate successor pursuant to
the Reconstitution), excluding its subsidiaries. The Indenture is by its terms
subject to and governed by the TIA. Whenever particular defined terms of the
Indenture not otherwise defined herein are referred to, such defined terms are
incorporated herein by reference. For definitions of certain capitalized terms
used in the following summaries, see ' -- Certain Definitions.'
GENERAL
The Notes will be unsecured unsubordinated obligations of the Obligors,
initially limited to $400 million aggregate principal amount, and will mature on
, 2008. Interest on the Notes will accrue at the rate shown on the
front cover of this Prospectus from the Closing Date or from the most recent
interest payment date to which interest has been paid or provided for, payable
semiannually (to Holders of record at the close of business on the
or immediately preceding the interest payment date)
on and of each year, commencing ,
1998. Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Obligors in the Borough of Manhattan, The City of New York (which initially will
be the corporate trust office of the Trustee at ; provided that,
at the option of the Obligors, payment of interest may be made by check mailed
to the Holders at their addresses as they appear in the Security Register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 of principal amount and any integral multiple thereof.
See ' -- Book-Entry; Delivery and Form.' No service charge will be made for any
registration of transfer or exchange of Notes, but the Obligors may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
The Obligors may, subject to the covenants described below under
'Covenants' and applicable law, issue additional Notes under the Indenture. The
Notes offered hereby and any additional Notes subsequently issued would be
treated as a single class for all purposes under the Indenture.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Obligors' option, in whole or in part,
at any time or from time to time, on or after , 2003 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holder's last address as it appears in the Security
Register, at the Redemption Prices (expressed in percentages of principal
amount) set forth below, plus accrued and unpaid interest, if any, to the
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date that is on or prior to the Redemption Date to receive
interest due on an Interest Payment Date), if redeemed during the 12-month
period commencing , of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- -------------------------------------------------------- ----------------
<S> <C>
2003.................................................... %
2004....................................................
2005....................................................
2006 and thereafter..................................... 100.000%
</TABLE>
In addition, at any time prior to , 2001, the Obligors may,
at their option, redeem up to 35% of the aggregate principal amount of the Notes
with the net proceeds of one or more Equity Offerings, at any
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time or from time to time in part, at a Redemption Price of % of the
principal amount thereof; provided (i) that Notes representing at least 65% of
the principal amount of the Notes initially issued remain outstanding
immediately after each such redemption and (ii) that notice of each such
redemption is mailed within 90 days of each such Equity Offering.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if such Notes are not listed on a national securities exchange, by
lot or by such other method as the Trustee in its sole discretion shall deem to
be fair and appropriate; provided that no Note of $1,000 in principal amount or
less shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.
SINKING FUND
There will be no sinking fund payments for the Notes.
RANKING
The Indebtedness evidenced by the Notes will rank pari passu in right of
payment with all existing and future unsubordinated indebtedness of the Obligors
and senior in right of payment to all subordinated indebtedness of the Obligors.
Holders of secured obligations of the Obligors, however, will have claims that
are prior to the claims of the Holders of the Notes with respect to the assets
securing such obligations. The Company and/or one or more of its Restricted
Subsidiaries may negotiate a Credit Agreement. The Notes will be subordinated to
any indebtedness under a Credit Agreement to the extent of any security interest
and also to the extent any such Indebtedness is Incurred by a Restricted
Subsidiary.
In addition, all existing and future liabilities (including trade payables)
of the Obligors' subsidiaries will be effectively senior to the Notes. See 'Risk
Factors -- Holding Company Structure; Effective Subordination of Notes to
Indebtedness of Subsidiaries.' After giving pro forma effect to the Offering and
the application of the Net Proceeds therefrom, as of , the Company
and its subsidiaries would have had $ million of indebtedness outstanding.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the definition of any other capitalized term used herein for which
no definition is provided.
'Acquired Indebtedness' means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by a Restricted Subsidiary and not Incurred in connection
with, or in anticipation of, such Person becoming a Restricted Subsidiary or
such Asset Acquisition; provided that Indebtedness of such Person which is
redeemed, defeased, retired or otherwise repaid at the time of or immediately
upon consummation of the transactions by which such Person becomes a Restricted
Subsidiary or such Asset Acquisition shall not be Acquired Indebtedness.
'Adjusted Consolidated Net Income' means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income (or loss) of any Person that is not a Restricted Subsidiary,
except (x) with respect to net income, to the extent of the amount of dividends
or other distributions actually paid to the Company or any of its Restricted
Subsidiaries by such Person during such period and (y) with respect to net
losses, to the extent of the amount of Investments made by the Company or any
Restricted Subsidiary in such Person during such period; (ii) solely for the
purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of the 'Limitation on Restricted
Payments' covenant described below (and in such case, except to the extent
includable pursuant to clause (i) above), the net income (or loss) of any Person
accrued prior to the date it becomes a Restricted Subsidiary or is merged into
or consolidated with the Company
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or any of its Restricted Subsidiaries or all or substantially all of the
property and assets of such Person are acquired by the Company or any of its
Restricted Subsidiaries; (iii) the net income of any Restricted Subsidiary to
the extent that the declaration or payment of dividends or similar distributions
by such Restricted Subsidiary of such net income is not at the time permitted by
the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
such Restricted Subsidiary; (iv) any gains or losses (on an after-tax basis)
attributable to Asset Sales; (v) except for purposes of calculating the amount
of Restricted Payments that may be made pursuant to clause (C) of the first
paragraph of the 'Limitation on Restricted Payments' covenant described below,
any amount paid or accrued as dividends (other than dividends to the extent paid
or payable in shares of Capital Stock (other than Disqualified Stock) of the
Company) on Preferred Stock of the Company or any Restricted Subsidiary owned by
Persons other than the Company and any of its Restricted Subsidiaries; (vi) all
extraordinary gains and extraordinary losses; and (vii) any compensation expense
paid or payable solely with Capital Stock (other than Disqualified Stock) of the
Company or any options, warrants or other rights to acquire Capital Stock (other
than Disqualified Stock).
'Adjusted Consolidated Net Tangible Assets' means the total amount of
assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its Restricted
Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles, all as set forth on the most recent quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries,
prepared in conformity with GAAP and filed with the Commission or provided to
the Trustee pursuant to the 'Commission Reports and Reports to Holders'
covenant.
'Affiliate' means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, 'control'
(including, with correlative meanings, the terms 'controlling,' 'controlled by'
and 'under common control with'), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
'Asset Acquisition' means (i) an investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries; provided that such Person's
primary business is related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such investment or (ii)
an acquisition by the Company or any of its Restricted Subsidiaries of the
property and assets of any Person other than the Company or any of its
Restricted Subsidiaries that constitute substantially all of a division or line
of business of such Person; provided that the property and assets acquired are
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such acquisition.
'Asset Disposition' means the sale or other disposition by the Company or
any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of
any Restricted Subsidiary or (ii) all or substantially all of the assets that
constitute a division or line of business of the Company or any of its
Restricted Subsidiaries.
'Asset Sale' means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction) in one transaction
or a series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets (other than the Capital Stock or other
Investment in an Unrestricted Subsidiary) of the Company or any of its
Restricted Subsidiaries outside the ordinary course of business of the Company
or such Restricted Subsidiary and, in each case, that is not governed by the
provisions of the Indenture applicable to mergers, consolidations and sales of
all or substantially all of the assets of the Company; provided that 'Asset
Sale' shall not include (a) sales or other dispositions of inventory,
receivables and other current assets, (b) sales, transfers or other dispositions
of assets constituting a Restricted Payment permitted to be made under the
'Limitation on Restricted Payments' covenant, (c) sales, transfers or other
dispositions of assets with a fair market value (as
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certified in an Officers' Certificate) not in excess of $5 million in any
transaction or series of related transactions, or (d) sales or other
dispositions of assets for consideration at least equal to the fair market value
of the assets sold or disposed of, to the extent that the consideration received
would constitute property, assets or securities of the kind described in clause
(B) of the 'Limitation on Asset Sales' covenant.
'Average Life' means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
'Board of Directors' means, prior to the Reconstitution, the Management
Committee of the Company, and following the Reconstitution, the Board of
Directors of the Company.
'Capital Stock' means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
'Capitalized Lease' means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.
'Capitalized Lease Obligations' means the discounted present value of the
rental obligations under a Capitalized Lease.
'Change of Control' means such time as (i) the Existing Stockholders as a
group cease to have the ability to elect a majority of the members of the Board
of Directors (other than the chief executive officer of the Company and
independent directors) and a 'person' or 'group' (within the meaning of Sections
13(d) and 14(d)(2) of the Exchange Act) (other than the Existing Stockholders)
has become the ultimate 'beneficial owner' (as defined in Rule 13d-3 under the
Exchange Act) of more than 35% of the total voting power of the Voting Stock of
the Company on a fully diluted basis and such ownership represents a greater
percentage of the total voting power of the Voting Stock of the Company, on a
fully diluted basis, than is held by the Existing Stockholders as a group on
such date; or (ii) individuals who on the Closing Date constitute the Board of
Directors (together with any new directors whose election by the Board of
Directors or whose nomination by the Board of Directors for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
members of the Board of Directors then in office who either were members of the
Board of Directors on the Closing Date or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the members of the Board of Directors then in office.
'Change of Control Period' means, with respect to a Change of Control, the
period of 60 days commencing on the date of the earlier to occur of (a) public
notice of the occurrence of a Change of Control or of the intention of the
Company to effect a Change of Control and (b) the Change of Control.
'Closing Date' means the date on which the Notes are originally issued
under the Indenture.
'Company' means Time Warner Telecom LLC and, following the Reconstitution,
any corporate successor to Time Warner Telecom LLC.
'Common Stock' means, with respect to any Person, such Person's equity
other than Preferred Stock of such Person, whether outstanding on the Closing
Date or issued thereafter, including, without limitation, all series and classes
of such common stock, including any and all shares, interests, participations or
other equivalents (however designated, whether voting or non-voting) thereof.
'Consolidated EBITDA' means, for any period, Adjusted Consolidated Net
Income for such period (x) plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income, (i) Consolidated Interest
Expense, (ii) income taxes (other than income taxes (either positive or
negative) attributable to extraordinary and non-recurring gains or losses or
sales of assets), (iii) depreciation expense, (iv) amortization expense and (v)
all other non-cash items reducing Adjusted Consolidated Net Income (other than
items that will require cash payments and for which an accrual or reserve is, or
is required by GAAP to be, made), less all non-cash items increasing Adjusted
Consolidated Net Income, all as determined on a consolidated basis for the
Company and its Restricted Subsidiaries in conformity with GAAP, and (y) solely
for purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of the 'Limitation on Restricted
Payments' covenant described below, less (to the extent not
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otherwise reduced in accordance with GAAP) the aggregate amount of deposits made
by the Company and its Restricted Subsidiaries after the Closing Date in
connection with proposed Asset Acquisitions that are forfeited by the Company or
any of its Restricted Subsidiaries; provided that, if any Restricted Subsidiary
is not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA shall be
reduced (to the extent not otherwise reduced in accordance with GAAP) by an
amount equal to (A) the amount of the Adjusted Consolidated Net Income
attributable to such Restricted Subsidiary multiplied by (B) the percentage
ownership interest in the income of such Restricted Subsidiary not owned on the
last day of such period by the Company or any of its Restricted Subsidiaries.
'Consolidated Interest Expense' means, for any period, the aggregate amount
of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and interest
on Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries) and all but the principal component of rentals in
respect of Capitalized Lease Obligations, in each case that is paid, accrued or
scheduled to be paid or to be accrued by the Company and its Restricted
Subsidiaries during such period; excluding, however, (i) in calculating
Consolidated EBITDA, any amount of such interest of any Restricted Subsidiary if
the net income of such Restricted Subsidiary is excluded in the calculation of
Adjusted Consolidated Net Income pursuant to clause (iii) of the definition
thereof (but only in the same proportion as the net income of such Restricted
Subsidiary is excluded from the calculation of Adjusted Consolidated Net Income
pursuant to clause (iii) of the definition thereof) and (ii) any premiums, fees
and expenses (and any amortization thereof) payable in connection with the
offering of the Notes, all as determined on a consolidated basis (without taking
into account Unrestricted Subsidiaries) in conformity with GAAP.
'Consolidated Leverage Ratio' means, on any Transaction Date, the ratio of
(i) the aggregate amount of Indebtedness of the Company and its Restricted
Subsidiaries on a consolidated basis outstanding on such Transaction Date to
(ii) the aggregate amount of Consolidated EBITDA for the then most recent four
fiscal quarters for which financial statements of the Company have been filed
with the Commission or provided to the Trustee pursuant to the 'Commission
Reports and Reports to Holders' covenant described below (such four fiscal
quarter period being the 'Four Quarter Period'); provided that, in making the
foregoing calculation, (A) pro forma effect shall be given to any Indebtedness
to be Incurred or repaid on the Transaction Date; (B) pro forma effect shall be
given to Asset Dispositions and Asset Acquisitions (including giving pro forma
effect to the application of proceeds of any Asset Disposition) that occur from
the beginning of the Four Quarter Period through the Transaction Date (the
'Reference Period'), as if they had occurred and such proceeds had been applied
on the first day of such Reference Period; and (C) pro forma effect shall be
given to asset dispositions and asset acquisitions (including giving pro forma
effect to the application of proceeds of any asset disposition) that have been
made by any Person that has become a Restricted Subsidiary or has been merged
with or into the Company or any Restricted Subsidiary during such Reference
Period and that would have constituted Asset Dispositions or Asset Acquisitions
had such transactions occurred when such Person was a Restricted Subsidiary as
if such asset dispositions or asset acquisitions were Asset Dispositions or
Asset Acquisitions that occurred on the first day of such Reference Period;
provided that to the extent that clause (B) or (C) of this sentence requires
that pro forma effect be given to an Asset Acquisition or Asset Disposition,
such pro forma calculation shall be based upon the four full fiscal quarters
immediately preceding the Transaction Date of the Person, or division or line of
business of the Person, that is acquired or disposed of for which financial
information is available.
'Consolidated Net Worth' means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries (which
shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Disqualified Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of the
Capital Stock of the Company or any of its Restricted Subsidiaries, each item to
be determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
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'Credit Agreement' means credit agreements, vendor financings or similar
facilities or arrangements made available from time to time to the Company and
its Restricted Subsidiaries from banks, other financial institutions and/or
equipment manufacturers for the Incurrence of Indebtedness, including letters of
credit and any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, as the same may be amended,
supplemented, modified or restated from time to time.
'Currency Agreement' means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
'Default' means any event that is, or after notice or passage of time or
both would be, an Event of Default.
'Director' means, prior to the Reconstitution, a Representative on the
Management Committee of the Company, and following the Reconstitution, a
Director on the Board of Directors of the Company.
'Disqualified Stock' means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Disqualified Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an 'asset sale' or 'change of control'
occurring prior to the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the 'asset sale' or 'change of control' provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in 'Limitation on Asset Sales' and
'Repurchase of Notes upon a Change of Control' covenants described below and
such Capital Stock, or the agreements or instruments governing the redemption
rights thereof, specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Company's
repurchase of such Notes as are required to be repurchased pursuant to the
'Limitation on Asset Sales' and 'Repurchase of Notes upon a Change of Control'
covenants described below.
'Equity Offering' means an offering of Common Stock of the Company for cash
pursuant to an effective registration statement under the Securities Act or an
exemption from the registration requirements contained therein.
'Existing Stockholders' means Time Warner, Inc., MediaOne Group, Inc.,
Advance/Newhouse Partnership and the Affiliates of each of the foregoing.
'fair market value' means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution; provided that for purposes of clause (viii) of
the second paragraph of the 'Limitation on Indebtedness' covenant, (x) the fair
market value of any security registered under the Exchange Act shall be the
average of the closing prices, regular way, of such security for the 20
consecutive trading days immediately preceding the sale of Capital Stock and (y)
in the event the aggregate fair market value of any other property (other than
cash or cash equivalents) received by the Company exceeds $15 million, the fair
market value of such property shall be determined by a nationally recognized
investment banking firm and set forth in their written opinion which shall be
delivered to the Trustees.
'GAAP' means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained or referred to in
the Indenture shall be computed in conformity with GAAP applied on a consistent
basis, except that calculations made for purposes of determining compliance with
the terms of the covenants and with other provisions of the Indentures shall be
made without giving effect to (i) the amortization of any expenses incurred in
connection with the offering of the Notes and (ii) except as otherwise provided,
the amortization of any amounts required or permitted by Accounting Principles
Board Opinion Nos. 16 and 17.
'Guarantee' means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any
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obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services (unless such purchase arrangements are on arm's-length
terms and are entered into in the ordinary course of business), to take-or-pay,
or to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness of
the payment thereof or to protect such obligee against loss in respect thereof
(in whole or in part); provided that the term 'Guarantee' shall not include
endorsements for collection or deposit in the ordinary course of business. The
term 'Guarantee' used as a verb has a corresponding meaning.
'Incur' means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an 'Incurrence' of Acquired Indebtedness; provided that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
'Indebtedness' means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto, but excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in (i) or (ii) above or (v), (vi)
or (vii) below) entered into in the ordinary course of business of such Person
to the extent such letters of credit are not drawn upon or, if drawn upon, to
the extent such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months after the
date of placing such property in service or taking delivery and title thereto or
the completion of such services, except Trade Payables, (v) all Capitalized
Lease Obligations of such Person, (vi) all Indebtedness of other Persons secured
by a Lien on any asset of such Person, whether or not such Indebtedness is
assumed by such Person; provided that the amount of such Indebtedness shall be
the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness, (vii) all Indebtedness of
other Persons Guaranteed by such Person to the extent such Indebtedness is
Guaranteed by such Person and (viii) to the extent not otherwise included in
this definition, obligations under Currency Agreements and Interest Rate
Agreements. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation, provided (A)
that the amount outstanding at any time of any Indebtedness issued with original
issue discount is the face amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at the
time of its issuance as determined in conformity with GAAP, (B) that money
borrowed and set aside at the time of the Incurrence of any Indebtedness in
order to prefund the payment of the interest on such Indebtedness shall not be
deemed to be 'Indebtedness' so long as such money is held to secure the payment
of such interest and (C) that Indebtedness shall not include any liability for
federal, state, local or other taxes.
'Interest Rate Agreement' means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
'Investment' in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the balance sheet of the Company or its Restricted Subsidiaries) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include (i) the designation
of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair
market value of the Capital Stock (or any other Investment), held by the Company
or any of its Restricted Subsidiaries, of (or in) any Person that has ceased to
be a Restricted Subsidiary, including without limitation, by reason of any
transaction permitted by clause (iii) of the 'Limitation on the Issuance and
Sale of Capital Stock of Restricted Subsidiaries' covenant; provided that the
fair market value of the Investment
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remaining in any Person that has ceased to be a Restricted Subsidiary shall not
exceed the aggregate amount of Investments previously made in such Person valued
at the time such Investments were made less the net reduction of such
Investments. For purposes of the definition of 'Unrestricted Subsidiary' and the
'Limitation on Restricted Payments' covenant described below, (i) 'Investment'
shall include the fair market value of the assets (net of liabilities (other
than liabilities to the Company or any of its Restricted Subsidiaries)) of any
Restricted Subsidiary at the time that such Restricted Subsidiary is designated
an Unrestricted Subsidiary, (ii) the fair market value of the assets (net of
liabilities (other than liabilities to the Company or any of its Restricted
Subsidiaries)) of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary shall be considered a reduction
in outstanding Investments and (iii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer.
'Investment Grade' means a rating of the Notes by both S&P and Moody's,
each such rating being in one of such agency's four highest generic rating
categories that signifies investment grade (i.e., BBB - (or the equivalent) or
higher by S&P and Baa3 (or the equivalent) or higher by Moody's); provided, in
each case, such ratings are publicly available; provided further, that in the
event Moody's or S&P is no longer in existence, for purposes of determining
whether the Notes are rated 'Investment Grade,' such organization may be
replaced by a nationally recognized statistical rating organization (as defined
in Rule 436 under the Securities Act) designated by the Obligors, notice of
which designation shall be given to the Trustee.
'Lien' means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
'Moody's' means Moody's Investors Service, Inc. and its successors.
'Net Cash Proceeds' means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale and (iv) appropriate amounts to be provided by the
Company or any Restricted Subsidiary as a reserve against any liabilities
associated with such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as determined in conformity with GAAP and (b) with respect
to any issuance or sale of Capital Stock, the proceeds of such issuance or sale
in the form of cash or cash equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold with
recourse to the Company or any Restricted Subsidiary) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of attorney's fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
'Offer to Purchase' means an offer to purchase Notes by the Obligors from
the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that all
Notes validly tendered will be accepted for payment on a pro rata basis; (ii)
the purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed)
(the 'Payment Date'); (iii) that any Note not tendered will continue to accrue
interest pursuant to its terms; (iv) that, unless the Obligors default in the
payment of the purchase price, any Note accepted for payment pursuant to the
Offer to Purchase shall cease to accrue interest on and after the Payment Date;
(v) that Holders electing to have a Note purchased pursuant to the Offer to
Purchase will be
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required to surrender the Note, together with the form entitled 'Option of the
Holder to Elect Purchase' on the reverse side of the Note completed, to the
Paying Agent at the address specified in the notice prior to the close of
business on the Business Day immediately preceding the Payment Date; (vi) that
Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the third Business Day
immediately preceding the Payment Date, a telegram, facsimile transmission or
letter setting forth the name of such Holder, the principal amount of Notes
delivered for purchase and a statement that such Holder is withdrawing his
election to have such Notes purchased; and (vii) that Holders whose Notes are
being purchased only in part will be issued new Notes equal in principal amount
to the unpurchased portion of the Notes surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
an integral multiple thereof. On the Payment Date, the Obligors shall (i) accept
for payment on a pro rata basis Notes or portions thereof tendered pursuant to
an Offer to Purchase; (ii) deposit with the Paying Agent money sufficient to pay
the purchase price of all Notes or portions thereof so accepted; and (iii)
deliver, or cause to be delivered, to the Trustee all Notes or portions thereof
so accepted together with an Officers' Certificate specifying the Notes or
portions thereof accepted for payment by the Obligors. The Paying Agent shall
promptly mail to the Holders of Notes so accepted payment in an amount equal to
the purchase price, and the Trustee shall promptly authenticate and mail to such
Holders a new Note equal in principal amount to any unpurchased portion of the
Note surrendered; provided that each Note purchased and each new Note issued
shall be in a principal amount of $1,000 or an integral multiple thereof. The
Obligors will publicly announce the results of an Offer to Purchase as soon as
practicable after the Payment Date. The Trustee shall act as the Paying Agent
for an Offer to Purchase. The Company will comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable, in the event that the Obligors
are required to repurchase Notes pursuant to an Offer to Purchase.
'Parent Company Debt' means Indebtedness of the Company to any Existing
Stockholder that is subordinated in right of payment to the Notes as evidenced
by a promissory note dated the date of the Reorganization and any additional
notes issued pursuant to the terms of such note.
'Permitted Investment' means (i) an Investment in the Company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; provided that such Person's primary business is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment; (ii) Temporary Cash
Investments; (iii) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP; (iv) stock, obligations or securities received in
settlement of Indebtedness Incurred in the ordinary course of business, upon
foreclosure of a Lien created in the ordinary course of business or in
satisfaction of judgments, including in connection with a bankruptcy proceeding;
(v) Investments in prepaid expenses, negotiable instruments held for collection
and lease, utility and worker's compensation, performance and other similar
deposits; (vi) Interest Rate Agreements and Currency Agreements designed solely
to protect the Company or its Restricted Subsidiaries against fluctuations in
interest rates or foreign currency exchange rates; (vii) loans or advances to
officers or employees of the Company or any Restricted Subsidiary that do not in
the aggregate exceed $2 million at any time outstanding; and (viii) Investments
in any Person that is engaged in the telecommunications business and that is not
an Affiliate or a Related Person of the Company.
'Permitted Liens' means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (ii) statutory and common law Liens of landlords and
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) Liens incurred or deposits
made to secure the performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return-of-money bonds and other obligations of a
similar nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money); (v) easements, rights-of-way,
municipal and zoning ordinances
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and similar charges, encumbrances, title defects or other irregularities that do
not materially interfere with the ordinary course of business of the Company or
any of its Restricted Subsidiaries; (vi) Liens (including extensions and
renewals thereof) upon real or personal property acquired after the Closing
Date; provided that (a) such Lien is created solely for the purpose of securing
Indebtedness Incurred, in accordance with the 'Limitation on Indebtedness'
covenant described below, to finance the cost (including the cost of design,
development, acquisition, construction, installation, improvement,
transportation or integration and all transaction costs related to the
foregoing) of the item of property or assets subject thereto and such Lien is
created prior to, at the time of or within six months after the later of the
acquisition, the completion of construction or the commencement of full
operation of such property, (b) the principal amount of the Indebtedness secured
by such Lien does not exceed 100% of such cost and (c) any such Lien shall not
extend to or cover any property or assets other than such item of property or
assets and any improvements on such item; (vii) leases or subleases granted to
others that do not materially interfere with the ordinary course of business of
the Company and its Restricted Subsidiaries, taken as a whole; (viii) Liens
encumbering property or assets under construction arising from progress or
partial payments by a customer of the Company or its Restricted Subsidiaries
relating to such property or assets; (ix) any interest or title of a lessor in
the property subject to any Capitalized Lease or operating lease; (x) Liens
arising from filing Uniform Commercial Code financing statements regarding
leases; (xi) Liens on property of, or on shares of Capital Stock or Indebtedness
of, any Person existing at the time such Person becomes, or becomes a part of,
any Restricted Subsidiary; provided that such Liens do not extend to or cover
any property or assets of the Company or any Restricted Subsidiary other than
the property or assets acquired; (xii) Liens in favor of the Company or any
Restricted Subsidiary; (xiii) Liens arising from the rendering of a final
judgment or order against the Company or any Restricted Subsidiary that does not
give rise to an Event of Default; (xiv) Liens securing reimbursement obligations
with respect to letters of credit that encumber documents and other property
relating to such letters of credit and the products and proceeds thereof; (xv)
Liens in favor of customs and revenue authorities arising as a matter of law to
secure payment of customs duties in connection with the importation of goods;
(xvi) Liens encumbering customary initial deposits and margin deposits, and
other Liens that are within the general parameters customary in the industry and
incurred in the ordinary course of business, in each case, securing Indebtedness
under Interest Rate Agreements and Currency Agreements and forward contracts,
options, future contracts, futures options or similar agreements or arrangements
designed solely to protect the Company or any of its Restricted Subsidiaries
from fluctuations in interest rates, currencies or the price of commodities;
(xvii) Liens arising out of conditional sale, title retention, consignment or
similar arrangements for the sale of goods entered into by the Company or any of
its Restricted Subsidiaries in the ordinary course of business in accordance
with the past practices of the Company and its Restricted Subsidiaries prior to
the Closing Date; (xviii) Liens on or sales of receivables; and (xix) Liens that
secure Indebtedness with an aggregate principal amount not in excess of $5
million at any time outstanding.
'Reconstitution' means the reconstitution of the Company from a limited
liability company to a corporation, whether by merger, exchange or otherwise.
'Related Person' means, as applied to any Person, any other Person directly
or indirectly owning (a) 10% or more of the outstanding Common Stock of such
Person (or, in the case of a Person that is not a corporation, 10% or more of
the outstanding equity interest in such Person) or (b) 10% or more of the
combined outstanding voting power of the Voting Stock of such Person, and all
Affiliates of any such other Person.
'Restricted Subsidiary' means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
'Significant Subsidiary' means, at any date of determination, TWT and any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
'S&P' means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, and its successors.
'Specified Date' means any Redemption Date, any Payment Date for an Offer
to Purchase or any date on which the Notes first become due and payable after an
Event of Default.
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'Stated Maturity' means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
'Strategic Subordinated Indebtedness' means Indebtedness of the Company
Incurred to finance the acquisition of a Person engaged in a business that is
related, ancillary or complementary to the business conducted by the Company or
any of its Restricted Subsidiaries, which Indebtedness by its terms, or by the
terms of any agreement or instrument pursuant to which such Indebtedness is
Incurred, (i) is expressly made subordinate in right of payment to the Notes and
(ii) provides that no payment of principal, premium or interest on, or any other
payment with respect to, such Indebtedness may be made prior to the payment in
full of all of the Company's obligations under the Notes; provided that such
Indebtedness may provide for and be repaid at any time from the proceeds of the
sale of Capital Stock of the Company (other than Disqualified Stock) or other
Indebtedness of the Company which by its terms, or by the terms of any agreement
or instrument pursuant to which such other Indebtedness is Incurred, meets
clauses (i) and (ii) above after the Incurrence of such Indebtedness.
'Subsidiary' means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
'Temporary Cash Investment' means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, (ii) time deposit accounts, certificates of deposit and money
market deposits maturing within one year of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $500 million (or the
foreign currency equivalent thereof) and has outstanding debt which is rated 'A'
(or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker dealer
or mutual fund distributor, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) commercial paper, maturing not more than one year after the
date of acquisition, issued by a corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America with a rating at the time as of which any investment therein
is made of 'P-1' (or higher) according to Moody's or 'A-1' (or higher) according
to S&P, (v) securities with maturities of six months or less from the date of
acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least 'A' by S&P or
Moody's, (vi) corporate debt securities with maturities of eighteen months or
less from the date of acquisition and with a rating at the time as of which any
Investment therein is made of 'A3' (or higher) according to Moody's or 'A-' (or
higher) according to S&P and (vii) money market funds at least 95% of the assets
of which are invested in the foregoing.
'Trade Payables' means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
'Transaction Date' means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
'Unrestricted Subsidiary' means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below; and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary; provided that (A) any Guarantee by the Company or any
Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated
shall be deemed an 'Incurrence' of such Indebtedness
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and an 'Investment' by the Company or such Restricted Subsidiary (or both, if
applicable) at the time of such designation; (B) either (I) the Subsidiary to be
so designated has total assets of $1,000 or less or (II) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
'Limitation on Restricted Payments' covenant described below and (C) if
applicable, the Incurrence of Indebtedness and the Investment referred to in
clause (A) of this proviso would be permitted under the 'Limitation on
Indebtedness' and 'Limitation on Restricted Payments' covenants described below.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that (i) no Default or Event of Default shall
have occurred and be continuing at the time of or after giving effect to such
designation and (ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately after such designation would, if Incurred at such time,
have been permitted to be Incurred (and shall be deemed to have been Incurred)
for all purposes of the Indenture. Any such designation by the Board of
Directors shall be evidenced to the Trustee by promptly filing with the Trustee
a copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
'Voting Stock' means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
'Wholly Owned' means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
COVENANTS
Limitation on Indebtedness
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Notes and Indebtedness
existing on the Closing Date); provided that the Company may Incur Indebtedness
if, after giving effect to the Incurrence of such Indebtedness and the receipt
and application of the proceeds therefrom, the Consolidated Leverage Ratio would
be greater than zero and less than 6.0:1.
Notwithstanding the foregoing, the Company and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following: (i)
Indebtedness outstanding at any time in an aggregate principal amount not to
exceed $300 million, less any amount of such Indebtedness permanently repaid as
provided under the 'Limitation on Asset Sales' covenant described below; (ii)
Indebtedness owed (A) to the Company evidenced by a promissory note or (B) to
any Restricted Subsidiary; provided that any event which results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent
transfer of such Indebtedness (other than to the Company or another Restricted
Subsidiary) shall be deemed, in each case, to constitute an Incurrence of such
Indebtedness not permitted by this clause (ii); (iii) Indebtedness issued in
exchange for, or the net proceeds of which are used to refinance or refund, then
outstanding Indebtedness (other than Indebtedness Incurred under clause (i),
(ii), (iv), (vi), (viii) or (ix) of this paragraph) and any refinancings thereof
in an amount not to exceed the amount so refinanced or refunded (plus premiums,
accrued interest, fees and expenses); provided that Indebtedness the proceeds of
which are used to refinance or refund the Notes or Indebtedness that is pari
passu with, or subordinated in right of payment to, the Notes shall only be
permitted under this clause (iii) if (A) in case the Notes are refinanced in
part or the Indebtedness to be refinanced is pari passu with the Notes, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is outstanding, is expressly made pari
passu with, or subordinate in right of payment to, the remaining Notes, (B) in
case the Indebtedness to be refinanced is subordinated in right of payment to
the Notes, such new Indebtedness, by its terms or by the terms of any agreement
or instrument pursuant to which such new Indebtedness is issued or remains
outstanding, is expressly made subordinate in right of payment to the Notes at
least to the extent that the Indebtedness to be refinanced is subordinated to
the Notes and (C) such new Indebtedness, determined as of the date of Incurrence
of such new Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be refinanced or refunded, and the Average Life of such new
Indebtedness is at least equal to the remaining Average Life of the Indebtedness
to be refinanced or refunded; and provided further that in no event may
Indebtedness of the Company be refinanced by means of any Indebtedness of any
Restricted Subsidiary pursuant to this clause (iii); (iv) Indebtedness (A) in
respect of performance, surety or appeal bonds provided in the ordinary course
of business, (B) under Currency
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Agreements and Interest Rate Agreements; provided that such agreements (a) are
designed solely to protect the Company or its Restricted Subsidiaries against
fluctuations in foreign currency exchange rates or interest rates and (b) do not
increase the Indebtedness of the obligor outstanding at any time other than as a
result of fluctuations in foreign currency exchange rates or interest rates or
by reason of fees, indemnities and compensation payable thereunder; and (C)
arising from agreements providing for indemnification, adjustment of purchase
price or similar obligations, or from Guarantees or letters of credit, surety
bonds or performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted Subsidiary
(other than Guarantees of Indebtedness Incurred by any Person acquiring all or
any portion of such business, assets or Restricted Subsidiary for the purpose of
financing such acquisition), in a principal amount not to exceed the gross
proceeds actually received by the Company or any Restricted Subsidiary in
connection with such disposition; (v) Indebtedness of the Company, to the extent
the net proceeds thereof are promptly (A) used to purchase Notes tendered in an
Offer to Purchase made as a result of a Change of Control or (B) deposited to
defease the Notes as described below under 'Defeasance'; (vi) Guarantees of the
Notes and Guarantees of Indebtedness of the Company by any Restricted Subsidiary
provided the Guarantee of such Indebtedness is permitted by and made in
accordance with the 'Limitation on Issuance of Guarantees by Restricted
Subsidiaries' covenant described below; (vii) Indebtedness Incurred to finance
the cost (including the cost of design, development, acquisition, construction,
installation, improvement, transportation or integration and all transaction
costs related to the foregoing) to acquire equipment, inventory or network
assets (including acquisitions by way of Capitalized Lease and acquisitions of
the Capital Stock of a Person that becomes a Restricted Subsidiary to the extent
of the fair market value of the equipment, inventory or network assets so
acquired plus goodwill associated therewith) by the Company or a Restricted
Subsidiary after the Closing Date; (viii) Indebtedness of the Company not to
exceed, at any one time outstanding, two times (A) the Net Cash Proceeds
received by the Company after the Closing Date from the issuance and sale of its
Capital Stock (other than Disqualified Stock) to a Person that is not a
Subsidiary of the Company, to the extent (I) such Net Cash Proceeds have not
been used pursuant to clause (C)(2) of the first paragraph or clause (iii),
(iv), (vi) of (vii) of the second paragraph of the 'Limitation on Restricted
Payments' covenant described below to make a Restricted Payment and (II) if such
Net Cash Proceeds are used to consummate a transaction pursuant to which the
Company Incurs Acquired Indebtedness, the amount of such Net Cash Proceeds
exceeds one-half of the amount of Acquired Indebtedness so Incurred and (B) 80%
of the fair market value of property (other than cash and cash equivalents)
received by the Company after the Closing Date from the sale of its Capital
Stock (other than Disqualified Stock) to a Person that is not a Subsidiary of
the Company, to the extent (I) such sale of Capital Stock has not been used
pursuant to clause (iii), (iv), (vi) or (vii) of the second paragraph of the
'Limitation on Restricted Payments' covenant described below to make a
Restricted Payment and (II) if such Capital Stock is used to consummate a
transaction pursuant to which the Company Incurs Acquired Indebtedness, 80% of
the fair market value of the property received exceeds one-half of the amount of
Acquired Indebtedness so Incurred; provided that such Indebtedness does not
mature prior to the Stated Maturity of the Notes and has an Average Life longer
than the Notes; (ix) Acquired Indebtedness; (x) Strategic Subordinated
Indebtedness; and (xi) subordinated Indebtedness of the Company (in addition to
Indebtedness permitted under clauses (i) through (x) above) in an aggregate
principal amount outstanding at any time not to exceed $200 million, less any
amount of such Indebtedness permanently repaid as provided under the 'Limitation
on Asset Sales' covenant described below.
(b) Notwithstanding any other provision of this 'Limitation on
Indebtedness' covenant, the maximum amount of Indebtedness that the Company or a
Restricted Subsidiary may Incur pursuant to this 'Limitation on Indebtedness'
covenant shall not be deemed to be exceeded, with respect to any outstanding
Indebtedness due solely to the result of fluctuations in the exchange rates of
currencies.
(c) For purposes of determining any particular amount of Indebtedness under
this 'Limitation on Indebtedness' covenant, (1) Guarantees, Liens or obligations
with respect to letters of credit supporting Indebtedness otherwise included in
the determination of such particular amount shall not be included and (2) any
Liens granted pursuant to the equal and ratable provisions referred to in the
'Limitation on Liens' covenant described below shall not be treated as
Indebtedness. For purposes of determining compliance with this 'Limitation on
Indebtedness' covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, the Obligors, in their sole discretion, shall
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classify, and from time to time may reclassify, such item of Indebtedness and
only be required to include the amount and type of such Indebtedness in one of
such clauses.
(d) For purposes of determining compliance with any Dollar-denominated
restriction on the Incurrence of Indebtedness denominated in a foreign currency,
the Dollar-equivalent principal amount of such Indebtedness Incurred pursuant
thereto shall be calculated based on the relevant currency exchange rate in
effect on the date that such Indebtedness was Incurred, provided that (x) the
Dollar-equivalent principal amount of any such Indebtedness outstanding on the
Closing Date shall be calculated based on the relevant currency exchange rate in
effect on the Closing Date and (y) if such Indebtedness is Incurred to refinance
other Indebtedness denominated in a foreign currency, and such refinancing would
cause the applicable Dollar-denominated restriction to be exceeded if calculated
at the relevant currency exchange rate in effect on the date of such
refinancing, such Dollar-denominated restriction shall be deemed not to have
been exceeded so long as the principal amount of such refinancing Indebtedness,
converted into the currency in which the Indebtedness being refinanced is
denominated at the currency exchange rate in effect on the date of such
refinancing, does not exceed the principal amount of such Indebtedness being
refinanced (plus premiums, accrued interest, fees and expenses). The principal
amount of any Indebtedness Incurred to refinance other Indebteness, if Incurred
in a different currency from the Indebtedness being refinanced, shall be
calculated based on the foreign currency exchange rate applicable to the
currencies in which such respective Indebtedness is denominated that is in
effect on the date of such refinancing.
Limitation on Restricted Payments
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any distribution
on or with respect to its Capital Stock (other than (x) dividends or
distributions payable solely in shares of its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to acquire shares of
such Capital Stock and (y) pro rata dividends or distributions on Common Stock
of Restricted Subsidiaries held by minority stockholders) held by Persons other
than the Company or any of its Restricted Subsidiaries, (ii) purchase, redeem,
retire or otherwise acquire for value any shares of Capital Stock of (A) the
Company or an Unrestricted Subsidiary (including options, warrants or other
rights to acquire such shares of Capital Stock) held by any Person or (B) a
Restricted Subsidiary (including options, warrants or other rights to acquire
such shares of Capital Stock) held by any Affiliate of the Company (other than a
Wholly Owned Restricted Subsidiary) or any holder (or any Affiliate of such
holder) of 5% or more of the Capital Stock of the Company, (iii) make any
voluntary or optional principal payment, or voluntary or optional redemption,
repurchase, defeasance, or other acquisition or retirement for value, of
Indebtedness of the Company that is subordinated in right of payment to the
Notes or (iv) make any Investment, other than a Permitted Investment, in any
Person (such payments or any other actions described in clauses (i) through (iv)
above being collectively 'Restricted Payments') if, at the time of, and after
giving effect to, the proposed Restricted Payment: (A) a Default or Event of
Default shall have occurred and be continuing, (B) the Company could not Incur
at least $1.00 of Indebtedness under the first paragraph of the 'Limitation on
Indebtedness' covenant or (C) the aggregate amount of all Restricted Payments
(the amount, if other than in cash, to be determined in good faith by the Board
of Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) made after the Closing Date shall exceed the sum of (1) the amount
by which Consolidated EBITDA exceeds 150% of Consolidated Interest Expense, in
each case, determined on a cumulative basis during the period (taken as one
accounting period) beginning on the first day of the fiscal quarter immediately
following the Closing Date and ending on the last day of the last fiscal quarter
preceding the Transaction Date for which reports have been filed with the
Commission or provided to the Trustee pursuant to the 'Commission Reports and
Reports to Holders' covenant plus (2) the aggregate Net Cash Proceeds received
by the Company after the Closing Date from the issuance and sale permitted by
the Indenture of its Capital Stock (other than Disqualified Stock) to a Person
who is not a Subsidiary of the Company, including an issuance or sale permitted
by the Indenture of Indebtedness of the Company for cash subsequent to the
Closing Date upon the conversion of such Indebtedness into Capital Stock (other
than Disqualified Stock) of the Company, or from the issuance to a Person who is
not a Subsidiary of the Company of any options, warrants or other rights to
acquire Capital Stock of the Company (in each case, exclusive of any
Disqualified Stock or any options, warrants or other rights that are redeemable
at the option of the holder, or are required to be redeemed, prior to the Stated
Maturity of the Notes), in each case except to the extent such Net Cash Proceeds
are used to Incur Indebtedness pursuant to clause (viii) or (ix) of the second
paragraph under the 'Limitation on Indebtedness' covenant, plus (3) an amount
equal to the net reduction in
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Investments (other than reductions in Permitted Investments) in any Person
resulting from payments of interest on Indebtedness, dividends, repayments of
loans or advances, or other transfers of assets, in each case to the Company or
any Restricted Subsidiary or from the Net Cash Proceeds from the sale of any
such Investment (except, in each case, to the extent any such payment or
proceeds are included in the calculation of Adjusted Consolidated Net Income),
or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of 'Investments'), not to
exceed, in each case, the amount of Investments previously made by the Company
or any Restricted Subsidiary in such Person or Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend within 60 days after the date of declaration thereof if, at said
date of declaration, such payment would comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition or retirement
for value of Indebtedness that is subordinated in right of payment to the Notes
including premium, if any, and accrued and unpaid interest, with the proceeds
of, or in exchange for, Indebtedness Incurred under clause (iii) of the second
paragraph of part (a) of the 'Limitation on Indebtedness' covenant; (iii) the
repurchase, redemption or other acquisition of Capital Stock of the Company or
an Unrestricted Subsidiary (or options, warrants or other rights to acquire such
Capital Stock) in exchange for, or out of the proceeds of a substantially
concurrent offering of, shares of Capital Stock (other than Disqualified Stock)
of the Company (or options, warrants or other rights to acquire such Capital
Stock); (iv) the making of any principal payment or the repurchase, redemption,
retirement, defeasance or other acquisition for value of Indebtedness of the
Company which is subordinated in right of payment to the Notes (including,
without limitation, Parent Company Debt) in exchange for, or out of the proceeds
of a substantially concurrent sale of, shares of the Capital Stock (other
than Disqualified Stock) of the Company (or options, warrants or other rights to
acquire such Capital Stock); (v) payments or distributions, to dissenting
stockholders pursuant to applicable law, pursuant to or in connection with a
consolidation, merger or transfer of assets that complies with the provisions of
the Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of the Company; (vi) Investments in
any Person the primary business of which is related, ancillary or complementary
to the business of the Company and its Restricted Subsidiaries on the date of
such Investments; provided that the aggregate amount of Investments made
pursuant to this clause (vi) does not exceed the sum of (a) $10 million and (b)
the amount of Net Cash Proceeds received by the Company after the Closing Date
from the sale of its Capital Stock (other than Disqualified Stock) to a Person
who is not a Subsidiary of the Company, except to the extent such Net Cash
Proceeds are used to Incur Indebtedness pursuant to clause (viii) or (ix) under
the 'Limitation on Indebtedness' covenant or to make Restricted Payments
pursuant to clause (C)(2) of the first paragraph, or clauses (iii) or (iv) of
this paragraph, of this 'Limitation on Restricted Payments' covenant, plus (z)
the net reduction in Investments made pursuant to this clause (vi) resulting
from distributions on or repayments of such Investments or from the Net Cash
Proceeds from the sale of any such Investment (except in each case to the extent
any such payment or proceeds is included in the calculation of Adjusted
Consolidated Net Income) or from such Person becoming a Restricted Subsidiary
(valued in each case as provided in the definition of 'Investments'), provided
that the net reduction in any Investment shall not exceed the amount of such
Investment; (vii) Investments acquired in exchange for Capital Stock (other than
Disqualified Stock) of the Company; (viii) other Restricted Payments in an
aggregate amount not to exceed $10 million; and (ix) the repurchase, redemption
or other acquisition of Capital Stock of the Company (or options, warrants or
other rights to acquire such Capital Stock) from Persons who are or were
formerly directors, officers or employees of the Company or any Restricted
Subsidiary, provided that the aggregate amount of all such repurchases made in
any calendar year pursuant to this clause (ix) shall not exceed $2.0 million;
provided that, except in the case of clauses (i) and (iii) no Default or Event
of Default shall have occurred and be continuing or occur as a consequence of
the actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof, an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof and an Investment referred to in clause (vi)
thereof), and the Net Cash Proceeds from any issuance of Capital Stock referred
to in clauses (iii), (iv) and (vi), shall be included in calculating whether the
conditions of clause (C) of the first paragraph of this 'Limitation on
Restricted Payments' covenant have been met with respect to any subsequent
Restricted Payments. In the event the proceeds of an issuance of Capital Stock
of the Company are used for the redemption, repurchase or other acquisition of
the Notes, or Indebtedness that is pari passu with the Notes, then the Net Cash
Proceeds of such issuance shall be included in
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clause (C) of the first paragraph of this 'Limitation on Restricted Payments'
covenant only to the extent such proceeds are not used for such redemption,
repurchase or other acquisition of Indebtedness.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by the
Company or any other Restricted Subsidiary, (ii) pay any Indebtedness owed to
the Company or any other Restricted Subsidiary, (iii) make loans or advances to
the Company or any other Restricted Subsidiary or (iv) transfer any of its
property or assets to the Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Indenture or any other
agreements in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such agreements; provided that the encumbrances and
restrictions in any such extensions, refinancings, renewals or replacements are
no less favorable in any material respect to the Holders than those encumbrances
or restrictions that are then in effect and that are being extended, refinanced,
renewed or replaced; (ii) existing under or by reason of applicable law or
required by any regulatory authority having jurisdiction over the Company or any
Restricted Subsidiary; (iii) existing with respect to any Person or the property
or assets of such Person acquired by the Company or any Restricted Subsidiary,
existing at the time of such acquisition and not incurred in contemplation
thereof, which encumbrances or restrictions are not applicable to any Person or
the property or assets of any Person other than such Person or the property or
assets of such Person so acquired, and any extensions, renewals or replacements
of such encumbrances or restrictions; provided that the encumbrances and
restrictions in any such extensions, renewals or replacements are no less
favorable in any material respect to the Holders than those encumbrances or
restrictions that are then in effect and that are being extended, renewed or
replaced; (iv) in the case of clause (iv) of the first paragraph of this
'Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries' covenant, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset, (B) existing by virtue of
any transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of the Company or any Restricted Subsidiary not
otherwise prohibited by the Indenture or (C) arising or agreed to in the
ordinary course of business, not relating to any Indebtedness, and that do not,
individually or in the aggregate, detract from the value of property or assets
of the Company or any Restricted Subsidiary in any manner material to the
Company or any Restricted Subsidiary; (v) with respect to a Restricted
Subsidiary and imposed pursuant to an agreement that has been entered into for
the sale or disposition of all or substantially all of the Capital Stock of, or
property and assets of, such Restricted Subsidiary; or (vi) contained in the
terms of any Indebtedness or any agreement pursuant to which such Indebtedness
was issued if (A) the encumbrance or restriction either (1) applies only in the
event of a payment default or non-compliance with respect to a financial
covenant contained in such Indebtedness or agreement or (2) is contained in a
Credit Agreement, (B) the encumbrance or restriction is not materially more
disadvantageous to the Holders of the Notes than is customary in comparable
financings (as determined by the Company) and (C) the Company determines on the
date of the Incurrence of such Indebtedness that any such encumbrance or
restriction would not be expected to materially impair either Obligors' ability
to make principal or interest payments on the Notes. Nothing contained in this
'Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries' covenant shall prevent the Company or any Restricted Subsidiary
from (1) creating, incurring, assuming or suffering to exist any Liens otherwise
permitted in the 'Limitation on Liens' covenant or (2) restricting the sale or
other disposition of property or assets of the Company or any of its Restricted
Subsidiaries that secure Indebtedness of the Company or any of its Restricted
Subsidiaries.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
The Company will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell, any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except (i) to the Company or a Wholly Owned
Restricted Subsidiary; (ii) issuances of director's qualifying shares or sales
to foreign nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law; (iii) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary and any
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Investment in such Person remaining after giving effect to such issuance or sale
would have been permitted to be made under the 'Limitation on Restricted
Payments' covenant if made on the date of such issuance or sale; or (iv)
issuances or sales of Common Stock of a Restricted Subsidiary, provided that the
Company or such Restricted Subsidiary applies the Net Cash Proceeds, if any, of
any such sale in compliance with the 'Limitation on Asset Sales' covenant
described below. Notwithstanding the foregoing, the Company will ensure that TWT
remains a wholly owned Subsidiary of the Company; provided that the foregoing
shall not prevent a merger of TWT into the Company.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company which is pari passu
with or subordinate in right of payment to the Notes ('Guaranteed
Indebtedness'), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture to the Indenture providing for a Guarantee
(a 'Subsidiary Guarantee') of payment of the Notes by such Restricted Subsidiary
and (ii) such Restricted Subsidiary waives and will not in any manner whatsoever
claim or take the benefit or advantage of, any rights of reimbursement,
indemnity or subrogation or any other rights against the Company or any other
Restricted Subsidiary as a result of any payment by such Restricted Subsidiary
under its Subsidiary Guarantee; provided that this paragraph shall not be
applicable to any Guarantee of any Restricted Subsidiary that existed at the
time such Person became a Restricted Subsidiary and was not Incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary. If the Guaranteed Indebtedness is (A) pari passu with the Notes,
then the Guarantee of such Guaranteed Indebtedness shall be pari passu with, or
subordinated to, the Subsidiary Guarantee or (B) subordinated to the Notes, then
the Guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the assets
of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or (ii) the release or discharge of the Guarantee
which resulted in the creation of such Subsidiary Guarantee, except a discharge
or release by or as a result of payment under such Guarantee.
Limitation on Transactions with Shareholders and Affiliates
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or assets,
or the rendering of any service) with a Related Person or with any Affiliate of
the Company or any Restricted Subsidiary, except upon fair and reasonable terms
no less favorable to the Company or such Restricted Subsidiary than could be
obtained, at the time of such transaction or, if such transaction is pursuant to
a written agreement, at the time of the execution of the agreement providing
therefor, in a comparable arm's-length transaction with a Person that is not
such a Related Person or an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Company or a Restricted Subsidiary
delivers to the Trustee a written opinion of a nationally recognized investment
banking firm stating that the transaction is fair to the Company or such
Restricted Subsidiary from a financial point of view; (ii) any transaction
solely between the Company and any of its Wholly Owned Restricted Subsidiaries
or solely between Wholly Owned Restricted Subsidiaries; (iii) the payment of
reasonable and customary regular fees to directors of the Company who are not
employees of the Company; (iv) any payments or other transactions pursuant to
any tax-sharing agreement between the Company and any other Person with which
the Company files a consolidated tax return or with which the Company is part of
a consolidated group for tax purposes; (v) any transaction with respect to the
lease or sharing or other use of cable or fiber lines, equipment, transmission
capacity, right-of-way or other access rights, between the Company or any
Restricted Subsidiary and any other Person; provided that such transaction is on
terms that (A) are consistent with past practice of the Company and its
Restricted Subsidiaries and (B) are no less favorable, taken as a whole, to the
Company or the relevant Restricted Subsidiary than those that could have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person (or, in the event that there are no
comparable transactions involving unrelated Persons to apply for comparative
purposes, is otherwise on terms that, taken as a whole, the
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Company has determined to be fair to the Company or the relevant Restricted
Subsidiary) or (vi) any Restricted Payments not prohibited by the 'Limitation on
Restricted Payments' covenant. Notwithstanding the foregoing, any transaction or
series of related transactions covered by the first paragraph of this
'Limitation on Transactions with Shareholders and Affiliates' covenant and not
covered by clauses (ii) through (vi) of this paragraph, the aggregate amount of
which exceeds $10 million in value, must be determined to be fair in the manner
provided for in clause (i)(A) or (B) above.
Limitation on Liens
The Company will not, and will not permit any Restricted Subsidiary to,
create, incur, assume or suffer to exist any Lien on any of its assets or
properties of any character (including, without limitation, licenses), or any
shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without
making effective provision for all of the Notes and all other amounts due under
the Indenture to be directly secured equally and ratably with (or, if the
obligation or liability to be secured by such Lien is subordinated in right of
payment to the Notes, prior to) the obligation or liability secured by such
Lien.
The foregoing limitation does not apply to (i) Liens existing on the
Closing Date; (ii) Liens granted after the Closing Date on any assets or Capital
Stock of the Company or its Restricted Subsidiaries created in favor of the
Holders; (iii) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a Wholly Owned
Restricted Subsidiary to secure Indebtedness owing to the Company or such other
Restricted Subsidiary; (iv) Liens securing Indebtedness which is Incurred to
refinance secured Indebtedness which is permitted to be Incurred under clause
(iii) of the second paragraph of the 'Limitation on Indebtedness' covenant;
provided that such Liens do not extend to or cover any property or assets of the
Company or any Restricted Subsidiary other than the property or assets securing
the Indebtedness being refinanced; (v) Liens on the Capital Stock of, or any
property or assets of, a Restricted Subsidiary securing Indebtedness of such
Restricted Subsidiary permitted under the 'Limitation on Indebtedness' covenant;
or (vi) Permitted Liens.
Limitation on Sale-Leaseback Transactions
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any sale-leaseback transaction involving any of its assets or
properties whether now owned or hereafter acquired, whereby the Company or a
Restricted Subsidiary sells or transfers such assets or properties and then or
thereafter leases such assets or properties or any part thereof or any other
assets or properties which the Company or such Restricted Subsidiary, as the
case may be, intends to use for substantially the same purpose or purposes as
the assets or properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if (i) the lease is for a period, including renewal rights, of not in excess of
three years; (ii) the lease secures or relates to industrial revenue or
pollution control bonds; (iii) the transaction is solely between the Company and
any Wholly Owned Restricted Subsidiary or solely between Wholly Owned Restricted
Subsidiaries; or (iv) the Company or such Restricted Subsidiary, applies an
amount not less than the net proceeds received from such sale in compliance with
the 'Limitation on Asset Sales' covenant described below.
Amendments to Parent Company Debt
The Company will not amend or modify the terms of the Parent Company Debt,
including, without limitation, the subordination provisions thereof, from those
in effect on the Closing Date, in any way that is materially adverse to the
Holders of the Notes. Upon any amendment or modification to the terms of the
Parent Company Debt, the Company shall deliver to the Trustee an Officer's
Certificate as to the compliance of such amendment or modification with the
terms of this covenant.
Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale, unless (i) the consideration received by the Company
or such Restricted Subsidiary is at least equal to the fair market value of the
assets sold or disposed of and (ii) at least 75% of the consideration received
consists of cash, Temporary Cash Investments or the assumption of Indebtedness
of the Company (other than Indebtedness that is subordinated to the Notes) or of
a Restricted Subsidiary and unconditional release of the Company and its
Restricted Subsidiaries from all liability on the Indebtedness assumed;
provided, however, that this clause (ii)
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shall not apply to long-term assignments in capacity in a telecommunications
network. In the event and to the extent that the Net Cash Proceeds received by
the Company or any of its Restricted Subsidiaries from one or more Asset Sales
occurring on or after the Closing Date in any period of 12 consecutive months
exceed 10% of Adjusted Consolidated Net Tangible Assets (determined as of the
date closest to the commencement of such 12-month period for which a
consolidated balance sheet of the Company and its Subsidiaries has been filed
with the Commission pursuant to the 'Commission Reports and Reports to Holders'
covenant), then the Company shall or shall cause the relevant Restricted
Subsidiary to (i) within 12 months after the date Net Cash Proceeds so received
exceed 10% of Adjusted Consolidated Net Tangible Assets (A) apply an amount
equal to such excess Net Cash Proceeds less any amounts invested within 6 months
prior to such Asset Sale in property or assets of a nature or type or that are
used in a business (or in a company having property and assets of a nature or
type, or engaged in a business) similar or related to the nature or type of the
property and assets of, or the business of, the Company and its Restricted
Subsidiaries on the date of such Asset Sale (the 'Adjusted Net Cash Proceeds')
to permanently repay unsubordinated Indebtedness of the Company, or any
Restricted Subsidiary providing a Subsidiary Guarantee pursuant to the
'Limitation on Issuances of Guarantees by Restricted Subsidiaries' covenant
described above or Indebtedness of any other Restricted Subsidiary, in each case
owing to a Person other than the Company or any of its Restricted Subsidiaries
or (B) invest an equal amount, or the amount of Adjusted Net Cash Proceeds not
so applied pursuant to clause (A) (or enter into a definitive agreement
committing to so invest within 12 months after the date of such agreement), in
property or assets (other than current assets) of a nature or type or that are
used in a business (or in a company having property and assets of a nature or
type, or engaged in a business) similar or related to the nature or type of the
property and assets of, or the business of, the Company and its Restricted
Subsidiaries existing on the date of such investment (as determined in good
faith by the Board of Directors, whose determination shall be conclusive and
evidenced by a Board Resolution) and (ii) apply (no later than the end of the
12-month period referred to in clause (i)) such excess Adjusted Net Cash
Proceeds (to the extent not applied pursuant to clause (i)) as provided in the
following paragraph of this 'Limitation on Asset Sales' covenant. The amount of
such excess Adjusted Net Cash Proceeds required to be applied (or to be
committed to be applied) during such 12-month period as set forth in clause (i)
of the preceding sentence and not applied as so required by the end of such
period shall constitute 'Excess Proceeds.'
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
'Limitation on Asset Sales' covenant totals at least $10 million, the Obligors
must commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata basis an
aggregate principal amount of Notes and to the extent permitted or required by
the terms thereof, any other Indebtedness of the Company that is pari passu with
the Notes, equal to the Excess Proceeds on such date, at a purchase price equal
to 100% of the principal amount of the Notes and such other Indebtedness, if
applicable, on the relevant Payment Date, plus, in each case, accrued interest
(if any) to the Payment Date.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
The Obligors must commence, within 30 days of the later of (a) the
occurrence of a Change of Control and (b) the end of the Change of Control
Period with respect to a Change of Control, and consummate an Offer to Purchase
for all Notes then outstanding, at a purchase price equal to 101% of the
principal amount thereof on the relevant Payment Date, plus accrued interest (if
any) to the Payment Date; provided that, the Obligors shall not be required to
commence and consummate an Offer to Purchase if, at the time specified above for
the commencement of an Offer to Purchase the Notes shall be rated Investment
Grade.
There can be no assurance that the Obligors will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
may be contained in other securities of the Obligors which might be outstanding
at the time). The above covenant requiring the Obligors to repurchase the Notes
will, unless consents are obtained, require the Obligors to repay all
indebtedness then outstanding which by its terms would prohibit such Note
repurchase, either prior to or concurrently with such Note repurchase.
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COMMISSION REPORTS AND REPORTS TO HOLDERS
Whether or not the Obligors are then required to file reports with the
Commission, the Obligors shall file with the Commission all such reports and
other information as they would be required to file with the Commission by
Sections 13(a) or 15(d) under the Securities Exchange Act of 1934 if they were
subject thereto. The Obligors shall supply the Trustee and each Holder or shall
supply to the Trustee for forwarding to each such Holder, without cost to such
Holder, copies of such reports and other information.
EVENTS OF DEFAULT
The following events will be defined as 'Events of Default' in the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise; (b) default in the payment of interest on any Note when
the same becomes due and payable, and such default continues for a period of 30
days; (c) default in the performance or breach of the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the assets of the Company or the failure to make or
consummate an Offer to Purchase in accordance with the 'Limitation on Asset
Sales' or 'Repurchase of Notes upon a Change of Control' covenant; (d) the
Company or TWT defaults in the performance of or breaches any other covenant or
agreement of the Company or TWT in the Indenture or under the Notes (other than
a default specified in clause (a), (b) or (c) above), and such default or breach
continues for a period of 30 consecutive days after written notice by the
Trustee or the Holders of 25% or more in aggregate principal amount of the
Notes; (e) there occurs with respect to any issue or issues of Indebtedness of
the Company or any Significant Subsidiary having an outstanding principal amount
of $12 million or more in the aggregate for all such issues of all such Persons,
whether such Indebtedness now exists or shall hereafter be created, (I) an event
of default that has caused the holder thereof to declare such Indebtedness to be
due and payable prior to its Stated Maturity and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded or annulled
within 30 days of such acceleration and/or (II) the failure to make a principal
payment at the final (but not any interim) fixed maturity and such defaulted
payment shall not have been made, waived or extended within 30 days of such
payment default; (f) any final judgment or order (not covered by insurance) for
the payment of money in excess of $12 million in the aggregate for all such
final judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against the
Company or any Significant Subsidiary and shall not be paid or discharged, and
there shall be any period of 30 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final judgments
or orders outstanding and not paid or discharged against all such Persons to
exceed $12 million during which a stay of enforcement of such final judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; (g) a
court having jurisdiction in the premises enters a decree or order for (A)
relief in respect of the Company or any Significant Subsidiary in an involuntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (B) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) the winding up or
liquidation of the affairs of the Company or any Significant Subsidiary and, in
each case, such decree or order shall remain unstayed and in effect for a period
of 30 consecutive days; or (h) the Company or any Significant Subsidiary (A)
commences a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to the entry of an order for
relief in an involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) effects any general
assignment for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to an Obligor) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes then outstanding, by written notice to
the Obligors (and to the Trustee if such notice is given by the Holders), may,
and the Trustee at the request of such Holders shall, declare the principal
amount of, premium, if any, and accrued interest on the Notes to be immediately
due and payable. Upon a declaration of acceleration, such principal amount of,
premium, if any, and accrued interest shall be immediately due and payable. In
the event of a declaration of acceleration because an Event of Default set forth
in clause (e) above has occurred and is continuing, such declaration of
acceleration shall be automatically
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rescinded and annulled if the event of default triggering such Event of Default
pursuant to clause (e) shall be remedied or cured by the Company or the relevant
Significant Subsidiary or waived by the holders of the relevant Indebtedness
within 60 days after the declaration of acceleration with respect thereto. If an
Event of Default specified in clause (g) or (h) above occurs with respect to an
Obligor, the principal amount of, premium, if any, and accrued interest on the
Notes then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder. The Holders of at least a majority in principal amount of the
outstanding Notes by written notice to the Company and to the Trustee, may waive
all past defaults and rescind and annul a declaration of acceleration and its
consequences if (i) all existing Events of Default, other than the nonpayment of
the principal of, premium, if any, and interest on the Notes that have become
due solely by such declaration of acceleration, have been cured or waived and
(ii) the rescission would not conflict with any judgment or decree of a court of
competent jurisdiction. For information as to the waiver of defaults, see
' -- Modification and Waiver.'
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of such Notes. A
Holder may not pursue any remedy with respect to the Indenture or the Notes
unless: (i) the Holder gives the Trustee written notice of a continuing Event of
Default; (ii) the Holders of at least 25% in aggregate principal amount of
outstanding Notes make a written request to the Trustee to pursue the remedy;
(iii) such Holder or Holders offer the Trustee indemnity satisfactory to the
Trustee against any costs, liability or expense; (iv) the Trustee does not
comply with the request within 60 days after receipt of the request and the
offer of indemnity; and (v) during such 60-day period, the Holders of a majority
in aggregate principal amount of the outstanding Notes do not give the Trustee a
direction that is inconsistent with the request. However, such limitations do
not apply to the right of any Holder of a Note to receive payment of the
principal amount of, premium, if any, or interest on, such Note or to bring suit
for the enforcement of any such payment, on or after the due date expressed in
the Notes, which right shall not be impaired or affected without the consent of
the Holder.
The Indenture will require certain officers of the Obligors to certify, on
or before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of the Company and its Restricted
Subsidiaries and the Company's and its Restricted Subsidiaries' performance
under the Indenture and that the Company has fulfilled all obligations
thereunder, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof. The
Obligors will also be obligated to notify the Trustee of any default or defaults
in the performance of any covenants or agreements under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its property
and assets (as an entirety or substantially an entirety in one transaction or a
series of related transactions) to, any Person or permit any Person to merge
with or into the Company unless: (i) the Company shall be the continuing Person,
or the Person (if other than the Company) formed by such consolidation or into
which the Company is merged or that acquired or leased such property and assets
of the Company shall be a corporation organized and validly existing under the
laws of the United States of America or any jurisdiction thereof and shall
expressly assume, by a supplemental indenture, executed and delivered to the
Trustee, all of the obligations of the Company on all of the Notes and under the
Indenture; (ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing; (iii) immediately
after giving effect to such transaction on a pro forma basis, the Company or any
Person becoming the successor obligor of the Notes shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction; provided that this clause (iii) shall
only apply to a sale of substantially all, but less than all, of the assets of
the Company; (iv) immediately after giving effect to such transaction on a pro
forma basis the Company, or any Person becoming the successor obligor of the
Notes, as the case may be, could Incur at least $1.00 of Indebtedness under the
first
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paragraph of the 'Limitation on Indebtedness' covenant; provided that this
clause (iv) shall not apply to (x) a consolidation, merger or sale of all (but
not less than all) of the assets of the Company if all Liens and Indebtedness of
the Company or any Person becoming the successor obligor on the Notes, as the
case may be, and its Restricted Subsidiaries outstanding immediately after such
transaction would, if Incurred at such time, have been permitted to be Incurred
(and all such Liens and Indebtedness, other than Liens and Indebtedness of the
Company and its Restricted Subsidiaries outstanding immediately prior to the
transaction, shall be deemed to have been Incurred) for all purposes of the
Indenture or (y) a consolidation, merger or sale of all or substantially all of
the assets of the Company if immediately after giving effect to such transaction
on a pro forma basis, the Company or any Person becoming the successor obligor
of the Notes shall have a Consolidated Leverage Ratio equal to or less than the
Consolidated Leverage Ratio of the Company immediately prior to such
transaction; and (v) the Company delivers to the Trustees an Officers'
Certificate (attaching the arithmetic computations to demonstrate compliance
with clauses (iii) and (iv) above) and Opinion of Counsel, in each case stating
that such consolidation, merger or transfer and such supplemental indenture
complies with this provision and that all conditions precedent provided for
herein relating to such transaction have been complied with; provided, however,
that clauses (iii) and (iv) above do not apply if, in the good faith
determination of the Board of Directors of the Company, whose determination
shall be evidenced by a Board Resolution, the principal purpose of such
transaction is to change the state of incorporation of the Company; and provided
further that any such transaction shall not have as one of its purposes the
evasion of the foregoing limitations.
DEFEASANCE
Defeasance and Discharge. The Indenture will provide that the Obligors will
be deemed to have paid and will be discharged from any and all obligations in
respect of the Notes on the 123rd day after the deposit referred to below, and
the provisions of the Indenture will no longer be in effect with respect to the
Notes (except for, among other matters, certain obligations to register the
transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes,
to maintain paying agencies and to hold monies for payment in trust) if, among
other things, (A) the Obligors have deposited with the Trustee, in trust, money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the Notes on the Stated Maturity of such payments in accordance with
the terms of the Indenture and the Notes, (B) the Obligors have delivered to the
Trustee (i) either (x) an Opinion of Counsel to the effect that Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
the Obligors' exercise of their option under this 'Defeasance' provision and
will be subject to federal income tax on the same amount and in the same manner
and at the same times as would have been the case if such deposit, defeasance
and discharge had not occurred, which Opinion of Counsel must be based upon (and
accompanied by a copy of) a ruling of the Internal Revenue Service to the same
effect unless there has been a change in applicable federal income tax law after
the Closing Date such that a ruling is no longer required or (y) a ruling
directed to the Trustee received from the Internal Revenue Service to the same
effect as the aforementioned Opinion of Counsel and (ii) an Opinion of Counsel
to the effect that the creation of the defeasance trust does not violate the
Investment Company Act of 1940 and after the passage of 123 days following the
deposit, the trust fund will not be subject to the effect of Section 547 of the
United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor
Law, (C) immediately after giving effect to such deposit on a pro forma basis,
no Event of Default, or event that after the giving of notice or lapse of time
or both would become an Event of Default, shall have occurred and be continuing
on the date of such deposit or during the period ending on the 123rd day after
the date of such deposit, and such deposit shall not result in a breach or
violation of, or constitute a default under, any other agreement or instrument
to which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound and (D) if at such time the Notes
are listed on a national securities exchange, the Obligors have delivered to the
Trustee an Opinion of Counsel to the effect that the Notes will not be delisted
as a result of such deposit, defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further will provide that the provisions of the Indenture will no
longer be in effect with respect to clauses (iii) and (iv) under 'Consolidation,
Merger and Sale of Assets' and all the covenants described herein under
'Covenants,' clause (c) under 'Events of Default' with respect to such clauses
(iii) and (iv) under 'Consolidation, Merger and Sale of Assets,' clause (d)
under 'Events of Default' with respect to such other covenants and clauses (e)
and (f) under 'Events of Default' shall be deemed not to be Events of Default
upon, among other things, the deposit with the Trustee, in
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trust, of money and/or U.S. Government Obligations that through the payment of
interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium, if any,
and accrued interest on the Notes on the Stated Maturity of such payments in
accordance with the terms of the Indenture and the Notes, the satisfaction of
the provisions described in clauses (B)(ii), (C) and (D) of the preceding
paragraph and the delivery by the Obligors to the Trustee of an Opinion of
Counsel to the effect that, among other things, the Holders will not recognize
income, gain or loss for federal income tax purposes as a result of such deposit
and defeasance of certain covenants and Events of Default and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred.
Defeasance and Certain Other Events of Default. In the event the Obligors
exercise their option to omit compliance with certain covenants and provisions
of the Indenture with respect to the Notes as described in the immediately
preceding paragraph and such Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on such Notes at the time of their Stated Maturity
but may not be sufficient to pay amounts due on such Notes at the time of the
acceleration resulting from such Event of Default. However, the Obligors will
remain liable for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Obligors
and the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Notes; provided, however, that no
such modification or amendment may, without the consent of each Holder affected
thereby, (i) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, (ii) reduce the principal amount of, or premium, if
any, or interest on, any Note, (iii) change the place or currency of payment of
principal of, or premium, if any, or interest on, any Note, (iv) impair the
right to institute suit for the enforcement of any payment on or after the
Stated Maturity (or, in the case of a redemption, on or after the Redemption
Date) of any Note, (v) reduce the above-stated percentage of outstanding Notes,
the consent of whose Holders is necessary to modify or amend the Indenture, (vi)
waive a default in the payment of principal of, premium, if any, or interest on
the Notes or modify any provisions of the Indenture relating to modification or
amendment thereof or (vii) reduce the percentage or aggregate principal amount
of outstanding Notes, the consent of whose Holders is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Obligors in the Indenture, or in any of
the Notes or because of the creation of any Indebtedness represented thereby,
shall be had against any incorporator, stockholder, officer, director, employee
or controlling person of either Obligor or of any successor Person thereof. Each
Holder, by accepting the Notes, waives and releases all such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the Trustee will perform only such duties as are specifically set forth in the
Indenture. If an Event of Default has occurred and is continuing, the Trustee
will use the same degree of care and skill in its exercise of the rights and
powers vested in it under the Indenture as a prudent person would exercise under
the circumstances in the conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should it become a creditor of an Obligor, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided, however, that if it acquires any
conflicting interest, it must eliminate such conflict or resign.
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BOOK-ENTRY; DELIVERY AND FORM
The Notes will be initially represented by one or more global notes (the
'Global Notes') issued in the form of fully registered Global Notes, which will
be deposited with, or on behalf of, the Depositary and registered in the name of
a nominee of the Depositary. Transfers between participants in the Depositary
will be effected in the ordinary way in accordance with the Depositary's rules
and will be settled in same-day funds.
The Depositary has advised the Obligors and the Underwriters that the
Depositary intends to follow the procedures described below:
The Depositary will act as securities depository for the Global Notes.
The Global Notes will be issued as a fully registered security registered
in the name of Cede & Co. (the Depositary's nominee).
The Depositary is a limited-purpose trust company organized under the
New York Banking Law, a 'banking organization' within the meaning of the
New York Banking Law, a member of the Federal Reserve System, a 'clearing
corporation' within the meaning of the New York Uniform Commercial Code,
and a 'clearing agency' registered pursuant to the provisions of Section
17A of the Exchange Act. The Depositary holds securities that its
participants ('Participants') deposit with the Depositary. The Depositary
also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. Direct Participants include securities brokers and dealers,
banks, trust companies, clearing corporations, and certain other
organizations ('Direct Participants'). The Depositary is owned by a number
of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the Depositary's system is also available to others
such as securities brokers and dealers, banks, and trust companies that
clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ('Indirect Participants'). The
Rules applicable to the Depositary and its Participants are on file with
the Commission.
Purchases of Notes must be made by or through Direct Participants,
which will receive a credit for the Notes on the Depositary's records. The
ownership interest of each actual purchaser of each Note ('Beneficial
Owner') is in turn recorded on the Direct and Indirect Participant's
records. Transfers of ownership interests in the Notes are to be
accomplished by entries made on the books of Participants acting on behalf
of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in the Notes, except in the event
that use of the book-entry system for the Notes is discontinued.
Conveyance of Notes and other communications by the Depositary to
Direct Participants, by Direct Participants to Indirect Participants, and
by Direct Participants and Indirect Participants to Beneficial Owners are
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Notes are being redeemed, the Depositary's practice is to determine by lot
the amount of the interest of each Direct Participant in such issue to be
redeemed.
Neither the Depositary nor Cede & Co. will consent or vote with
respect to the Notes. Under its usual procedures, the Depositary mails an
Omnibus Proxy to the issuer as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those
Direct Participants to whose accounts the Notes are credited on the record
date (identified in a listing attached to the Omnibus Proxy).
Principal, premium (if any), and interest payments on the Notes will
be made to the Depositary. The Depositary's practice is to credit Direct
Participants' accounts on the payable date in accordance with their
respective holdings shown on the Depositary's records unless the Depositary
has reason to believe that it will not receive payment on the payable date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held
for the accounts of customers in bearer form or registered in 'street
name,' and will be the responsibility of such Participant and not of the
Depositary, the Paying Agent, or the Obligors, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment to
the Depositary of principal, premium (if any) and interest on the Notes are
the responsibility of the Obligors or the Paying Agent, disbursement of
such payments to Direct Participants shall be the responsibility of the
Depositary, and
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disbursement of such payments to the Beneficial Owners shall be the
responsibility of Direct and Indirect Participants.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the
Obligors believe to be reliable, but the Obligors take no responsibility
for the accuracy thereof.
So long as the Depositary for the Global Notes, or its nominee, is the
registered owner of the Global Notes, the Depositary or its nominee, as the
case may be, will be considered the sole owner or Holder of the Notes
represented by the Global Notes for all purposes under the Indenture.
Except as set forth below, owners of beneficial interests in such Global
Notes will not be entitled to have Notes represented by such Global Notes
registered in their names, will not receive or be entitled to receive
physical delivery of Notes in definitive form and will not be considered
the owners or Holders thereof under the Indenture. Accordingly, each person
owning a beneficial interest in Global Notes must rely on the procedures of
the Depositary and, if such person is not a Participant, those of the
Participant through which such person owns its interests, in order to
exercise any rights of a Holder under the Indenture or such Note.
The Indenture provides that the Depositary, as a Holder, may appoint
agents and otherwise authorize Participants to give or take any request,
demand, authorization, direction, notice, consent, waiver or other action
which a Holder is entitled to give or take under the Indenture, including
the right to sue for payment of principal or interest pursuant to Section
316(b) of the Trust Indenture Act of 1939, as amended. The Obligors
understand that under existing industry practices, when the Obligors
request any action of Holders or when a Beneficial Owner desires to give or
take any action which a Holder is entitled to give or take under the
Indenture, the Depositary generally will give or take such action, or
authorize the relevant Participants to give or take such action, and such
Participants would authorize Beneficial Owners owning through such
Participants to give or take such action or would otherwise act upon the
instructions of Beneficial Owners owning through them.
The Obligors have been informed by the Depositary that the Depositary
will assist its Participants and their customers (Beneficial Owners) in
taking any action a Holder is entitled to take under the Indenture or
exercise any rights available to Cede & Co., as the holder of record of the
Notes and including the right to demand acceleration of the Notes upon an
Event of Default or to institute suit for the enforcement of payment or
interest pursuant to Section 316(b) of the Trust Indenture Act of 1939, as
amended. The Depositary has advised the Obligors that it will act with
respect to such matters only upon written instructions from a Participant
to whose account with the Depositary the relevant beneficial ownership in
the Notes is credited and only in respect of such portion of the aggregate
principal amount of the Notes as to which such Participant has given such
direction. The Obligors understand that a Participant will deliver such
written instructions to the Depositary upon itself receiving similar
written instructions from either Indirect Participants or Beneficial
Owners, as the case may be. Under Rule 6 of the rules and procedures filed
by the Depositary with the Commission pursuant to Section 17 of the
Exchange Act, Participants are required to indemnify the Depositary against
all liability the Depositary may sustain, without fault on the part of the
Depositary or its nominee, as a result of any action they may take pursuant
to the instructions of the Participant in exercising any such rights.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Such limits and such laws may impair the ability to transfer beneficial
interests in the Global Notes.
Principal, premium, if any, and interest payments on Notes registered
in the name of or held by the Depositary or its nominee will be made to the
Depositary or its nominee, as the case may be, as the registered owner or
the Holder of the Global Notes representing such Notes. Neither the
Obligors nor the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
If the Depositary is at any time unwilling, unable or ineligible to
continue as depositary and a successor depositary is not appointed by the
Obligors within 60 days or, if an Event of Default under the Indenture has
occurred and is continuing, the Obligors will issue Notes in definitive
registered form, without coupons, in denominations of $1,000 of principal
amount and any integral multiple thereof, in
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exchange for the Global Notes representing such Notes. In addition, the
Obligors may at any time and in their sole discretion determine not to have
any Notes in registered form represented by the Global Notes and, in such
event, will issue Notes or in definitive registered form in exchange for
the Global Notes representing such Notes. In any such instance, an owner of
a beneficial interest in a Global Note will be entitled to physical
delivery in definitive form of Notes registered in its name. Upon the
exchange of the Global Notes for Notes in definitive form, the Global Notes
will be canceled by the Trustee.
DESCRIPTION OF INTERESTS
The LLC Agreement provides for two authorized classes of Interests, the
Class A Interests and the Class B Interests. The Company has not issued any
Class A Interests and the Members hold 100% of the Class B Interests.
The following summary description of the Interests does not purport to be
complete. The rights of the holders of the Interests are set forth in the LLC
Agreement, the form of which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The summary set forth below is
qualified by reference to such exhibit and to the applicable provisions of the
Delaware Limited Liability Company Act (the 'Delaware Act').
INTERESTS
The relative rights of the Class A Interests and the Class B Interests are
substantially identical in all respects, except for voting rights, rights to
designate Representatives and conversion rights.
Voting Rights. The Class B Interests have the approval rights set forth
below, and the Class A Interests have no voting, approval or consent rights,
including with respect to the decision to effect the Reconstitution or the
Initial Public Offering; provided, that at all times the approval of the holders
of a majority (in participation percentages) of the Class A Interests, voting as
a separate class, is required for any amendment to the LLC Agreement that would
have an adverse effect on the rights of such class.
Without the unanimous vote of the holders of Class B Interests, voting as a
separate class, (A) the LLC Agreement and any exhibit thereto (including the
Certificate of Incorporation of the Company and the Stockholders Agreement) may
not be amended, (B) the Company may not dispose of assets having a fair market
value of $100 million or more, (C) the Company may not acquire assets having an
aggregate purchase price of $100 million or more, and (D) the Company may not
issue any additional Interests. Under the LLC Agreement, the Company may not (i)
engage in the business of providing, offering, promoting or branding any
Residential Services or (ii) engage in the production, packaging, distribution,
marketing, hosting, offering, promoting or branding or other provision
(excluding mere transport) of Content Services, in each case without the
unanimous vote of the holders of Class B Interests. The decision to effect the
Reconstitution, and the terms of the related Initial Public Offering, shall
require the approval of 100% of the Members who continue to have the right to
designate Representatives as of the time of such approval, and shall not require
the approval of any other holder of an Interest.
Distributions. The holders of Interests are entitled to receive
distributions from funds legally available therefor if, as and when declared by
the Management Committee, in respect of each Interest in proportion to the
participation percentage of such Interest.
Conversion. Under the LLC Agreement, each Class B Interest is convertible
(in whole or in part) at any time following the Restricted Period at the option
of the holder thereof into a Class A Interest having the same participation
percentage. The Class A Interests have no conversion rights.
Other. Holders of Interests have no preemptive or other rights to subscribe
for additional Interests.
DISCLAIMER OF CERTAIN DUTIES
The LLC Agreement provides that the Members and their affiliates and the
Representatives (collectively, 'Covered Persons') will have no liability,
including under any legal or equitable theory of fiduciary duty or other theory
of liability, to the Company or to any other Covered Person, for any losses,
claims, damages or liabilities incurred by reason of any act or omission
performed or omitted by such Covered Person in good faith on behalf of the
Company.
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The LLC Agreement provides that to the fullest extent permitted by
applicable law (including Section 18-1101(c) of the Delaware Act), no holder of
an Interest (including the Members) will have any fiduciary or similar duty, at
law or in equity, or any liability relating thereto, to the Company or any other
holder, with respect to or in connection with the Company or the Company's
business or affairs, and that the doctrine of corporate opportunity, and any
other analogous doctrine, will not apply with respect to the Company. The LLC
Agreement provides that to the extent the doctrine of corporate opportunity, or
any other analogous doctrine, is applicable to the Company under applicable law,
the provisions described below under 'Description of Capital Stock -- Corporate
Opportunities' will be applicable thereto.
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DESCRIPTION OF CAPITAL STOCK
Following the Reconstitution, the Company's Certificate of Incorporation
will provide for authorized capital stock consisting of Class A Common Stock and
Class B Common Stock and preferred stock (the 'Preferred Stock'). The following
summary description relating to the capital stock of the Company does not
purport to be complete. The rights of the holders of the Company's capital stock
will be set forth in the Company's Certificate of Incorporation, as well as the
Stockholders Agreement, the forms of both of which are filed as exhibits to the
LLC Agreement which is filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The summary set forth below is qualified
by reference to such exhibits and to the applicable provisions of the Delaware
General Corporation Law (the 'DGCL').
COMMON STOCK
The relative rights of the Class A Common Stock and Class B Common Stock
will be substantially identical in all respects, except for voting rights and
conversion rights.
Voting Rights. Each share of Class A Common Stock will entitle the holder
to one vote and each share of Class B Common Stock will entitle the holder to 10
votes on each matter to be voted upon by the holders of the Common Stock. The
holders of the shares of Class A Common Stock and Class B Common Stock will vote
as one class on all matters to be voted on by stockholders, including, without
limitation, the election of directors and any proposed amendment to the
Certificate of Incorporation of the Company that would increase the authorized
number of shares of Common Stock or any class thereof or any other class or
series of stock or decrease the number of authorized shares of any class or
series of stock (but not below the number thereof then outstanding), except as
required by the DGCL and except that, (i) without a unanimous vote of the
holders of the Class B Common Stock, voting as a separate class, (A) the
Certificate of Incorporation may not be amended, altered or repealed and (B) the
Company may not merge or consolidate with, or sell all or substantially all of
its assets to, any person, in each case, until such time as the outstanding
shares of Class B Common Stock represent less than 50% of the voting power of
the outstanding Common Stock and (ii) without a majority vote of the holders of
the Class A Common Stock, certain provisions of the Restated Certificate of
Incorporation relating to the termination of, and vote required to waive, the
limitations on business purposes described in the next sentence may not be
amended, altered or repealed. Under the Restated Certificate of Incorporation,
the Company will not be permitted to (i) engage in the business of providing,
offering, promoting or branding any Residential Services or (ii) engage in the
production, packaging, distribution, marketing, hosting, offering, promoting or
branding or other provision (excluding mere transport) of Content Services, in
each case until the earlier of (x) the date that is five years after the date of
the filing of the Certificate of Incorporation and (y) the date on which the
holders of Class B Common Stock no longer represent at least 50% of the voting
power of the outstanding Common Stock of the Company.
Neither the holders of Class A Common Stock nor the holders of Class B
Common Stock will have cumulative voting rights. For a discussion of the effects
of the disproportionate voting rights of the Class A Common Stock and Class B
Common Stock, see 'Risk Factors -- Control by Principal Stockholders; Conflicts
of Interest; Possible Competition.'
Dividends. Each share of Common Stock is entitled to receive dividends from
funds legally available therefor if, as and when declared by the Board of
Directors of the Company. Class A Common Stock and Class B Common Stock share
equally, on a share-for-share basis, in any dividends declared by the Board of
Directors.
Conversion. Under the Certificate of Incorporation, each share of Class B
Common Stock will be convertible at any time and from time to time at the option
of the holder thereof into one share of Class A Common Stock. The Class A Common
Stock will have no conversion rights.
Other. Stockholders of the Company will have no preemptive or other rights
to subscribe for additional shares. All holders of Common Stock, regardless of
class, will be entitled to share equally on a share-for-share basis in any
assets available for distribution to stockholders on liquidation, dissolution or
winding up of the Company.
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CORPORATE OPPORTUNITIES
The Certificate of Incorporation will provide that the Existing
Stockholders are not restricted from engaging directly or indirectly in the same
or similar business activities or lines of business as the Company. In the event
that any of the Existing Stockholders acquires knowledge of a potential
transaction or matter that may be a corporate opportunity for any of the
Existing Stockholders and the Company, such corporate opportunity shall be
allocated to the Existing Stockholder if offered to any person who is an
officer, employee or director of the Existing Stockholder and/or the Company,
unless such opportunity is expressly offered to such person primarily in his or
her capacity as an officer, employee or director of the Company. Other than in
accordance herewith, the Existing Stockholders shall have no duty to communicate
or present such corporate opportunity to the Company.
PREFERRED STOCK
The Company's Board of Directors will be authorized to provide for the
issuance of Preferred Stock in one or more series and to fix the designation,
preferences, powers and relative, participating, optional and other rights,
qualifications, limitations and restrictions thereof, including the dividend
rate, conversion rights, voting rights, redemption price and liquidation
preference and to fix the number of shares to be included in any such series.
Any Preferred Stock so issued may rank senior to the Common Stock with respect
to the payment of dividends or amounts upon liquidation, dissolution or winding
up, or both. In addition, any such shares of Preferred Stock may have class or
series voting rights.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Certificate of Incorporation of the Company will expressly state
that the Company has elected not to be governed by Section 203 of the DGCL
which prohibits a publicly held Delaware corporation from engaging in a
'business combination' (as defined in Section 203(c)(3) of the DGCL) with an
'interested stockholder' (as defined in Section 203(c)(5) of the DGCL) for a
period of three years after the date of the transaction in which such
stockholder became an interested stockholder.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Certificate of Incorporation will limit the liability of Directors
to the fullest extent permitted by the Delaware General Corporation Law.
In addition, the Restated Certificate of Incorporation will provide that
the Company shall indemnify Directors and officers of the Company to the fullest
extent permitted by such law. The Company anticipates entering into separate
indemnification agreements with its current Directors and executive officers
prior to the completion of an Initial Public Offering which will have the effect
of providing such persons indemnification protection in the event the
Certificate of Incorporation is subsequently amended.
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CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS OF NOTES
CERTAIN UNITED STATES TAX CONSEQUENCES TO FOREIGN HOLDERS
The following summary describes certain United States Federal income and
estate tax consequences of the ownership of Notes as of the date hereof. It
deals only with Notes held as capital assets by Non-United States Holders. As
used herein, the term 'Non-United States Holder' means any person or entity that
is, as to the United States, a foreign corporation, a nonresident alien
individual, a nonresident fiduciary of a foreign estate or trust or a foreign
partnership one or more of the members of which is, as to the United States, a
foreign corporation, a nonresident alien individual or a nonresident fiduciary
of a foreign estate or trust.
THE DISCUSSION SET FORTH BELOW IS BASED UPON THE PROVISIONS OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE 'CODE'), AND REGULATIONS, RULINGS AND
JUDICIAL DECISIONS THEREUNDER AS OF THE DATE HEREOF, AND SUCH AUTHORITIES MAY BE
REPEALED, REVOKED OR MODIFIED SO AS TO RESULT IN FEDERAL INCOME TAX CONSEQUENCES
DIFFERENT FROM THOSE DISCUSSED BELOW. FURTHERMORE, THIS SUMMARY DOES NOT DISCUSS
ANY ASPECT OF STATE, LOCAL OR FOREIGN TAXATION. PERSONS CONSIDERING THE
PURCHASE, OWNERSHIP OR DISPOSITION OF NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR
PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY
OTHER TAXING JURISDICTION.
NON-UNITED STATES HOLDERS
Under present United States Federal and estate tax law, and subject to the
discussion below concerning backup withholding:
(a) no withholding of United States Federal income tax will be
required with respect to the payment by the Obligors or any paying agent of
principal or interest on a Note owned by a Non-United States Holder,
provided (i) that the beneficial owner does not actually or constructively
own either 10% or more of the capital or profits interest in a partnership
issuer or 10% or more of the total combined voting power of all classes
of stock of a corporate issuer entitled to vote within the meaning of
section 871(h)(3) of the Code and the regulations thereunder, (ii) the
beneficial owner is not a controlled foreign corporation that is related
to the Obligors through stock ownership, (iii) the beneficial owner is not
a bank whose receipt of interest on a Note is described in section
881(c)(3)(A) of the Code and (iv) the beneficial owner satisfies the
statement requirement (described generally below) set forth in section
871(h) and section 881(c) of the Code and the regulations thereunder; and
(b) no withholding of United States Federal income tax will be
required with respect to any gain or income realized by a Non-United States
Holder upon the sale, exchange, retirement or other disposition of a Note;
and
(c) a Note beneficially owned by an individual who at the time of
death is a Non-United States Holder will not be subject to United States
Federal estate tax as a result of such individual's death, provided that
such individual does not actually or constructively own either 10% or more
of the capital or profits interest in a partnership issuer or 10% or more
of the total combined voting power of all classes of stock of a corporate
issuer entitled to vote within the meaning of section 871(h)(3) of the
Code and provided that the interest payments with respect to such Note
would not have been, if received at the time of such individual's death,
effectively connected with the conduct of a United States trade or
business by such individual.
To satisfy the requirement referred to in (a)(iv) above, the beneficial
owner of such Note, or a financial institution holding the Note on behalf of
such owner, must provide, in accordance with specified procedures, a paying
agent of the Obligors with a statement to the effect that the beneficial owner
is not a United States person. Currently, these requirements will be met if (1)
the beneficial owner provides his name and address, and certifies, under
penalties of perjury, that he is not a United States person (which certification
may be made on an Internal Revenue Service ('IRS') Form W-8 (or successor form))
or (2) a financial institution holding the Note on behalf of the beneficial
owner certifies, under penalties of perjury, that such statement has been
received by it and furnishes a paying agent with a copy thereof. Under recently
finalized Treasury regulations (the 'Final Regulations'), the statement
requirement referred to in (a)(iv) above may also be satisfied with other
documentary evidence for interest paid after December 31, 1999 with respect
to an offshore account or through certain foreign intermediaries.
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If a Non-United States Holder cannot satisfy the requirements of the
'portfolio interest' exception described in (a)(iv) above, payments of interest
made to such Non-United States Holder will be subject to a 30% withholding tax
(or such lower rate as may be provided by an applicable income tax treaty
between the United States and a foreign country) unless the beneficial owner of
the Note provides the Obligors or their paying agent, as the case may be, with a
properly executed (1) IRS Form 1001 (or successor form) claiming an exemption
from withholding under the benefit of a tax treaty or (2) IRS Form 4224 (or
successor form) stating that interest paid on the Note is not subject to
withholding tax because it is effectively connected with the beneficial owner's
conduct of a trade or business in the United States. Under the Final
Regulations, Non-United States Holders will generally be required to provide IRS
Form W-8 in lieu of the IRS Form 1001 and IRS Form 4224, although alternative
documentation may be applicable in certain situations.
If a Non-United States Holder is engaged in a trade or business in the
United States and interest on the Note is effectively connected with the conduct
of such trade or business, the Non-United States Holder, although exempt from
the withholding tax discussed above (provided the Non-United States Holder files
the appropriate certification with the Obligors or their agent), will be subject
to United States Federal income tax on such interest on a net income basis in
the same manner as if it were a United States person. In addition, if such
holder is a foreign corporation, it may be subject to a branch profits tax equal
to 30% of its effectively connected earnings and profits for the taxable year,
subject to adjustments. For this purpose, such premium, if any, and interest
on a Note will be included in such foreign corporation's earnings and profits.
Any gain or income realized upon the sale, exchange, retirement or other
disposition of a Note generally will not be subject to United States Federal
income tax unless (i) such gain or income is effectively connected with trade or
business in the United States of the Non-United States Holder, or (ii) in the
case of a Non-United States Holder who is an individual, such individual is
present in the United States for 183 days or more in the taxable year of such
sale, exchange, retirement or other disposition, and certain other conditions
are met.
INFORMATION REPORTING AND BACKUP WITHHOLDING
No information reporting or backup withholding tax (which is a withholding
tax imposed at the rate of 31% on certain payments to persons who fail to
furnish the information required under the United States information reporting
requirements) will be required with respect to payments made by the Obligors or
any paying agent to Non-United States Holders if a statement described in
(a)(iv) under 'Non-United States Holders' has been received and the payor does
not have actual knowledge that the beneficial owner is a United States person.
In addition, backup withholding and information reporting generally will
not apply if payments of the principal or interest on a Note are paid or
collected by a foreign office of a custodian, nominee or other foreign agent on
behalf of the beneficial owner of such Note, or if a foreign office of a broker
(as defined in applicable Treasury regulations) pays the proceeds of the sale of
a Note to the owner thereof. If, however, such nominee, custodian, agent or
broker is, for United States Federal income tax purposes, a United States
person, a controlled foreign corporation or a foreign person that derives 50% or
more of its gross income for certain periods from the conduct of a trade or
business in the United States, or, for taxable years beginning after December
31, 1999, a foreign partnership, in which one or more United States persons, in
the aggregate, own more than 50% of the income or capital interests in the
partnership or which is engaged in a trade or business in the United States,
such payments will not be subject to backup withholding but will be subject to
information reporting, unless (1) such custodian, nominee, agent or broker has
documentary evidence in its records that the beneficial owner is not a United
States person and certain other conditions are met or (2) the beneficial owner
otherwise establishes an exemption.
Payments of principal or interest, on a Note paid to the beneficial owner
of a Note by a United States office of a custodian, nominee or agent, or the
payment by the United States office of a broker of the proceeds of sale of a
Note will be subject to both backup withholding and information reporting unless
the beneficial owner provides the statement referred to in (a)(iv) above and the
payor does not have actual knowledge that the beneficial owner is a United
States person or otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such holder's United States Federal income tax
liability provided the required information is furnished to the IRS.
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UNDERWRITERS
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof (the 'Underwriting Agreement'), the Underwriters
named below have severally agreed to purchase, and the Obligors have agreed to
sell to them, severally, the respective principal amount of Notes set forth
opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
PRINCIPAL
NAME AMOUNT
- --------------------------------------------------------------------------- ----------------
<S> <C>
Morgan Stanley & Co. Incorporated.......................................... $
Lehman Brothers Inc. ......................................................
----------------
Total............................................................ $400,000,000
----------------
----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Notes offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all the
Notes offered hereby if any are taken.
The Underwriters propose to offer part of the Notes directly to the public
at the Price to Public set forth on the cover page hereof and part to certain
dealers at a price which represents a concession not in excess of % of the
principal amount of the Notes. Each Underwriter may allow, and such dealers may
reallow, a concession to certain other dealers not in excess of % of the
principal amount of the Notes. After the initial offering of the Notes, the
offering price and other selling terms may from time to time be varied by the
Underwriters.
The Company does not intend to apply for listing of the Notes on any
national securities exchange, but has been advised by the Underwriters that they
currently intend to make a market in the Notes, as permitted by applicable laws
and regulations. The Underwriters are not obligated, however, to make a market
in the Notes and any such market making may be discontinued at any time without
notice, at their sole discretion. Accordingly, no assurance can be given as to
the liquidity of, or the existence of trading markets for, the Notes.
In order to facilitate the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Underwriters may over-allot in connection with the
Offering, creating a short position in the Notes for their own account. In
addition, to cover over-allotments or to stabilize the price of the Notes, the
Underwriters may bid for, and purchase, Notes in the open market. Finally, the
underwriting syndicate may reclaim selling concessions allowed to an Underwriter
or a dealer for distributing the Notes in the Offering, if the syndicate
repurchases previously distributed Notes in transactions to cover syndicate
short positions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Notes above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
The Obligors and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
From time to time, Morgan Stanley & Co. Incorporated and Lehman Brothers
Inc. provide certain financial advisory services to the Company and the
Members for which they have received customary fees and commissions.
LEGAL MATTERS
The legality of the Notes offered hereby and certain other legal matters
will be passed upon for the Company by Cravath, Swaine & Moore, New York, New
York and for the Underwriters by Shearman & Sterling, New York, New York.
EXPERTS
The combined financial statements of Time Warner Telecom LLC and its
subsidiaries as of December 31, 1997 and 1996 and for each of the three years in
the period ended December 31, 1997 included in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports appearing elsewhere herein, and are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
97
<PAGE>
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement on Form S-1
under the Securities Act with respect to the Notes being offered in the
Offering. For the purposes hereof, the term 'Registration Statement' means the
original Registration Statement and any and all amendments thereto, including
the schedules and exhibits to such original Registration Statement or any such
amendment. This Prospectus does not contain all of the information set forth in
the Registration Statement, to which reference hereby is made. Each statement
made in this Prospectus concerning a document filed as an exhibit to the
Registration Statement is qualified in its entirety by reference to such exhibit
for a complete statement of its provisions.
Upon effectiveness of the Registration Statement of which this Prospectus
forms a part, the Obligors will be subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the 'Exchange Act') and in
accordance therewith will file periodic reports, and other information relating
to its business, financial statements and other matters. Any interested party
may inspect the Registration Statement, the reports, proxy statements and other
information without charge, at the public reference facilities of the SEC at its
principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at its regional offices in Chicago (Citicorp Center,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60601), and in New York
(Seven World Trade Center, 13th Floor, New York, New York 10048) or through the
World Wide Web (http://www.sec.gov.). Any interested party may obtain copies of
all or any portion of the Registration Statement, the reports, proxy statements
and other information at prescribed rates from the Public Reference Section of
the SEC at its principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549.
The Obligors intend to distribute to all holders of the Notes offered
hereby annual reports containing audited consolidated financial statements and a
report thereon by their independent certified public accountants and quarterly
reports containing unaudited consolidated financial information for each of the
first three quarters of each fiscal year.
98
<PAGE>
<PAGE>
GLOSSARY
Access Charges. The fees paid by long distance carriers for the local
connections between the long distance carriers' networks and the long distance
carriers' customers.
ATM (asynchronous transfer mode). A recently commercialized switching and
transmission technology that is one of a general class of packet technologies
that relay traffic by way of an address contained within the first five bits of
a standard fifty-three bit-long packet or cell. ATM-based packet transport was
specifically developed to allow switching and transmission of mixed voice, date
and video at varying rates. The ATM format can be used by many different
information systems, including LANs.
BOC (Bell Operating Company). A telephone operating subsidiary of an RBOC;
an incumbent local exchange carrier.
Broadcast Video TV-1. This Company service provides dedicated transport of
broadcast quality video signals.
CAP (Competitive Access Provider). A company that provides dedicated
telecommunications services (private line, local transport and special access)
as an alternative to the ILEC.
CDMA (Code Division Multiple Access). A form of wireless communications
technology.
Central Offices. A telecommunications center where switches and other
telecommunications facilities are housed. CAPs may connect with ILEC networks
either at this location or through a remote location.
Collocation. The ability of a telecommunications carrier to interconnect
its network to the ILEC's network by extending its facilities to the ILEC's
central office. Physical collocation occurs when the interconnecting carrier
places its network equipment within the ILEC's central offices. Virtual
collocation is an alternative to physical collocation under which the ILEC
permits a carrier to interconnect its network to the ILEC's network in a manner
which is technically, operationally and economically comparable to physical
collocation, even though the interconnecting carrier's network connection
equipment is not physically located within the central offices.
CLEC (Competitive Local Exchange Carrier). A company that provides local
exchange services, including Dedicated service, in competition with the ILEC.
Dedicated. Telecommunications lines dedicated to, or reserved for use by, a
particular customer along predetermined routes (in contrast to links which are
temporarily established).
Dedicated Transmission. The sending of electronic signals carrying
information over a Direct Transport facility.
DID. The ability of an outside caller to call an internal extension without
having to pass through an operator. In large PBX systems, the dialed numbers are
passed through from the Central Office.
Digital. A means of storing, processing and transmitting information by
using distinct electronic or optical pulses that represent the binary digits 0
and 1. Digital transmission and switching technologies use a sequence of these
pulses to represent information as opposed to the continuously variable analog
signal. The precise digital numbers preclude and distortion (such as graininess
or snow in the case of video transmission, or static or other background
distortion in the case of audio transmission).
Direct Transport (aka Dedicated Transport). A non-switched point-to-point
telecommunications facility leased from a telecommunications provider by an end
user and used exclusively by that end user.
Diverse Routing. A telecommunications network configuration in which
signals are transmitted simultaneously along two different paths so that if one
path is cut or impaired, traffic can continue in the other direction without
interrupting service. The Company's networks generally provide diverse routing.
DOD. The ability to dial directly out from an internal extension without
having to go through an operator.
DS0, DS1, DS3. Standard North American telecommunications industry digital
signal formats, which are distinguishable by bit rate (the number of binary
digits (0 and 1) transmitted per second). DS0 service has a bit rate of 64
kilobits per second. DS1 service has a bit rate of 1.544 megabits per second and
DS3 service as a bit rate of 44.736 megabits per second. A DS0 can transmit a
single uncompressed voice conversation.
FCC. Federal Communications Commission.
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<PAGE>
FDMA (Frequency Division Multiple Access). A form of wireless
communications technology.
Fiber Miles. The number of route miles of fiber optic cable installed
(excluding pending installations) along a telecommunications path multiplied by
the number of fibers in the cable. See the definition of 'route mile' below.
Fiber Optics. Fiber optic technology involves sending laser light pulses
across glass strands in order to transmit digital information. Fiber optic cable
is the medium of choice for the telecommunications and cable industries. Fiber
is immune to electrical interference and environmental factors that effect
copper wiring and satellite transmission.
Hub. Collocation centers located centrally in an area where
telecommunications traffic can be aggregated for transport and distribution.
Hybrid Fiber Coaxial (HFC). A new technology consisting of fiber optic
distribution facilities and coaxial cable deployed to the home or business. This
technology enables the operator to offer a wide variety of two-way broadband
services, including telecommunications and entertainment.
Interconnection Decisions. Rulings by the FCC announced in September 1992
and August 1993, which require the BOCs and other large ILECs to provide
interconnection in ILEC central offices to any CAP, long distance carrier or end
user requesting such interconnection to provide interstate special access or
switched transport services.
ILECs (Incumbent Local Exchange Carriers). The local phone companies,
either a BOC or an independent (such as GTE) which provides local exchange
services.
Internet. The name used to describe the global open network of computers
that permits a person with access to the Internet to exchange information with
any other computer connected to the network.
ISDN (Integrated Services Digital Network). ISDN is an internationally
agreed standard which, through special equipment, allows two-way, simultaneous
voice and data transmission in digital formats over the same transmission line.
ISDN permits video conferencing over a single line, for example, and also
supports a multitude of value-added switched service applications such as
Incoming Calling Line Identification. ISDN's combined voice and data networking
capabilities reduce costs for end users and result in more efficient use of
available facilities. ISDN combines standards for highly flexible customer to
network signaling with both voice and data within a common facility.
IXC (Interexchange Carrier). A long distance carrier.
Kbps (Kilobits). One thousand bits of information. The information-carrying
capacity (i.e., bandwidth) of a circuit may be measured in 'thousands of bits
per second.'
LANs (Local Area Networks). The interconnection of computers for the
purpose of sharing files, programs and peripheral devices such as printers and
high-speed modems. LANs may include dedicated computers or file servers that
provide a centralized source of shared files and programs. LANs are generally
confined to a single customer's premises and may be extended or interconnected
to other locations through the use of bridges and routers.
LATAS (Local Access and Transport Area). The geographical areas within
which a local telephone company may offer telecommunications services, as
defined in the divestiture order known as the Modified Final Judgment ('MFP')
unless and until refined by the FCC pursuant to the Telecommunications Act of
1996.
Local Exchange. A geographic area defined by the appropriate state
regulatory authority in which telephone calls generally are transmitted without
toll charges to the calling or called party.
Local Exchange Service/Local Exchange Telephone Service. Basic local
telephone service, including the provision of telephone numbers, dial tone and
calling within the local exchange area.
Long Distance Carriers (Interexchange Carriers or IXC). Long distance
carriers providing services between LATAs, on an interstate or intrastate basis.
A long distance carrier may be facilities-based or offer service by reselling
the services of a facilities-based carrier.
Local Transport Services. Dedicated lines between the ILEC's central
offices and long distance carrier POPs used to carry switched traffic.
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<PAGE>
Mbps (Megabit). One million bits of information. The information carrying
capacity (i.e., bandwidth) of a circuit may be measured in 'millions of bits per
second.'
Multiplexing. An electronic or optical process that combines a number of
lower speed transmission signals into one higher speed signal. There are various
techniques for multiplexing, including frequency division (splitting the total
available frequency bandwidth into smaller frequency slices), time division
(slicing a channel into timeslots and placing each signal into its assigned
timeslot), and statistical (wherein multiplexed signals share the same channel
and each transmits only when it has data to send).
Node. A point of connection into a fiber optic network.
PBX (Private Branch Exchange). A customer owned and operated switch on
customer premises, typically used by large businesses with multiple telephone
lines.
PBX Trunk. A transmission facility which connects a PBX to the Company's or
ILEC's central office switching center.
POPs (Points of Presence). Locations where a long distance carrier has
installed transmission equipment in a service area that serves as, or relays
telephone calls to, a network switching center of the same long distance
carrier.
Private Line. A private, dedicated telecommunications link between
different customer locations (excluding long distance carrier POPs).
Private Network Transport Service. This service is a private, dedicated
high capacity premium quality service over fully redundant, diverse routed,
SONET rings with band width that is dedicated and always available.
Public Switched Network. The switched network available to all users
generally on a shared basis (i.e., not dedicated to a particular user). The
local exchange telephone service networks operated by ILECs are the largest and
often the only public switched networks in a given locality.
PUC (Public Utility Commission). A state regulatory body, established in
most states, which regulates utilities, including telecommunications companies
providing intrastate services. In some states this regulatory body may have a
different name, such as public service commission ('PSC').
RBOC (Regional Bell Operating Company). The holding company which owns a
BOC.
Reciprocal Compensation. An arrangement in which two local exchange
carriers agree to terminate traffic originating on each other's networks in
exchange for a negotiated level of compensation.
Redundant Electronics. A telecommunications facility that uses two separate
electronic devices to transmit a telecommunications signal so that if one device
malfunctions, the signal may continue without interruption.
Route Mile. The number of miles along which fiber optic cables are
installed.
SONET (Synchronous Optical Network). A set of standards for optical
communications transmission systems that define the optical rates and formats,
signal characteristics, performance, management and maintenance information to
be embedded within the signals and the multiplexing techniques to be employed in
optical communications transmission systems. SONET facilitates the
interoperability of dissimilar vendors equipment. SONET benefits business
customers by minimizing the equipment necessary for various telecommunications
applications and supports networking diagnostic and maintenance features.
Special Access Services. The lease of private, dedicated telecommunications
lines or circuits on an ILEC's or a CAP's network which run to or from the long
distance carrier's POPs. Special access services do not require the use of
switches. Examples of special access services are telecommunications circuits
running between POPs of a single long distance carrier, from one long distance
carrier's POP to another long distance carrier's POP or from an end user to its
long distance carrier's POP.
STS-1. This dedicated transmission service is carried over high capacity
channels for full duplex, synchronous optical transmission of digital data on
SONET standards. This service eliminates the need to maintain and pay for
multiple dedicated lines.
Switch. A mechanical or electronic device that opens or closes circuits or
selects the paths or circuits to be used for the transmission of information.
Switching is a process of linking different circuits to create a
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temporary transmission path between users. Within this document, switches
generally refer to voice grade telecommunications switches unless specifically
stated otherwise.
Switched Access Services. The connection between a long distance carrier's
POP and an end user's premises through the switching facilities of a local
exchange carrier.
Switched Services. Telecommunications services that support the connection
of one calling party with another calling party via use of a telephone switch
(i.e., an electronic device that opens or closes circuits, completes or breaks
an electrical path, or selects paths or circuits).
TDMA (Time Division Multiple Access). A form of wireless communications
technology.
Toll Services. Otherwise known as EAS or intra LATA toll services are those
calls that are beyond the free local calling area but originate and terminate
within the same LATA; such calls are usually priced on a measured basis.
Voice Grade Equivalent ('VGE') Circuit. One DS0. One voice grade equivalent
circuit is equal to 64 kilobits of bandwidth.
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TIME WARNER TELECOM LLC
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Financial Statements:
Report of Independent Auditors........................................................................ F-2
Combined Balance Sheet at December 31, 1997 and 1996.................................................. F-3
Combined Statement of Operations for the years ended December 31, 1997, 1996
and 1995............................................................................................ F-4
Combined Statement of Cash Flows for the years ended December 31, 1997, 1996
and 1995............................................................................................ F-5
Combined Statement of Changes in Members' Equity for the years ended
December 31, 1997, 1996 and 1995.................................................................... F-6
Notes to Combined Financial Statements................................................................ F-7
Unaudited Financial Statements:
Combined Balance Sheet at March 31, 1998 and December 31, 1997........................................ F-14
Combined Statement of Operations for the three months ended March 31, 1998 and 1997................... F-15
Combined Statement of Cash Flows for the three months ended March 31, 1998 and 1997................... F-16
Combined Statement of Changes in Members' Equity for the three months ended
March 31, 1998...................................................................................... F-17
Notes to Combined Financial Statements................................................................ F-18
</TABLE>
Note: Financial statements of Time Warner Telecom Inc. (organized in January
1998) have not been presented as this company has no significant assets,
liabilities (including contingent liabilities) or commitments, and has no
operating activities.
F-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To TIME WARNER TELECOM LLC
We have audited the accompanying combined balance sheet of Time Warner
Telecom LLC (the 'Company') as of December 31, 1997 and 1996, and the related
combined statements of operations, cash flows and members' equity for each of
the three years in the period ended December 31, 1997. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Company
at December 31, 1997 and 1996, and the combined results of its operations and
its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
March 13, 1998,
except for Notes 1, 4, 5, 6 and 8, as to
which the date is June 22, 1998
The foregoing report is in the form that will be signed upon the
reorganization of the Company as discussed in Note 4 to the combined financial
statements.
ERNST & YOUNG LLP
New York, New York
June 22, 1998
F-2
<PAGE>
<PAGE>
TIME WARNER TELECOM LLC
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
(THOUSANDS)
<S> <C> <C>
ASSETS
Current assets
Receivables, less allowances of $776 and $193........................................ $ 8,882 $ 4,863
Prepaid expenses..................................................................... 1,192 1,115
-------- --------
Total current assets............................................................ 10,074 5,978
Investments in unconsolidated affiliates............................................. 4,376 10,239
Property, plant and equipment........................................................ 484,206 352,708
Less: accumulated depreciation....................................................... (69,048) (29,547)
-------- --------
415,158 323,161
Intangible assets, net............................................................... 8,469 2,102
-------- --------
Total assets.................................................................... $438,077 $341,480
-------- --------
-------- --------
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Accounts payable..................................................................... $ 32,908 $ 27,622
Other current liabilities............................................................ 29,304 17,793
-------- --------
Total current liabilities....................................................... 62,212 45,415
Subordinated loans payable to the Parent Companies (including $1,544 of accrued
interest)........................................................................... 75,475 --
Other liabilities.................................................................... -- 1,128
Members' equity
Class A Interests having an aggregate participation percentage of 0%................. -- --
Class B Interests having an aggregate participation percentage of 100%............... 555,807 479,698
Accumulated deficit.................................................................. (255,417) (184,761)
-------- --------
Total members' equity........................................................... 300,390 294,937
-------- --------
Total liabilities and members' equity........................................... $438,077 $341,480
-------- --------
-------- --------
</TABLE>
See accompanying notes.
F-3
<PAGE>
<PAGE>
TIME WARNER TELECOM LLC
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Dedicated transport services............................................. $ 44,529 $ 20,362 $ 6,505
Switched services........................................................ 10,872 3,555 350
-------- -------- --------
Total revenues...................................................... 55,401 23,917 6,855
-------- -------- --------
Costs and expenses:
Operating(a)............................................................. 40,349 25,715 15,106
Selling, general and administrative(a)................................... 54,640 60,366 34,222
Depreciation and amortization(a)......................................... 38,466 22,353 7,216
-------- -------- --------
Total costs and expenses............................................ 133,455 108,434 56,544
-------- -------- --------
Operating loss................................................................ (78,054) (84,517) (49,689)
Gain on disposition of investments (Note 3)................................... 11,018 -- --
Equity in losses of unconsolidated affiliates................................. (2,082) (1,547) (1,391)
Interest expense, net(a)...................................................... (1,538) (52) (25)
-------- -------- --------
Net loss...................................................................... $(70,656) $(86,116) $(51,105)
-------- -------- --------
-------- -------- --------
(a) Includes expenses resulting from transactions with affiliates (Note 8):
Operating.............................................................. $ 1,731 $ 1,303 $ 648
-------- -------- --------
-------- -------- --------
Selling, general and administrative.................................... $ 4,967 $ 4,759 $ 3,789
-------- -------- --------
-------- -------- --------
Depreciation and amortization.......................................... $ 7,064 $ 4,961 $ 2,070
-------- -------- --------
-------- -------- --------
Interest expense, net.................................................. $ 1,544 $ -- $ --
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes.
F-4
<PAGE>
<PAGE>
TIME WARNER TELECOM LLC
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
(THOUSANDS)
<S> <C> <C> <C>
OPERATIONS
Net loss................................................................... $ (70,656) $ (86,116) $ (51,105)
Adjustments for noncash and nonoperating items:
Gain on disposition of investments......................................... (11,018) -- --
Depreciation and amortization.............................................. 38,466 22,353 7,216
Equity in loss of unconsolidated affiliates................................ 2,082 1,547 1,391
Changes in operating assets and liabilities:
Accounts receivable and other current assets.......................... (4,124) (2,334) (936)
Accounts payable and other current liabilities........................ 18,374 10,424 7,277
Other balance sheet changes........................................... (2,543) 1,852 552
--------- --------- ---------
Cash used in operations.................................................... (29,419) (52,274) (35,605)
--------- --------- ---------
INVESTING ACTIVITIES
Capital expenditures....................................................... (127,315) (144,815) (141,479)
Investments and acquisitions............................................... (334) (4,375) (3,814)
Proceeds from sale of investment........................................... 7,028 -- --
--------- --------- ---------
Cash used in investing activities.......................................... (120,621) (149,190) (145,293)
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from loans from the Parent Companies.............................. 73,931 -- --
Capital contributions from the Parent Companies............................ 127,550 222,584 185,989
Distributions to the Parent Companies...................................... (51,441) (21,120) (5,091)
--------- --------- ---------
Cash provided by financing activities...................................... 150,040 201,464 180,898
--------- --------- ---------
INCREASE IN CASH AND EQUIVALENTS........................................... -- -- --
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD................................ -- -- --
--------- --------- ---------
CASH AND EQUIVALENTS AT END OF PERIOD...................................... $ -- $ -- $ --
--------- --------- ---------
--------- --------- ---------
Supplemental disclosures of cash flow information:
Interest paid.............................................................. $ -- $ 55 $ 25
--------- --------- ---------
--------- --------- ---------
Noncash financing activities............................................... $ -- $ -- $ 16,047
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
F-5
<PAGE>
<PAGE>
TIME WARNER TELECOM LLC
COMBINED STATEMENT OF CHANGES IN MEMBERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
CLASS B ACCUMULATED MEMBERS'
INTERESTS DEFICIT EQUITY
-------- ----------- --------
(THOUSANDS)
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994............................................... $ 81,289 $ (47,540) $ 33,749
Net loss for 1995.......................................................... -- (51,105) (51,105)
Capital contributions resulting from the A/N and KBLCOM transactions (Note
2)....................................................................... 16,047 -- 16,047
Net capital contributions from the Parent Companies........................ 180,898 -- 180,898
-------- ----------- --------
BALANCE AT DECEMBER 31, 1995............................................... 278,234 (98,645) 179,589
Net loss for 1996.......................................................... -- (86,116) (86,116)
Net capital contributions from the Parent Companies........................ 201,464 -- 201,464
-------- ----------- --------
BALANCE AT DECEMBER 31, 1996............................................... 479,698 (184,761) 294,937
Net loss for 1997.......................................................... -- (70,656) (70,656)
Net capital contributions from the Parent Companies........................ 76,109 -- 76,109
-------- ----------- --------
BALANCE AT DECEMBER 31, 1997............................................... $555,807 $(255,417) $300,390
-------- ----------- --------
-------- ----------- --------
</TABLE>
See accompanying notes.
F-6
<PAGE>
<PAGE>
TIME WARNER TELECOM LLC
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Time Warner Telecom LLC, a Delaware limited liability company (the
'Company'), is a facilities-based competitive local telecommunications services
provider ('CLEC') in selected metropolitan markets across the United States,
offering a wide range of business telephony services, primarily to medium- and
large-sized business customers. The business of the Company was commenced in
1993 by Time Warner Cable ('TW Cable'), a division of Time Warner Entertainment
Company, L.P. ('TWE'), and reflects the combined commercial telecommunication
operations under the ownership or management control of TW Cable. These
operations consist of the commercial telecommunication operations of Time Warner
Inc. and certain of its subsidiaries ('Time Warner') and the Time Warner
Entertainment-Advance/Newhouse Partnership ('TWEAN') that were acquired or
formed in 1995, as well as the pre-existing commercial telecommunication
operations of TWE (collectively, TWE, TWEAN and Time Warner are referred to
herein as the 'Parent Companies').
To date, the majority of the Company's revenues have been derived from the
provision of 'private line' or 'direct access' telecommunications services.
Because the Company has deployed switches in 16 of its 19 markets, management
expects that a growing portion of the Company's revenues will be derived from
providing switched services. The Company's customers are principally
telecommunications-intensive business end-users, IXCs, ISPs, wireless
communications companies and governmental entities. Such customers are offered a
wide range of integrated telecommunications products and services, including
dedicated transmission, local switched, data and video transmission services and
Internet services. In addition, the Company benefits from its strategic
relationship with TW Cable both through access rights and cost-sharing. As a
result, the Company's networks have been constructed primarily through the use
of fiber capacity licensed from TW Cable.
BASIS OF PRESENTATION
The combined financial statements of the Company reflect the 'carved out'
historical financial position, results of operations, cash flows and changes in
members' equity of the commercial telecommunications operations of the Parent
Companies as if they had been operating as a separate company. The combined
statement of operations has been adjusted to retroactively reflect an allocation
of certain expenses pursuant to the final terms of the related agreements,
primarily relating to office rent, overhead charges for various administrative
functions performed by TW Cable and certain facility maintenance and pole rental
costs. These allocations were required to reflect all costs of doing business
and have been based on various methods (Note 8), which management believes
results in reasonable allocations of such costs.
The combined financial statements also include the contribution of the
Advance/Newhouse Partnership's ('A/N') ownership interests in various telephony
partnerships effective as of April 1, 1995 and the San Antonio, Texas telephony
operation of KBLCOM Incorporated ('KBLCOM') acquired by Time Warner effective as
of July 6, 1995.
Effective January 1, 1996, the Company adopted Financial Accounting
Standards Board ('FASB') Statement No. 121 ('FAS 121'), 'Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of',
which established standards for the recognition and measurement of impairment
losses on long-lived assets and certain intangible assets. The adoption of FAS
121 did not have a material effect on the Company's financial condition and
results of operations.
Time Warner and MediaOne Group, Inc. ('MediaOne', a limited partner of TWE)
have various stock option plans under which options to purchase Time Warner or
MediaOne common stock may be granted to employees of the Company. Such options
have been granted to employees of the Company at fair market value at the date
of grant. In accordance with Accounting Principles Board Statement No. 25 ('APB
25'), no compensation cost has been recognized for its stock options. Generally,
the options become exercisable over a three-year vesting period and expire ten
years from the date of grant. The Company has elected to continue to account for
such transactions under APB 25.
During fiscal 1997, the FASB issued Statement No. 130, 'Reporting
Comprehensive Income' ('FAS 130'), and Statement No. 131, 'Disclosures about
Segments of an Enterprise and Related Information' ('FAS 131'). FAS 130
establishes standards for reporting and display of comprehensive income and its
components (revenue, expenses, gains and losses) in a full set of financial
statements. The Company will adopt FAS 130 as
F-7
<PAGE>
<PAGE>
TIME WARNER TELECOM LLC
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
of the first quarter of 1998. FAS 131 requires disclosure of financial and
descriptive information about an entity's reportable operating segments under
the 'management approach' as defined in the Statement. The Company will adopt
FAS 131 as of December 31, 1998. The impact of adoption of these standards on
the Company's financial statements is not expected to be material.
BASIS OF CONSOLIDATION AND ACCOUNTING FOR INVESTMENTS
The combined financial statements include 100% of the assets, liabilities,
revenues, expenses, income, loss and cash flows of the Company and all entities
in which the Company has a controlling voting interest ('subsidiaries'), as if
the Company and its subsidiaries were a single entity. Significant intercompany
accounts and transactions between the combined entities have been eliminated.
Significant accounts and transactions with the Parent Companies are disclosed as
related party transactions.
Investments in entities in which the Company has significant influence, but
less than a controlling voting interest, are accounted for using the equity
method. At December 31, 1997, the Company's investments in unconsolidated
affiliates consisted solely of a 50% investment in Metrocomm AXS, L.P., a joint
venture providing commercial telecommunications services in the central Ohio
area. Under the equity method, only the Company's investment in and amounts due
to and from the equity investee are included in the combined balance sheet, and
only the Company's share of the investee's earnings is included in the combined
operating results. In addition, only the Company's share of the cash
distributions and cash paid to the investee are included in the combined cash
flows.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
footnotes thereto. Actual results could differ from those estimates.
REVENUES
Revenues for dedicated transport services are generally billed on a fixed
rate basis and recognized over the period provided. Revenues for switched
services revenues are generally billed on a transactional basis determined by
customer usage, and are recognized over the period provided.
In addition to depreciation expense, the primary costs of revenues are
charges from local exchange carriers for circuit leases and interconnection
costs, which are both expensed as incurred.
ADVERTISING
Advertising costs are expensed upon the first exhibition of related
advertisements. Advertising expense amounted to $1.0 million, $1.4 million and
$1.1 million for the years ended December 31, 1997, 1996, and 1995,
respectively.
SIGNIFICANT CUSTOMERS
The Company has substantial business relationships with a few large
customers, including the major long distance carriers. For the year ended
December 31, 1997, the Company's top 10 customers accounted for 47.8% of the
Company's consolidated revenues. Two of these customers were interexchange
carriers ('IXC'), which each accounted for more than 10% of the Company's
revenues in 1997 and 1996. Revenues included sales to these two IXC's of
approximately $14.7 million and $5.2 million in 1997 and 1996, respectively. In
1995, no single customer accounted for more than 10% of the Company's total
revenues. The Company does not require collateral for telecommunications
services provided to its customers. However, the Company performs ongoing credit
evaluations of its customers' financial conditions and an allowance for doubtful
accounts of $776,000 and $193,000 at December 31, 1997 and 1996, respectively,
has been provided based on the expected collectibility of all accounts
receivables.
CASH AND EQUIVALENTS
The Company does not maintain any cash balance since all funding of the
Company's operating, investing and financing activities were provided by the
Parent Companies or by revolving loans payable to the Parent Companies (Note 6).
This funding consists of non-interest bearing capital contributions through June
30, 1997 and revolving loans thereafter. The non-interest bearing capital
contributions have been included in paid-in
F-8
<PAGE>
<PAGE>
TIME WARNER TELECOM LLC
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
capital. The average net capital contributions from the Parent Companies were
$517.8 million for the six months ended June 30, 1997, and $379.0 million and
$179.8 million for the years ended December 31, 1996, and 1995, respectively.
The revolving loans, including accrued interest, have been reflected as a
long-term liability in the accompanying balance sheet.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Additions to property,
plant and equipment generally include material, labor, and overhead. The Company
licenses the right to use the majority of its fiber optic cable from TW Cable
divisions, in which they are co-located. The cost of these use rights is
capitalized and reflects an allocable share of TW Cable's costs, which generally
reflects the incremental costs incurred by TW Cable to construct the fiber. Such
amounts do not always reflect TW Cable's total costs of constructing the
distribution plant. Depreciation is provided on the straight-line method over
estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings and improvements............................................. 5-20 years
Communications networks................................................ 5-15 years
Vehicles and other equipment........................................... 3-10 years
Fiber optic use rights................................................. 15 years
</TABLE>
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
(THOUSANDS)
<S> <C> <C>
Buildings and improvements............................................ $ 12,846 $ 8,485
Communications networks............................................... 290,618 203,841
Vehicles and other equipment.......................................... 46,086 38,250
Fiber optic use rights................................................ 134,656 102,132
-------- --------
484,206 352,708
Less accumulated depreciation......................................... (69,048) (29,547)
-------- --------
Total....................................................... $415,158 $323,161
-------- --------
-------- --------
</TABLE>
INTANGIBLE ASSETS
Intangible assets primarily consist of goodwill, deferred right of way
costs and covenants not to compete, which are amortized over periods up to 20
years using the straight-line method. Amortization expense amounted to $2.0
million, $271,000 and $213,000 for the years ended December 31, 1997, 1996 and
1995, respectively. Accumulated amortization of intangible assets at December
31, 1997 and 1996, amounted to $1.2 million and $920,000, respectively.
INCOME TAXES
In connection with the Reorganization (Note 4), the Company was formed as a
limited liability company. As a limited liability company, the Company is
treated as a partnership for income tax purposes. As such, the Company is not
subject to Federal and state income taxation. The financial statement basis of
the Company's assets exceeds the corresponding tax basis by approximately $78.8
million at December 31, 1997, principally as a result of differences in
accounting for depreciable assets for financial statement and income tax
purposes.
2. MERGERS AND ACQUISITIONS
On April 1, 1995, in connection with the formation of TWEAN, A/N
contributed certain telecommunication investments to the Company, consisting of
(i) various telecommunication partnerships serving the New York area (the
'Hyperion Partnerships'), including a 20% interest in Buffalo (the 'Buffalo
Operations'), a 50% interest in Syracuse (the 'Syracuse Operations'), a 50%
interest in Albany (the 'Albany Operations') and an 80% interest in Binghamton
(the 'Binghamton Operations') and (ii) the remaining 50% interest not already
owned by the Company of a telecommunications partnership serving the Charlotte,
North Carolina area (the 'Charlotte Operations'). The net assets contributed
were recorded at an historical cost of $7.4 million. In
connection with this transaction, the Company consolidated the Charlotte
Operations effective April 1, 1995 as a result of its 100% ownership interest
therein.
F-9
<PAGE>
<PAGE>
TIME WARNER TELECOM LLC
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On July 6, 1995, Time Warner acquired KBLCOM, a cable television company
which also owned a telephony operation in San Antonio, Texas. The net assets of
the San Antonio telephony operation were acquired at fair market value and
totaled $8.6 million, consisting of: property, plant and equipment, net of $7.8
million; other current and noncurrent assets of $1.0 million; and other current
liabilities of $200,000.
3. INVESTMENTS
Since April 1995, the Company has owned various interests in the Hyperion
Partnerships, a group of telecommunication partnerships serving the Buffalo,
Syracuse, Albany and Binghamton, New York areas. These interests were all
previously accounted for under the equity method of accounting.
In September 1997, the Company completed a series of transactions, whereby
it sold its interests in the Buffalo Operations and Syracuse Operations in
exchange for $7.0 million of cash and all of the minority interests in the
Albany Operations and Binghamton Operations (collectively, the 'Hyperion
Transactions'). Accordingly, effective September 1997, the Company has
consolidated the Albany Operations and Binghamton Operations as a result of its
100% ownership interests therein. The net assets of the Albany Operations and
Binghamton Operations are not material to the Company's financial position.
The Company accounted for the acquisition of the minority interests in the
Albany Operations and Binghamton Operations under the purchase method of
accounting for business combinations. In connection with the Hyperion
Transactions, the Company recognized a gain of approximately $11.0 million.
4. MEMBERS' EQUITY
At December 31, 1997, all the assets and liabilities of the Company were
beneficially owned by Time Warner and MediaOne, which, through certain
subsidiaries, are partners in TWE. The assets and liabilities of the Company
were also beneficially owned by A/N through TWEAN. Time Warner and certain of
its subsidiaries, MediaOne and certain of its subsidiaries and A/N are
collectively referred to herein as the 'Members'.
In [June] 1998, the Company completed a reorganization (the
'Reorganization'), under which the Company's capitalization was authorized to
include two classes of interests, Class A Interests and Class B Interests. In
connection with the Reorganization, the Members contributed their respective
assets and liabilities of the Company's business to the Company and in return
received Class B Interests having an aggregate participation percentage of 100%.
Following the Reorganization, Time Warner, MediaOne and A/N held Class B
Interests having participation percentages equalling 61.95%, 18.88% and 19.17%,
respectively. Accordingly, the accompanying combined financial statements have
been adjusted to retroactively reflect the authorization of Class A Interests
and the authorization and issuance of Class B Interests having an aggregate
participation percentage of 100% for all periods.
The Class A Interests and Class B Interests are substantially identical in
all respects, except that the Class A Interests have no voting rights, provided,
however, that the approval of the holders of a majority (in participation
percentage) of the Class A Interests, voting as a separate class, is required
for any amendment to the Limited Liability Company Agreement that would have an
adverse effect on the rights of such class. The business and affairs of the
Company are managed by a management committee (the 'Management Committee'),
except for certain matters which require the unanimous vote of the holders of
Class B Interests. Representatives of the Management Committee are appointed by
the Members.
5. STOCK OPTION PLANS
Time Warner and MediaOne have various stock option plans under which
options to purchase Time Warner or MediaOne common stock may be granted to
employees of the Company. Such options have been granted to employees of the
Company at fair market value at the date of grant. Accordingly, in accordance
with Accounting Principles Board Opinion No. 25, 'Accounting for Stock Issued to
Employees' and related interpretations, no compensation cost has been recognized
by Time Warner and MediaOne, nor charged to the Company, related to such stock
option plans. Generally, the options become exercisable over a three-year
vesting period and expire ten years from the date of grant. Had compensation
cost for Time Warner's and MediaOne's stock option plans been determined based
on the fair value at the grant dates for all awards made subsequent to 1994
consistent with the method set forth under FASB Statement No. 123, 'Accounting
for Stock-Based Compensation'
F-10
<PAGE>
<PAGE>
TIME WARNER TELECOM LLC
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
('FAS 123'), the Company's allocable share of compensation cost would have
increased its net loss to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Net loss:
As reported..................................................... $(70,656) $(86,116) $(51,105)
-------- -------- --------
-------- -------- --------
Pro forma....................................................... $(71,228) $(86,500) $(51,198)
-------- -------- --------
-------- -------- --------
</TABLE>
FAS 123 is applicable only to stock options granted subsequent to December
31, 1994. Accordingly, since the Company's compensation expense associated with
such grants would generally be recognized over a three-year vesting period, the
initial impact of applying FAS 123 on pro forma net income for 1996 and 1995 is
not comparable to the impact on pro forma net income for 1997, when the pro
forma effect of the three-year vesting period has been fully reflected.
For purposes of applying FAS 123, the fair value of each option grant by
Time Warner and MediaOne is estimated on the date of grant using the
Black-Scholes option-pricing model. With regard to grants of Time Warner stock
options to the Company's employees in 1997, 1996 and 1995, weighted average
assumptions consisted of: dividend yields of 1% in all periods; expected
volatility of 21.9%, 21.7% and 22.3%, respectively; risk-free interest rates of
6.6%, 6.1% and 6.4%, respectively; and expected lives of 5 years in all periods.
The weighted average fair value of a Time Warner stock option granted to the
Company's employees during the year was $12.95, $12.18 and $11.21 for the years
ended December 31, 1997, 1996 and 1995, respectively. In 1997, MediaOne granted
options to an executive of the company. The weighted average fair value of a
MediaOne stock option was $7.43, based on the following weighted average
assumptions: no dividend yield; expected volatility of 30%; risk-free interest
rate of 6.8%; and an expected life of 5 years.
A summary of stock option activity with respect to employees of the Company
is as follows:
<TABLE>
<CAPTION>
TIME WARNER MEDIAONE
----------------------------- -----------------------------
NUMBER WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
OF SHARES EXERCISE PRICE OF SHARES EXERCISE PRICE
--------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995.................. 77,700 $36.59 -- $ --
Granted................................ 54,475 37.85 -- --
Exercised.............................. -- -- -- --
Cancelled(a)........................... -- -- -- --
--------- ---------
Balance at December 31, 1995................ 132,175 $37.11 -- $ --
Granted................................ 56,750 42.63 -- --
Exercised.............................. (634) 35.58 -- --
Cancelled(a)........................... (6,966) 40.63 -- --
--------- ---------
Balance at December 31, 1996................ 181,325 $38.71 -- $ --
Granted................................ 37,400 43.56 5,350 19.00
Exercised.............................. (1,750) 37.76 -- --
Cancelled(a)........................... (9,750) 40.98 -- --
--------- ---------
Balance at December 31, 1997................ 207,225 $39.48 5,350 $19.00
--------- ---------
--------- ---------
</TABLE>
- ------------
(a) Includes all options cancelled and forfeited during the year.
The number of exercisable options held by employees of the Company is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996 1995
------- ------ ------
(THOUSANDS)
<S> <C> <C> <C>
Time Warner stock options................................................. 121,433 70,408 33,940
MediaOne stock options.................................................... -- -- --
</TABLE>
F-11
<PAGE>
<PAGE>
TIME WARNER TELECOM LLC
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the Reorganization, the Management Committee is expected
to approve an option plan that is expected to provide for the granting of
options to purchase Class A Interests representing approximately ____% of the
equity in the Company, in the aggregate. Generally, options issued under such
option plan are expected to become exercisable over a four-year vesting period
and expire ten years from the date of grant. In addition, the purchase price of
the Class A Interests covered by each option is not expected to be less than The
fair market value of the Class A Interests on the date of grant.
6. SUBORDINATED LOANS PAYABLE TO THE PARENT COMPANIES
Effective July 1, 1997, all of the Company's financing requirements began
to be funded with subordinated loans from the Parent Companies. These loans
bear interest (payable in kind) at The Chase Manhattan Bank's prime rate which
was 8.5% at December 31, 1997. Effective with the Reorganization, the maturity
of these loans was extended until 2008.Interest expense relating to these loans
totaled approximately $1.5 million in 1997.
7. BENEFIT PLANS
The Company participates in the Time Warner Cable Pension Plan (the
'Pension Plan'), a noncontributory defined benefit pension plan which covers
approximately 75% of all employees. The remaining 25% of employees are
participating in a pension plan under the administration of MediaOne, their
previous employer. The Company also participates in the Time Warner Cable
Employees Savings Plan (the 'Savings Plan'), a defined contribution plan. Both
the Pension Plan and Savings Plan are administered by a committee appointed by
the Board of Representatives of TWE and cover substantially all employees.
Benefits under the Pension Plan are determined based on formulas which
reflect employees' years of service and compensation levels during their
employment period. Total pension cost was $1.7 million, $1.2 million and
$900,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
The Company's contributions to the Savings Plan can represent up to 6.67%
of the employees' compensation during the plan year. TWE's Board of
Representatives has the right in any year to set the maximum amount of the
Company's annual contribution. Defined contribution plan expense was $710,000,
$606,000 and $410,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
8. RELATED PARTY TRANSACTIONS
In the normal course of conducting its businesses, the Company has various
transactions with the Parent Companies, generally on terms resulting from
negotiation between the affected units that, in management's view, results in
reasonable allocations.
The Company's local operations, which in certain cases are co-located with
TW Cable divisions, are allocated a charge for various overhead expenses for
services provided by TW Cable. These allocations are based on direct labor,
total expenses, or headcount relative to each division. The Company is also
allocated rent based on the square footage of space occupied by the Company at
TW Cable facilities. The aggregate of these charges totaled approximately $4.4
million, $4.3 million and $2.8 million for the years ended December 31, 1997,
1996 and 1995, respectively.
The combined statement of operations include consulting charges from
MediaOne, in 1995 only, for the use of certain employees on a temporary basis
and pension costs for certain employees of the Company who remain on the
MediaOne pension plan. Consulting fees approximated $522,000 for the year ended
December 31, 1995. There were no charges for consulting in 1997 and 1996.
Pension costs were approximately $624,000, $500,000 and $450,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
The Company licenses the right to use the majority of its fiber optic cable
from TW Cable. The Company paid TW Cable $32.5 million, $41.3 million, and $46.9
million in the years ended December 31, 1997, 1996 and 1995, respectively, under
this arrangement. Such costs have been capitalized by the Company. The
amortization of these costs and fiber previously capitalized in the amount of
$7.1 million, $5.0 million and $2.1 million for the years ended December 31,
1997, 1996 and 1995, respectively, has been classified as a component of
depreciation and amortization in the accompanying combined statement of
operations. In addition, under this
F-12
<PAGE>
<PAGE>
TIME WARNER TELECOM LLC
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
licensing arrangement, the Company reimburses TW Cable for facility maintenance
and pole rental costs, which costs amounted to $1.7 million, $1.3 million and
$648,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Effective July 1, 1997, all of the Company's financing requirements began
to be funded with loans from the Parent Companies. Interest expense relating to
these loans totaled approximately $1.5 million in 1997.
9. COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases for office space and
switching facilities expiring over various terms. Rental expense for all
operating leases totaled $5.4 million, $4.2 million and $3.2 million for the
years ended December 31, 1997, 1996 and 1995, respectively.
The minimum rental commitments under noncancelable operating leases are:
1998-$1.3 million; 1999-$2.8 million; 2000-$2.8 million; 2001-$2.9 million and
after 2002-$13.8 million.
Historically, the Company has relied on TW Cable's fiber in constructing
its own networks. In addition, most of the new markets in which management plans
to operate or construct networks are located in areas where TW Cable has already
made substantial infrastructure investments. The failure of the Company to
license additional fiber optic capacity from TW Cable could materially affect
the Company's future business and operations.
Pending legal proceedings are substantially limited to litigation
incidental to the business of the Company. In the opinion of management, the
ultimate resolution of these matters will not have a material effect on the
Company's financial statements.
10. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
(THOUSANDS)
<S> <C> <C>
Accrued salaries and employee costs..................................... $13,103 $ 8,591
Property and other taxes................................................ 7,682 5,187
Accrued expenses........................................................ 6,227 2,860
Other................................................................... 2,292 1,155
------- -------
Total......................................................... $29,304 $17,793
------- -------
------- -------
</TABLE>
F-13
<PAGE>
<PAGE>
TIME WARNER TELECOM LLC
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
(UNAUDITED)
(THOUSANDS)
<S> <C> <C>
ASSETS
Current assets
Receivables, less allowances of $1,030 and $776................................... $ 11,712 $ 8,882
Prepaid expenses.................................................................. 814 1,192
--------- ------------
Total current assets......................................................... 12,526 10,074
Investments in unconsolidated affiliates.......................................... 4,318 4,376
Property, plant and equipment..................................................... 508,988 484,206
Less: accumulated depreciation.................................................... (80,669) (69,048)
--------- ------------
428,319 415,158
Intangible assets, net............................................................ 8,312 8,469
--------- ------------
Total assets................................................................. $ 453,475 $438,077
--------- ------------
--------- ------------
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Accounts payable.................................................................. $ 21,810 $ 32,908
Other current liabilities......................................................... 35,516 29,304
--------- ------------
Total current liabilities.................................................... 57,326 62,212
Subordinated loans payable to the Parent Companies (including $3,552 and $1,544 of
accrued interest, respectively).................................................. 117,547 75,475
Members' equity
Class A interests having an aggregate participation percentage of 0%.............. -- --
Class B interests having an aggregate participation percentage of 100%............ 555,807 555,807
Accumulated deficit............................................................... (277,205) (255,417)
--------- ------------
Total members' equity........................................................ 278,602 300,390
--------- ------------
Total liabilities and members' equity........................................ $ 453,475 $438,077
--------- ------------
--------- ------------
</TABLE>
See accompanying notes.
F-14
<PAGE>
<PAGE>
TIME WARNER TELECOM LLC
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
-------- --------
(UNAUDITED)
(THOUSANDS)
<S> <C> <C>
Revenues:
Dedicated transport services.......................................................... $ 16,733 $ 8,301
Switched services..................................................................... 5,315 1,852
-------- --------
Total revenues................................................................... 22,048 10,153
-------- --------
Costs and expenses:
Operating(a).......................................................................... 13,519 8,384
Selling, general and administrative(a)................................................ 16,316 11,985
Depreciation and amortization(a)...................................................... 11,932 8,842
-------- --------
Total costs and expenses......................................................... 41,767 29,211
-------- --------
Operating loss............................................................................. (19,719) (19,058)
Equity in losses of unconsolidated affiliates.............................................. (58) (593)
Interest expense(a)........................................................................ (2,011) --
-------- --------
Net loss................................................................................... $(21,788) $(19,651)
-------- --------
-------- --------
(a) Includes expenses resulting from transactions with affiliates (Note 4):
Operating expenses.................................................................... $ 513 $ 433
-------- --------
-------- --------
Selling, general and administrative................................................... $ 765 $ 1,428
-------- --------
-------- --------
Depreciation and amortization......................................................... $ 2,193 $ 1,625
-------- --------
-------- --------
Interest expense...................................................................... $ 2,008 $ --
-------- --------
-------- --------
</TABLE>
See accompanying notes.
F-15
<PAGE>
<PAGE>
TIME WARNER TELECOM LLC
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
-------- --------
(UNAUDITED)
(THOUSANDS)
<S> <C> <C>
OPERATIONS
Net loss................................................................................... $(21,788) $(19,651)
Adjustments for noncash and nonoperating items:
Depreciation and amortization.............................................................. 11,932 8,842
Equity in loss of unconsolidated affiliates................................................ 58 593
Changes in operating assets and liabilities:
Accounts receivable and other current assets.......................................... (2,452) (2,473)
Accounts payable and other current liabilities........................................ (2,878) (15,556)
Other balance sheet changes........................................................... 25 (449)
-------- --------
Cash used in operations.................................................................... (15,103) (28,694)
-------- --------
INVESTING ACTIVITIES
Capital expenditures....................................................................... (24,961) (14,261)
Investments and acquisitions............................................................... -- 28
-------- --------
Cash used in investing activities.......................................................... (24,961) (14,233)
-------- --------
FINANCING ACTIVITIES
Proceeds from loans from the Parent Companies.............................................. 59,166 --
Capital contributions from the Parent Companies............................................ -- 50,814
Repayment of loans from the Parent Companies............................................... (19,102) --
Distributions to the Parent Companies...................................................... -- (7,887)
-------- --------
Cash provided by financing activities...................................................... 40,064 42,927
-------- --------
INCREASE IN CASH AND EQUIVALENTS........................................................... -- --
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD................................................ -- --
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD...................................................... $ -- $ --
-------- --------
-------- --------
</TABLE>
See accompanying notes.
F-16
<PAGE>
<PAGE>
TIME WARNER TELECOM LLC
COMBINED STATEMENT OF CHANGES IN MEMBERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
CLASS B ACCUMULATED MEMBERS'
INTERESTS DEFICIT EQUITY
-------- ----------- --------
(UNAUDITED)
(THOUSANDS)
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997............................................... $555,807 $(255,417) $300,390
Net loss................................................................... -- (21,788) (21,788)
-------- ----------- --------
BALANCE AT MARCH 31, 1998.................................................. $555,807 $(277,205) $278,602
-------- ----------- --------
-------- ----------- --------
</TABLE>
See accompanying notes.
F-17
<PAGE>
<PAGE>
TIME WARNER TELECOM LLC
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Time Warner Telecom LLC, a Delaware limited liability company (the
'Company'), is a facilities-based competitive local telecommunications services
provider ('CLEC') in selected metropolitan markets across the United States,
offering a wide range of business telephony services, primarily to medium- and
large-sized business customers. The business of the Company was commenced in
1993 by Time Warner Cable ('TW Cable'), a division of Time Warner Entertainment
Company, L.P. ('TWE'), and reflects the combined commercial telecommunication
operations under the ownership or management control of TW Cable. These
operations consist of the commercial telecommunication operations of Time Warner
Inc. and certain of its subsidiaries ('Time Warner') and the Time Warner
Entertainment-Advance/Newhouse Partnership ('TWEAN') that were acquired or
formed in 1995, as well as the pre-existing commercial telecommunication
operations of TWE (collectively, TWE, TWEAN and Time Warner are referred to
herein as the 'Parent Companies').
To date, the majority of the Company's revenues have been derived from the
provision of 'private line' or 'direct access' telecommunications services.
Because the Company has deployed switches in 16 of its 19 markets, management
expects that a growing portion of the Company's revenues will be derived from
providing switched services. The Company's customers are principally
telecommunications-intensive business end-users, IXCs, ISPs, wireless
communications companies and governmental entities. Such customers are offered a
wide range of integrated telecommunications products and services, including
dedicated transmission, local switched, data and video transmission services and
Internet services. In addition, the Company benefits from its strategic
relationship with TW Cable both through access rights and cost-sharing. As a
result, the Company's networks have been constructed primarily through the use
of fiber capacity licensed from TW Cable.
BASIS OF PRESENTATION
The combined financial statements of the Company reflect the 'carved out'
historical financial position, results of operations, cash flows and changes in
members' equity of the commercial telecommunication operations of the Parent
Companies as if they had been operating as a separate company. The combined
statement of operations has been adjusted to retroactively reflect an allocation
of certain expenses pursuant to the final terms of the related agreements,
primarily relating to office rent, overhead charges for various administrative
functions performed by TW Cable and certain facility maintenance and pole rental
costs. These allocations were required to reflect all costs of doing business
and have been based on various methods (Note 4), which management believes
result in reasonable allocations of such costs.
The accompanying financial statements are unaudited but, in the opinion of
management, contain all the adjustments (consisting of those of a normal
recurring nature) considered necessary to present fairly the financial position
and the results of operations and cash flows for the periods presented in
conformity with generally accepted accounting principles applicable to interim
periods. The accompanying financial statements should be read in conjunction
with the audited combined financial statements of the Company for the year ended
December 31, 1997.
2. MEMBERS' EQUITY
At March 31, 1998, all the assets and liabilities of the Company were
beneficially owned by Time Warner and MediaOne Group, Inc. ('MediaOne'), which,
through certain subsidiaries, are partners in TWE. The assets and liabilities of
the Company were also beneficially owned by the Advance/Newhouse Partnership
('A/N') through TWEAN. Time Warner and certain of its subsidiaries, MediaOne and
certain of its subsidiaries and A/N are collectively referred to herein as the
'Members'.
In [June] 1998, the Company completed a reorganization (the
'Reorganization'), under which the Company's capitalization was authorized to
include two classes of interests, Class A Interests and Class B Interests. In
connection with the Reorganization, the Members contributed their respective
assets and liabilities of the Company's business to the Company and in return
received Class B Interests having an aggregate participation percentage of 100%.
Following the Reorganization, Time Warner, MediaOne and A/N held Class B
interests having participation percentages equalling 61.95%, 18.88% and 19.17%,
respectively. Accordingly, the accompanying combined financial statements have
been adjusted to retroactively reflect the authorization of
F-18
<PAGE>
<PAGE>
TIME WARNER TELECOM LLC
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)
Class A Interests and the authorization and issuance of Class B Interests having
an aggregate participation percentage of 100% for all periods.
The Class A Interests and Class B Interests are substantially identical in
all respects, except that the Class A Interests have no voting rights, provided,
however, that the approval of the holders of a majority (in participation
percentage) of the Class A Interests, voting as a separate class, is required
for any amendment to the Limited Liability Company Agreement that would have an
adverse effect on the rights of such class. The business and affairs of the
Company are managed by a management committee (the 'Management Committee'),
except for certain matters which require the unanimous vote of the holders of
Class B Interests. Representatives of the Management Committee are appointed by
the Members.
In connection with the Reorganization, the Management Committee is expected
to approve an option plan that is expected to provide for the granting of
options to purchase Class A Interests representing approximately ____% of the
equity in the Company, in the aggregate. Generally, options issued under such
option plan are expected to become exercisable over a four-year vesting period
and expire ten years from the date of grant. In addition, the purchase price of
the Class A Interests covered by each option is not expected to be less than the
fair market value of the Class A Interests on the date of grant.
3. SUBORDINATED LOANS PAYABLE TO THE PARENT COMPANIES
Effective July 1, 1997, all of the Company's financing requirements began
to be funded with subordinated loans from the Parent Companies. These loans
bear interest (payable in kind) at The Chase Manhattan Bank's prime rate which
was 8.5% at March 31, 1998. Effective with the Reorganization, the maturity of
these loans was extended until 2008. Interest expense relating to these loans
totaled approximately $2.0 million in 1997.
4. RELATED PARTY TRANSACTIONS
In the normal course of conducting its businesses, the Company has various
transactions with the Parent Companies, generally on terms resulting from
negotiation between the affected units that, in management's view, results in
reasonable allocations.
The Company's local operations, which in certain cases are co-located with
TW Cable divisions, are allocated a charge for various overhead expenses for
services provided by TW Cable. These allocations are based on direct labor,
total expenses, or headcount relative to each division. The Company is also
allocated rent based on the square footage of space occupied by the Company at
TW Cable facilities. The aggregate of these charges totaled approximately
$614,000 and $1.3 million for the three months ended March 31, 1998 and 1997,
respectively.
The combined statement of operations includes pension costs for certain
employees of the Company who remain on the MediaOne pension plan. Pension costs
were approximately $151,000 and $157,000 for the three months ended March 31,
1998 and 1997, respectively.
The Company licenses the right to use the majority of its fiber optic cable
from TW Cable. The Company paid TW Cable approximately $1.2 million and $5.6
million in the three months ended March 31, 1998 and 1997, respectively, under
this arrangement. Such costs have been capitalized by the Company. The
amortization of these costs and fiber previously capitalized in the amount of
approximately $2.2 million and $1.6 million for the three months ended March 31,
1998 and 1997, respectively, has been classified as a component of depreciation
and amortization in the accompanying combined statement of operations. In
addition, under this licensing arrangement, the Company reimburses TW Cable for
facility maintenance and pole rental costs, which costs amounted to $513,000 and
$433,000 for the three months ended March 31, 1998 and 1997, respectively.
Effective July 1, 1997, all of the Company's financing requirements began
to be funded with loans from the Parent Companies. Interest expense relating to
these loans totaled approximately $2.0 million for the three months ended March
31, 1998.
5. COMMITMENTS AND CONTINGENCIES
Pending legal proceedings are substantially limited to litigation
incidental to the business of the Company. In the opinion of management, the
ultimate resolution of these matters will not have a material effect on the
Company's financial statements.
F-19
<PAGE>
<PAGE>
[LOGO]
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the expenses of issuance and distribution of the $400
million aggregate principal amount of % Senior Notes Due 2008 registered
hereunder on Form S-1, other than underwriting discounts and commissions. All
amounts except the Registration Fee are estimated.
<TABLE>
<S> <C>
Registration Fee............................................................................ $118,000
NASD Filing Fee............................................................................. 30,500
Printing and Engraving Fees................................................................. *
Blue Sky Fees and Expenses.................................................................. 12,000
Legal Fees and Expenses..................................................................... *
Accounting Fees and Expenses................................................................ *
Trustees' Fees.............................................................................. *
Miscellaneous............................................................................... *
--------
Total.................................................................................. $ *
--------
--------
</TABLE>
- ------------
* To be filed by amendment.
All of the above expenses have been or will be paid by Time Warner Telecom
LLC.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article XI of the LLC Agreement provides that the Members and their
affiliates and the Representatives (collectively, 'Covered Persons') will have
no liability, including under any legal or equitable theory of fiduciary duty or
other theory of liability, to the Company or to any other Covered Person, for
any losses, claims, damages or liabilities incurred by reason of any act or
omission performed or omitted by such Covered Person in good faith on behalf of
the Company.
The LLC Agreement provides that to the fullest extent permitted by
applicable law (including Section 18-1101(c) of the Delaware Act), no holder of
an Interest (including the Members) will have any fiduciary or similar duty, at
law or in equity, or any liability relating thereto, to the Company or any other
holder, with respect to or in connection with the Company or the Company's
business or affairs, and that the doctrine of corporate opportunity, and any
other analogous doctrine, will not apply with respect to the Company.
Subject to any terms, conditions or restrictions set forth in the LLC
Agreement, Section 18-108 of the Delaware Limited Liability Company Act empowers
a Delaware limited liability company to indemnify and hold harmless any member
or manager or other person from and against all claims and demands whatsoever.
Article XI of the LLC Agreement provides that the Company shall indemnify (i)
the Covered Persons against any losses arising out of or in connection with the
LLC Agreement, unless such loss is caused by such Covered Person's bad faith,
gross negligence or willful misconduct and (ii) its officers to the fullest
extent permitted by Delaware law.
Article VI of the Certificate of Incorporation (the 'TWT Charter') of Time
Warner Telecom Inc. ('TWT') provides that to the fullest extent permitted under
the General Corporation Law of the State of Delaware (the 'DGCL'), a director
of TWT shall not be personally liable to TWT or its stockholders for monetary
damages for breach of fiduciary duty as a director.
Section 102(b)(7) of the DGCL, provides that a corporation may eliminate or
limit the personal liability of a director (or certain persons who, pursuant to
the provisions of the certificate of incorporation, exercise or perform duties
conferred or imposed upon directors by the DGCL) to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that such provisions shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL (providing for liability of directors for unlawful
payment
II-1
<PAGE>
<PAGE>
of dividends or unlawful stock purchases or redemptions) or (iv) for any
transaction from which the director derived an improper personal benefit.
Under Section 145 of the DGCL, in general, a corporation may indemnify its
directors, officers, employees or agents against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by them in connection with any action, suit or proceeding which they
may be made parties by reason of their being or having been directors, officers,
employees or agents if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe their conduct was unlawful. Article VIII of the TWT Charter provides
that TWT shall indemnify its officers, directors, employees and agents to the
full extent permitted by Delaware law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company has not sold any securities
without registration under the Securities Act.
II-2
<PAGE>
<PAGE>
ITEM 16. EXHIBITS
(a) Exhibits:
TIME WARNER TELECOM LLC
EXHIBIT LIST
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ -----------------------------------------------------------------------------------------------------------
<C> <S>
1.1 -- Form of Underwriting Agreement*
2.1 -- Reorganization Agreement among Time Warner Companies, Inc., MediaOne Group, Inc., Advance/Newhouse
Partnership, Time Warner Entertainment Company, L.P., and Time Warner Entertainment-Advance/Newhouse
Partnership
3.1 -- LLC Agreement of the Company
3.2 -- Certificate of Incorporation of TWT*
3.3 -- By-laws of TWT*
4.1 -- Form of Indenture, between the Company and The Chase Manhattan Bank, as Trustee*
5 -- Opinion of Cravath, Swaine and Moore*
10.1 -- Lease, between Quebec Court Joint Venture No. 2, Landlord, and Intelligent Advanced Systems, Inc.,
Tenant, dated June 3, 1994
10.2 -- Agreement for Assignment of Lease, dated September 12, 1997, between Ingram Micro Inc. and Time Warner
Communications Holdings Inc.
10.3 -- First Amendment to Lease, dated October 15, 1997, by Carramerica Realty, L.P. and Time Warner
Communications Holdings Inc.
10.4 -- Time Warner Telecom LLC Stock Option Plan*
10.5 -- Employment Agreement between the Company and Paul B. Jones*
10.6 -- Employment Agreement between the Company and Larissa L. Herda*
10.7 -- Employment Agreement between the Company and A. Graham Powers*
10.8 -- Employment Agreement between the Company and David J. Rayner*
10.9 -- Form of Capacity License Agreement
12 -- Ratio of Earnings to Fixed Charges of the Company
21 -- Subsidiaries of the Company*
23.1 -- Consent of Ernst & Young LLP, Independent Public Accountants
23.2 -- Consent of Cravath, Swaine & Moore (included in Exhibit 5)*
24.1 -- Power of Attorney of TWT's Directors (contained on signatures page)**
24.2 -- Power of Attorney of the Company's Representatives (contained on signatures page)
24.3 -- Power of Attorney of Peter R. Haje, director of TWT
25 -- Statement of Eligibility and Qualification on Form T-1 of The Chase Manhattan Bank with respect to the
Company and TWT*
27 -- Financial Data Schedule*
</TABLE>
- ------------
* To be filed by amendment.
** Previously filed as part of this Registration Statement
II-3
<PAGE>
<PAGE>
(b) Financial Statement Schedule
The following financial statement schedule is included in Part II of this
Registration Statement and should be read in conjunction with the combined
financial statements and notes thereto included elsewhere herein.
<TABLE>
<S> <C>
Report of Independent Auditors.................................................................... S-1
Schedule II -- Valuation and Qualifying Accounts.................................................. S-2
</TABLE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described under Item 14 above or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of their
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The Company hereby undertakes that:
1. For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as a part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed part of this Registration
Statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at such time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Time Warner Telecom LLC has duly caused Amendment No. 1 to this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, on June 23, 1998.
TIME WARNER TELECOM LLC
By /S/ DAVID J. RAYNER
....................................
DAVID J. RAYNER
SENIOR VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Larissa L. Herda and David J. Rayner, and each of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments and post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and any and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorneys-in-fact
and agents full power and authority to do and perform any and all acts and
things requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------------------- ------------------------------------ --------------
<S> <C> <C>
(i) Principal Executive Officer
/s/ LARISSA L. HERDA President and Chief Executive June 23, 1998
........................................................ Officer
LARISSA L. HERDA
(ii) Principal Financial and Accounting Officer
/S/ DAVID J. RAYNER Senior Vice President and June 23, 1998
........................................................ Chief Financial Officer
DAVID J. RAYNER
(iii) Directors
/s/ RICHARD J. BRESSLER Representative June 23, 1998
........................................................
RICHARD J. BRESSLER
/s/ PETER R. HAJE Representative June 23, 1998
........................................................
PETER R. HAJE
Representative June , 1998
........................................................
SPENCER B. HAYS
* By: ........................................................
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Time Warner Telecom Inc. has duly caused Amendment No. 1 to this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, on June 23, 1998.
TIME WARNER TELECOM INC.
By /S/ DAVID J. RAYNER
....................................
DAVID J. RAYNER
SENIOR VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------------------- ------------------------------------ --------------
<S> <C> <C>
(i) Principal Executive Officer
/S/ LARISSA L. HERDA President and Chief Executive June 23, 1998
........................................................ Officer
LARISSA L. HERDA
(ii) Principal Financial and Accounting Officer
/S/ DAVID J. RAYNER Senior Vice President and June 23, 1998
........................................................ Chief Financial Officer
DAVID J. RAYNER
(iii) Directors
* Director June 23, 1998
........................................................
RICHARD J. BRESSLER
* Director June 23, 1998
........................................................
PETER R. HAJE
* Director June 23, 1998
........................................................
SPENCER B. HAYS
/S/ DAVID J. RAYNER
*By:....................................................
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To Time Warner Telecom LLC
We have audited the combined financial statements of Time Warner Telecom
LLC (the 'Company') as of December 31, 1997 and 1996, and for each of the three
years in the period ended December 31, 1997 and have issued our report thereon
dated March 13, 1998, except for Notes 1, 4, 5, 6, and 8, as to which the date
is June 22, 1998. Our audits also included the financial statement schedule
listed in Item 16(b) of this Registration Statement. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic combined financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
New York, New York
June 22, 1998
The foregoing report is in the form that will be signed upon the
Reorganization of the Company as discussed in Note 4 to the combined financial
statements.
ERNST & YOUNG LLP
New York, New York
June 22, 1998
S-1
<PAGE>
<PAGE>
TIME WARNER TELECOM LLC
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS/
BALANCE AT CHARGES TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
---------- ---------- ---------- ----------
(THOUSANDS)
<S> <C> <C> <C> <C>
For the Year ended December 31, 1997:
Allowance for doubtful accounts receivable................. $193 $1,213 $ (630) $776
For the Year ended December 31, 1996:
Allowance for doubtful accounts receivable................. $ 21 $ 271 $ (99) $193
For the Year ended December 31, 1995:
Allowance for doubtful accounts receivable................. $ -- $ 24 $ (3) $ 21
</TABLE>
S-2
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
DESCRIPTION OF DOCUMENT PAGE
------------------------------------------------------------------------------------------------------- ----
<S> <C> <C>
1.1 -- Form of Underwriting Agreement*.....................................................................
2.1 -- Reorganization Agreement among Time Warner Companies, Inc., MediaOne Group, Inc., Advance/Newhouse
Partnership, Time Warner Entertainment Company, L.P., and Time Warner Entertainment-Advance/Newhouse
Partnership..........................................................................................
3.1 -- LLC Agreement of the Company.........................................................................
3.2 -- Certificate of Incorporation of TWT*.................................................................
3.3 -- By-laws of TWT*......................................................................................
4.1 -- Form of Indenture, between the Company and The Chase Manhattan Bank, as Trustee*....................
5 -- Opinion of Cravath, Swaine and Moore*...............................................................
10.1 -- Lease, between Quebec Court Joint Venture No. 2, Landlord, and Intelligent Advanced Systems, Inc.,
Tenant, dated June 3, 1994...........................................................................
10.2 -- Agreement for Assignment of Lease, dated September 12, 1997, between Ingram Micro Inc. and Time
Warner Communications Holdings Inc...................................................................
10.3 -- First Amendment to Lease, dated October 15, 1997 by Carramerica Realty, L.P. and Time Warner
Communications Holdings Inc..........................................................................
10.4 -- Time Warner Telecom LLC Stock Option Plan*....................................................
10.5 -- Employment Agreement between the Company and Paul B. Jones*.........................................
10.6 -- Employment Agreement between the Company and Larissa L. Herda*......................................
10.7 -- Employment Agreement between the Company and A. Graham Powers*......................................
10.8 -- Employment Agreement between the Company and David J. Rayner*.......................................
10.9 -- Form of Capacity License Agreement..................................................................
12 -- Ratio of Earnings to Fixed Charges of the Company...................................................
21 -- Subsidiaries of the Company*........................................................................
23.1 -- Consent of Ernst & Young LLP, Independent Public Accountants........................................
23.2 -- Consent of Cravath, Swaine & Moore (included in Exhibit 5)*.........................................
24.1 -- Power of Attorney of TWT's Directors (contained on signature page)**................................
24.2 -- Power of Attorney of the Company's Representatives (contained on signature page)....................
24.3 -- Power of Attorney of Peter R. Haje, director of TWT.................................................
25 -- Statement of Eligibility and Qualification on Form T-1 of The Chase Manhattan Bank with respect to
the Company and TWT*.................................................................................
27 -- Financial Data Schedule*............................................................................
</TABLE>
- ------------
* To be filed by amendment.
** Previously filed as part of this Registration Statement.
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as.............................. 'SS'
<PAGE>
<PAGE>
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/NEWHOUSE PARTNERSHIP, a New
York general partnership ("A/N"), TIME WARNER ENTERTAINMENT COMPANY, L.P., a
Delaware limited partnership ("TWE"), and TIME WARNER
ENTERTAINMENT-ADVANCE/NEWHOUSE 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");
<PAGE>
<PAGE>
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.
2
<PAGE>
<PAGE>
"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 Hart-Scott-Rodino 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.
3
<PAGE>
<PAGE>
"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:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
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)
</TABLE>
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<TABLE>
<S> <C>
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)
</TABLE>
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"):
<TABLE>
<CAPTION>
End of Fiscal Quarter in Amount of Company
which Contribution Occurs Indebtedness
------------------------- ------------
<S> <C>
First Quarter 1998 $150 million
Second Quarter 1998 $180 million
Third Quarter 1998 $215 million
Fourth Quarter 1998 $260 million
</TABLE>
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
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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.
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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:
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(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
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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.
75 Rockefeller Plaza
New York, New York 10019
Telephone: (212) 484-7580
Telecopy: (212) 956-7281
Attention: General Counsel
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Telephone: (212) 474-1000
Telecopy: (212) 474-3700
Attention: William P. Rogers, Jr.
If to MediaOne, to:
MEDIAONE GROUP, INC.
188 Inverness Drive West
Englewood, Colorado 80112
Telephone: (303) 858-3562
Telecopy: (303) 858-3487
Attention: Vice President-Law
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Telephone: (212) 310-8000
Telecopy: (212) 310-8007
Attention: Akiko Mikumo, Esq.
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If to A/N, to:
ADVANCE/NEWHOUSE PARTNERSHIP
5015 Campuswood Drive
East Syracuse, New York 13057
Telephone: (315) 463-7675
Telecopy: (315) 463-4127
Attention: Robert J. Miron
with a copy to:
Sabin, Bermant & Gould LLP
350 Madison Avenue
New York, New York 10017
Telephone: (212) 692-4418
Telecopy: (212) 692-4406
Attention: Arthur J. Steinhauer
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
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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.
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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/NEWHOUSE PARTNERSHIP
By: ADVANCE COMMUNICATIONS CORP.,
General Partner
By:
-------------------------------------
Name:
Title:
By: NEWHOUSE BROADCASTING
CORPORATION, General Partner
By:
-------------------------------------
Name:
Title:
TIME WARNER ENTERTAINMENT
COMPANY, L.P.
By:
-------------------------------------
Name:
Title:
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TIME WARNER ENTERTAINMENT-
ADVANCE/NEWHOUSE 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:
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AMENDED AND RESTATED LIMITED LIABILITY
COMPANY AGREEMENT of TIME WARNER TELECOM L.L.C. (the
"Company") dated as of [ ], by and among TIME WARNER
ENTERTAINMENT COMPANY, L.P., a Delaware limited
partnership ("TWE"), TIME WARNER
ENTERTAINMENT-ADVANCE/NEWHOUSE PARTNERSHIP, a New
York general partnership ("TWE-A/N"), TIME WARNER
COMPANIES, INC., a Delaware corporation ("TWX"),
AMERICAN TELEVISION AND COMMUNICATIONS CORPORATION, a
Delaware corporation ("ATC"), WARNER COMMUNICATIONS,
INC., a Delaware corporation ("WCI"), TW/TAE INC., a
Delaware corporation ("TW/TAE"), FIBERCOMM HOLDINGS
L.P., a Delaware limited partnership ("TW/KBLCOM"),
PARAGON COMMUNICATIONS, a New York general
partnership ("Paragon", and, together with TWX, ATC,
WCI, TWI/TAE and TW/KBLCOM, the "TW Stockholders"),
MEDIAONE GROUP, INC. (formerly U S WEST Multimedia
Communications, Inc.), a Colorado corporation (the
"MediaOne Stockholder"), and ADVANCE/NEWHOUSE
PARTNERSHIP, a New York general partnership ("A/N").
Preliminary Statement
WHEREAS, TWE heretofore formed the Company as a limited
liability company under the Delaware Act (as defined below) pursuant to the
Original LLC Agreement (as defined below).
WHEREAS, certain of the parties hereto are parties to a
Reorganization Agreement of even date herewith (the "Reorganization Agreement")
pursuant to which the Company is being continued and certain parties are being
admitted as members, and in connection therewith, the Original LLC Agreement is
being hereby amended and restated.
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS AND USAGE
SECTION 1.01. Definitions. Capitalized terms used herein but
not defined herein shall have the respective
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2
meanings assigned thereto in the Stockholders' Agreement attached hereto as
Exhibit C (the "Stockholders' Agreement"). The following terms shall have the
following meanings for the purposes of this Agreement:
"Additional Member" means any Person admitted as a member of
the Company pursuant to Section 3.02 in connection with the new issuance of an
Interest to such Person.
"Agreement" means this Limited Liability Company Agreement, as
the same may be amended or restated from time to time.
"Business Day" means any day other than a Saturday, a Sunday
or a Federal holiday.
"By-laws" means the By-laws attached as Exhibit B hereto.
"Capital Account" means the capital account established and
maintained for each Member pursuant to Section 6.01(a).
"CEO" means the President and Chief Executive Officer of the
Company.
"Chairman" is defined in Section 8.02(c).
"Charter" means the Certificate of Incorporation attached as
Exhibit A hereto.
"Class A Interest" means a Class A limited liability company
interest in the Company.
"Class B Interest" means a Class B limited liability company
interest in the Company.
"Class A Member" means any Member that is a holder of a Class
A Interest.
"Class B Member" means any Member that is a holder of a Class
B Interest.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Time Warner Telecom L.L.C., a Delaware limited
liability company.
"Company Indebtedness" is defined in the Reorganization
Agreement.
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3
"Contribution" is defined in the Reorganization Agreement.
"Covered Person" means (i) each Member, (ii) each officer,
director, shareholder, partner, employee, representative, agent or trustee of a
Member and (iii) each Representative.
"Delaware Act" means the Delaware Limited Liability Company
Act, 6 Del. C. 'SS' 'SS'18-101 et seq., as amended from time to time.
"Distributee Member" means any of the Persons named on
Schedule B hereto, and any Person to whom all or any part of the Interest of any
such named Person is Transferred pursuant to Section 9.01(a).
"Effective Time" means the time at which the Contribution
occurs.
"Fiscal Year" means each fiscal year referred to in Section
6.06.
"Interest" means a Class A Interest, a Class B Interest, or
any other limited liability company interest in the Company.
"Initial Member" means any of the Persons named on Schedule A
hereto.
"IPO Registration Statement" is defined in Section 10.01(a).
"IPO Transaction" is defined in Section 10.01(a).
"Majority Vote" is defined in Section 8.03(a).
"Management Committee" is defined in Section 8.01.
"Member" means any Person named as a member of the Company on
Schedule A or B hereto (as applicable) and/or on the books and records of the
Company and includes any Person admitted as an Additional Member or a Substitute
Member, in each case for so long as such Person continues to be a member of the
Company.
"Net Profits and Net Losses" shall be the taxable income and tax loss
of the Company as determined for Federal income tax purposes for a given taxable
year, calculated using the accrual method taking into account any separately
stated items, increased by the amount of any tax exempt
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4
income of the Company during such taxable year and decreased by the amount of
the Code Section 705(a))(2)(B) expenditures (within the meaning of Treasury
Regulation 'SS'1.704-1(b)(2)(iv)(i)) of the Company during such taxable year;
provided, however, that (i) items of income, gain, loss and deduction
attributable to Section 704(c) Property shall be determined in accordance with
the principles of Treasury Regulation 'SS'1-704-1(b)(2)(iv)(g) and (ii) any
items of income, gain, loss or deduction that are specially allocated pursuant
to Sections 6.02(b), (c) and (d) shall not be taken into account.
"Newco" is defined in Section 10.01(b).
"Original LLC Agreement" means the limited liability company agreement
of Time Warner Telecom L.L.C. dated as of June [ ], 1998.
"Participation Percentage" is defined in Section 5.01(a).
"Reconstitution" is defined in Section 10.01(b).
"Reorganization Distribution" means the Distribution pursuant to (and
as defined in) the Reorganization Agreement.
"Representative" means a member of the Management Committee.
"Restricted Period" means the period from the Effective Time until the
[ ] anniversary of the Effective Time.
"Section 704(c) Property" means "Section 704(c) property" as defined
in Treasury Regulation 'SS'1.704-3(a)(3).
"Substitute Member" means any Person admitted as a member of the
Company pursuant to Section 3.02 in connection with the Transfer of
then-existing Interest to such Person.
SECTION 1.02. Other Definitional Provisions. The provisions of Section
1.2 of the Stockholders' Agreement are hereby incorporated by reference herein.
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5
ARTICLE II
THE COMPANY
SECTION 2.01. Effectiveness of This Agreement. Notwithstanding
anything to the contrary contained herein, this Agreement shall become effective
at the Effective Time.
SECTION 2.02. Continuation. The Members hereby agree to continue the
Company as a limited liability company pursuant to the Delaware Act, upon the
terms and subject to the conditions set forth in this Agreement, and hereby
ratify the execution and filing of the Certificate of Formation of the Company
with the Secretary of State of the State of Delaware on June 18, 1998. The
authorized officer or representative shall file and record any amendments or
restatements of the certificate of formation of the Company and such other
documents as may be required or appropriate under the laws of the State of
Delaware and of any other jurisdiction in which the Company may conduct
business. The authorized officer or representative shall, on request, provide
any Member with copies of each such document as filed and recorded.
SECTION 2.03. Name. The name of the Company shall be Time Warner
Telecom L.L.C. The Management Committee by Majority Vote may change the name of
the Company or adopt such trade or fictitious names as they may determine.
SECTION 2.04. Term. The term of the Company shall begin on the date
the certificate of formation of the Company is filed, and the Company shall have
perpetual existence unless sooner dissolved as provided in Article XII.
SECTION 2.05. Registered Agent and Registered Office. The name of the
registered agent for service of process shall be National Registered Agents,
Inc., and the address of the registered agent and the address of the registered
office in the State of Delaware shall be 9 East Loockerman Street, City of
Dover, County of Kent. Such office and such agent may be changed from time to
time by Majority Vote of the Management Committee.
SECTION 2.06. Purposes. The Company has been formed for the object and
purpose of, and the nature of the business to be conducted and promoted by the
Company is, engaging in any lawful act or activity for which limited liability
companies may be formed under the Delaware Act.
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6
ARTICLE III
MEMBERS; BOOKS AND RECORDS;
BUDGETS AND BUSINESS PLANS; REPORTS
SECTION 3.01. Admission of Members. (a) At the Effective Time, without
the need for any further action of any Person, the Initial Members who have
executed this Agreement shall be admitted as Members, and each such Person shall
be shown as such in the books and records of the Company. Following the
Reorganization Distribution, the Distributee Members who have executed this
Agreement shall be admitted as Substitute Members, and those Initial Members
which are not also Distributee Members shall cease to be Members. Following the
Effective Time, except as set forth in the preceding sentence, no Person shall
be admitted as a Member and no additional Interest shall be issued except as
expressly provided herein.
(b) At the Effective Time, there shall be two classes of limited
liability interests in the Company, designated as Class A and Class B. At the
Effective Time, the limited liability company interests of the Company issued
pursuant to the Original LLC Agreement and held by TWE shall be converted into a
Class B Interest having a Participation Percentage equal to that set forth for
TWE on Schedule A hereto. All of the Interests issued to the Initial Members and
distributed to the Distributee Members pursuant to the Reorganization
Distribution shall be Class B Interests. At any time following the Restricted
Period, all or any part of a Class B Interest may be converted, at the option of
the Class B Member holding such Interest, into a Class A Interest having a
Participation Percentage equivalent to that of the portion converted. Such right
shall be exercised by the delivery of written notice to the Company making such
election and setting forth the amount to be converted. Upon receipt of such
election, the Company shall deliver notice to the Members thereof, and shall
deliver a revised Schedule C to this Agreement setting forth the revised
Participation Percentages of the Class A Interests and the Class B Interests.
SECTION 3.02. Substitute Members and Additional Members. (a) No
Transferee of an Interest or Person to whom an Interest is issued pursuant to
this Agreement shall be admitted as a Member hereunder or acquire any rights
hereunder, including any voting rights or the right to receive distributions and
allocations in respect of the Transferred or issued Interest, as applicable,
unless (i) such Interest is Transferred or issued in compliance with the
provisions of this Agreement and (ii) such
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7
Transferee or recipient shall have executed and delivered to the Company an
instrument effectuating the admission of such Transferee or recipient as a
Member and confirming the agreement of such Transferee or recipient to be bound
by all the terms and provisions of this Agreement. Upon complying with clauses
(i) and (ii) above, without the need for any further action of any Person, a
Transferee or recipient shall be deemed admitted to the Company as a Member. A
Substitute Member shall enjoy the same rights, and be subject to the same
obligations, as the Transferor; provided that such Transferor shall not be
relieved of any obligation or liability hereunder arising prior to the
consummation of such Transfer but shall be relieved of all future obligations
with respect to the Interest so Transferred. As promptly as practicable after
the admission of any Person as a Member, the books and records of the Company
shall be changed to reflect such admission of a Substitute Member or Additional
Member. In the event of any admission of a Substitute Member or Additional
Member pursuant to this Section 3.02(a), this Agreement shall be deemed amended
to reflect such admission, and any formal amendment of this Agreement (including
Schedules A and B attached hereto) in connection therewith shall only require
execution by the such Substitute Member or Additional Member, as applicable, to
be effective.
(b) If a Member shall Transfer all (but not less than all) its
Interest, the Member shall thereupon cease to be a Member of the Company.
Section 3.03. Tax Information. (a) The Company shall timely cause to
be prepared all Federal, state, local and foreign tax returns (including
information returns) of the Company and its subsidiaries, which may be required
by a jurisdiction in which the Company and its subsidiaries operate or conduct
business for each year or period for which such returns are required to be filed
and, after review and approval of such returns by the Majority Vote of the
Management Committee, shall cause such returns to be timely filed and shall
provide the Members with copies thereof promptly after such filings are made.
(b) The Tax Matters Partner shall use reasonable efforts to submit a
draft of any such tax return contemplated in Section 3.03(a) to each Member for
review, and to the Management Committee for approval, no later than the earlier
of (i) 30 days prior to the required filing date (as such date may be extended)
and (ii) June 30 of each year, unless otherwise agreed to by the Members.
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8
(c) The Tax Matters Partner shall provide to each Member preliminary
and estimated information concerning the Company's taxable income or loss and
each class of income, gain, loss, deduction or credit which is relevant to
reporting a Member's share of Company income, gain, loss, deduction or credit
for purposes of federal or state income tax. Such information shall be furnished
to the Members as soon as possible after the close of the Company's fiscal year
and, in any event, no later than the earlier of (i) March 31 of each year and
(ii) the date on which the income tax return for such fiscal year is submitted
to the Members for review pursuant to Section 3.03(b).
ARTICLE IV
CAPITAL CONTRIBUTIONS
SECTION 4.01. Initial Capital Contributions. At the Effective Time,
each Initial Member shall make its respective Contribution as set forth in
Section 2.1 of the Reorganization Agreement.
SECTION 4.02. No Additional Capital Contributions. After the Effective
Time, no Member shall be obligated to make any additional capital contributions.
ARTICLE V
PARTICIPATION PERCENTAGES
SECTION 5.01. General. (a) At the Effective Time, the participation
percentage (the "Participation Percentage") of each Initial Member's Interest
shall be as set forth in Section 2.1(c) of the Reorganization Agreement.
Immediately following the Reorganization Distribution, the Participation
Percentage of each Member's Interest shall be as set forth on Schedule C hereto.
(b) Such initial Participation Percentages shall be subject to
adjustment as provided in this Article V. The aggregate outstanding
Participation Percentages at all times shall equal 100%.
SECTION 5.02. Issuances of Interests After the Effective Time. Upon
the issuance of an Interest to a Member after the Effective Time, the Management
Committee by unanimous vote shall specify the Participation Percentage
associated with such issuance. Thereafter, the Participation Percentages of all
Interests outstanding immediately before such issuance shall be reduced in the
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9
aggregate by an amount equal to the Participation Percentage so designated, in
proportion to their relative Participation Percentages immediately before such
issuance.
SECTION 5.03. Repurchases of Interests. If the Company shall
repurchase any Interest, then upon such repurchase, the Participation
Percentages of all remaining Interests shall be increased in the aggregate by an
amount equal to the Participation Percentage of such repurchased Interest, in
proportion to their relative Participation Percentages immediately before such
repurchase.
ARTICLE VI
CAPITAL ACCOUNTS, ALLOCATIONS OF
PROFIT AND LOSS AND TAX MATTERS
SECTION 6.01. Capital Accounts. (a) The Company shall establish a
capital account (a "Capital Account") for each Member on the books of the
Company. The opening balance of each Member's Capital Account on the
Restructuring Date shall be equal to such Member's initial Contribution as set
forth on Schedule D hereto. The Capital Account of a Member shall be increased
by (i) the amount of money contributed by that Member to the Company, (ii) the
fair market value of property contributed by that Member to the Company (net of
liabilities related to such contributed property that the Company is considered
to assume or take subject to under Section 752 of the Code) and (iii)
allocations to that Member pursuant to Section 6.02 of profit, income and gain
(or items thereof). The Capital Account of a Member shall be decreased by (i)
the amount of money distributed to that Member by the Company, (ii) the fair
market value of property distributed to that Member by the Company (net of
liabilities related to such distributed property that such Member is considered
to assume or take subject to under Section 752 of the Code), (iii) allocations
to that Member pursuant to Section 6.02 of expenditures described in Section
705(a)(2)(B) of the Code and (iv) allocations to that Member pursuant to Section
6.02 of loss, expense and deduction (or items thereof).
(b) In the event that a Member Transfers any Interest in accordance
with the provisions of this Agreement, the Transferee of such Interest shall
succeed to the Capital Account of the Transferor attributable to such Interest.
(c) Upon the occurrence of any event specified in Treasury Regulation
'SS'1.704-1(b)(2)(iv)(f), if the Management
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10
Committee so elects by unanimous vote, the Capital Accounts of the Members shall
be adjusted to reflect the fair market value of the Company's property at such
time and in such manner as provided in such Regulation.
(d) No Member shall be entitled to withdraw capital or receive
distributions except as specifically provided herein. No Member shall have any
obligation to the Company, to any other Member or to any creditor of the Company
to restore any negative balance in the Capital Account of such Member. No
interest will be paid on the balance in any Member's Capital Account.
SECTION 6.02. Allocations of Book Profits and Losses. (a) Net Profits
of the Company for each taxable period shall be allocated among the Members pro
rata, in accordance with the respective Participation Percentages of their
Interests for such period. Net Losses of the Company for each taxable period
shall be allocated among the Members in accordance with the respective
Participation Percentages of their Interests for such period, provided that any
allocation of Net Losses pursuant to this Section 6.02(a) that would cause a
Member's Capital Account to be reduced below zero shall instead be allocated to
the remaining Members in proportion to such Members' positive Capital Account
balances.
(b) Minimum Gain Chargeback. The Company shall allocate items of
profit among the Members at such times and in such amounts as necessary to
satisfy the minimum gain chargeback requirements of Treasury Regulation
'SS' 'SS'1.704-2(f) and 1.704-2(i)(4).
(c) Allocation of Deductions Attributable to Member Nonrecourse
Liabilities. Any nonrecourse deductions attributable to a Member Nonrecourse
Liability shall be allocated among the Members that bear the economic risk of
loss for such Member Nonrecourse Liability in accordance with the ratios in
which such Members share such economic risk of loss and in a manner consistent
with the requirements of Treasury Regulation 'SS' 'SS'1.704-2(c), 1.704-2(i)(2)
and 1.704-2(j)(1).
(d) Qualified Income Offset. The Company shall specially allocate
items of profit and loss when and to the extent required to satisfy the
"qualified income offset" requirement within the meaning of Treasury Regulation
'SS'1.704-1(b)(2)(ii)(d).
(e) To the extent that any item of Partnership income, gain, loss or
deduction has been specially allocated
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11
pursuant to Sections 6.02(b), (c) or (d), and such allocation is inconsistent
with the way in which the same item amount otherwise would have been allocated
under Section 6.02(a), subsequent allocations under Section 6.02(a) shall be
made, in a manner consistent with Sections 6.02(b), (c) and (d), which negate as
rapidly as possible the effect of all such inconsistent allocations under
Sections 6.02(b), (c) or (d).
(f) Allocations in Liquidation. Upon a dissolution of the Company in
accordance with Article XII, items of the Company's profit or loss attributable
to a hypothetical Company sale of all its assets remaining on the date of
dissolution, subject to its liabilities, on that date for their respective fair
market values) shall be allocated to the Members in accordance with the
provisions of Section 6.02(a).
SECTION 6.03. Allocations of Taxable Income and Loss. Except as
provided in the following sentence, profit, income, gain, loss, deduction and
expense as determined for Federal income tax purposes shall be allocated among
the Members in the same proportions as the corresponding items of "book" profit,
income, gain, loss, deduction and expense are allocated pursuant to Section 6.02
among such Members. Notwithstanding the foregoing sentence, Federal income tax
items relating to any Section 704(c) Property shall be allocated among the
Members in accordance with Section 704(c) of the Code and Treasury Regulation
'SS'1.704-3(c) using curative allocations to take into account the difference
between the fair market value and the tax basis of such Section 704(c) Property
as of the date of its contribution to the Company or its revaluation pursuant to
Section 6.01(c). Items described in this Section 6.03 shall neither be credited
nor charged to the Members' Capital Accounts.
SECTION 6.04. Allocation Between Transferor and Transferee Members. If
any Interest is Transferred as permitted by this Agreement during a taxable
year, then the Transferor and Transferee shall each be allocated profit and loss
based upon the number of days each Person holds such Interest during such year,
subject to applicable Treasury Regulations. Similar apportionments shall be made
to account for varying Participation Percentages attributable to any Interest
during a taxable year.
SECTION 6.05. Elections. Except as otherwise expressly provided
herein, all elections required or permitted to be made by the Company under the
Code or other applicable tax law, and all material decisions with respect
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12
to the calculation of its taxable income or tax loss for tax purposes under the
Code or other applicable tax law, shall be made in such manner as may be
determined by the Management Committee by Majority Vote. Notwithstanding the
foregoing, the Company shall, if so requested by any Member, make the election
described in Section 754 of the Code, unless the Management Committee determines
by Majority Vote that making such election would be likely to result in a tax
detriment to the other Members that is in the aggregate greater than the benefit
likely to result to such requesting Member.
SECTION 6.06. Fiscal Year. The Fiscal Year of the Company for tax and
accounting purposes shall be the 12-month (or shorter) period ending on December
31 of each year.
SECTION 6.07. Withholding Requirements. In the event that the Company
withholds or pays tax in respect of any Member for any period in excess of the
amount otherwise distributable to such Member for such period (or there is a
determination by any taxing authority that the Company should have withheld or
paid any tax for any period in excess of the tax, if any, that it actually
withheld or paid for such period), such excess amount (or such additional
amount) shall be treated as a recourse loan to such Member that shall bear
interest at a variable rate equal to Chase Manhattan Bank's prime lending rate
per annum (but in no event more than the highest lawful rate) and be payable on
demand.
SECTION 6.08. Tax Matters Partner. TWX shall act as the "tax matters
partner" of the Company within the meaning of Section 6231(a)(7) of the Code and
in any similar capacity under applicable state or local tax law. All reasonable
out-of-pocket expenses incurred by TWX while acting in such capacity shall be
paid or reimbursed by the Company.
SECTION 6.09. Partnership Status. The Members intend that the Company
shall be treated as a partnership for all relevant tax purposes and agree to
take all reasonable actions, including the amendment of this Agreement (so long
as such amendment does not materially adversely affect any Member) and the
execution of other documents, as may be reasonably required to qualify for and
receive such treatment.
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ARTICLE VII
DISTRIBUTIONS
SECTION 7.01. General. Except as provided in Section 7.02, all cash
distributions by the Company will be made, if, as and when declared by the
Management Committee, in respect of each Interest in proportion to the
Participation Percentage of such Interest.
SECTION 7.02. Liquidation. Upon the dissolution of the Company, cash
and non-cash assets shall be distributed in accordance with the priorities
described in Section 12.02(b).
SECTION 7.03. Distributions in Kind. Subject to Section 12.03, the
Company shall not distribute any assets in kind unless unanimously approved by
the Management Committee. Such property distributions shall be distributed based
on their fair market value in the same proportions as if cash were distributed.
If cash and property are to be distributed in kind simultaneously, the Company
shall distribute such cash and property in kind in the same proportion to each
Member, unless otherwise agreed by each Member.
ARTICLE VIII
VOTING RIGHTS AND MANAGEMENT OF THE COMPANY
SECTION 8.01. Powers of Members. (a) The Members hereby designate a
management committee comprised of the Representatives described in Section
8.02(a) (the "Management Committee"). The Representatives shall be managers
(within the meaning of the Delaware Act) of the Company. Except as expressly
provided in this Agreement or the Delaware Act, the business and affairs of the
Company shall be managed exclusively by the Management Committee in accordance
with the terms of this Agreement. The Management Committee shall have the power
to do any and all acts necessary or convenient to or for the furtherance of the
purposes described herein, including all powers, statutory or otherwise,
possessed by managers under the laws of the State of Delaware. Without limiting
the generality of the foregoing, the Management Committee shall have the
exclusive power and authority, on behalf of the Company, to collect and
distribute funds and make allocations and adjustments in accordance with
Articles IV, V, and VI, to determine the terms of any Interest issued in
accordance with Article III and to take such other actions not inconsistent with
this
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Agreement as the Management Committee deems necessary or appropriate to carry on
the business and purposes of the Company. The Management Committee is, to the
extent of its rights and powers set forth in this Agreement, an agent of the
Company for the purpose of the Company's business, and the actions of the
Management Committee taken in accordance with such rights and powers shall bind
the Company (and no individual Member or group of Members shall have such
right). The Management Committee shall be responsible for the establishment of
policy and operating procedures with respect to the business and affairs of the
Company and shall be entitled to appoint agents or employees, with such titles
as the Management Committee may select by Majority Vote, as officers of the
Company to act on behalf of the Company, with such power and authority as the
Management Committee may delegate from time to time to any such Person. Such
officers shall report to the Management Committee (or to other officers who
report to the Management Committee).
(b) The Class B Interests shall have the approval rights expressly set
forth in this Agreement and the Class A Interests shall have no voting, approval
or consent rights, including with respect to the IPO Transaction (or any changes
to the forms of Charter, By-laws and Stockholders Agreement relating thereto) or
any merger, consolidation or conversion of the Company; provided, however, that
at all times the approval of the holders of a majority (in Participation
Percentages) of the Class A Interests shall be required for any amendment to
this Agreement that would have an adverse effect on the rights of such class.
(c) The Company shall not, directly or indirectly (through a
subsidiary or affiliate of the Company or any other Person or otherwise), for
its own account or that of another, engage in the business of providing,
offering, promoting or branding any Residential Services (as defined in the
Charter) or engage in the business of producing, packaging, distributing,
marketing, hosting, offering, promoting, branding or otherwise providing Content
Services (as defined in the Charter), unless such action shall be approved in
advance by the affirmative vote of one hundred percent (100%) of the Class B
Members, voting separately as a class.
(d) The affirmative vote of one hundred percent (100%) of the Class B
Members, voting separately as a class, shall be required:
(i) to amend any provision of this Agreement or any Exhibit hereto;
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(ii) for (x) the disposition, directly or indirectly, by the Company
(or by one or more direct or indirect subsidiaries thereof) by sale,
merger, consolidation, conversion, new issuances or otherwise, to a Person
(other than the Company or a direct or indirect wholly owned subsidiary of
the Company), in any transaction or series of related transactions, of
shares of the capital stock of one or more direct or indirect Subsidiaries
(as defined in the Charter) of the Company which, in the aggregate, hold
assets of the Company and its Subsidiaries on a consolidated basis having a
fair market value of $100 million or more or (y) the disposition, directly
or indirectly, by the Company (or by one or more direct or indirect
subsidiaries thereof) by sale, merger, consolidation, conversion or
otherwise, (other than to the Company or a direct or indirect wholly owned
subsidiary of the Company) in any transaction or series of related
transactions outside the ordinary course of the business of the Company, of
assets of the Company and its Subsidiaries on a consolidated basis having a
fair market value of $100 million or more, except, in each case referred to
in the foregoing clauses (x) and (y), for pledges, grants of security
interests, security deeds, mortgages or similar encumbrances securing bona
fide indebtedness, and any foreclosure in respect thereof;
(iii) for the acquisition, directly or indirectly, by the Company (or
by one or more direct or indirect subsidiaries thereof), in any transaction
or series of related transactions, of assets having an aggregate purchase
price of $100 million or more; and
(iv) for the issuance of any Interest after the
Effective Time.
(e) In the event the Company proposes to take any action which,
pursuant to the terms of this Agreement requires the approval of a class of
Members, voting separately as a class, the Company shall call a meeting of such
class of Members for the purpose of a vote thereon. Telephonic or other notice
of any such meeting shall be given by the Company to each Member within such
class at least seven days prior thereto (unless waived by such Member), which
notice shall include a brief description of the action or actions to be
considered by such class of Members. Any such approval by a class of Members may
be given by the requisite vote required hereunder pursuant to (i) resolution at
a meeting of such class of Members or (ii) written consent of such Members.
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SECTION 8.02. Management Committee Representatives; Chairman. (a) It
is the intent of the Members that appointments of Representatives to the
Management Committee shall be made in the same manner that directors will be
appointed to the Board following the Reconstitution pursuant to the
Stockholders' Agreement. Accordingly, and in furtherance of the foregoing, the
provisions of Article II of the Stockholders' Agreement are hereby incorporated
by reference herein; provided, that:
(A) (i) references therein to "directors" shall be deemed to be
references to "Representatives", (ii) references therein to the "Board"
shall be deemed to be references to the "Management Committee", (iii)
references therein to shares of Common Stock shall be deemed to be
references to "Interests", and (iv) references therein to the "Ownership
Percentage" of a Principal Stockholder Group shall be deemed to be
references to the aggregate Participation Percentages of the Interests held
by such Principal Stockholder Group; and
(B) notwithstanding any references in such Article II to stockholder
meetings or voting, designations of Representatives by the applicable
Principal Stockholder Group or Nominating Committee shall be made by
written notice to the Members and the Company.
(b) Each Representative designated by a Member (or group of Members)
shall serve at the pleasure of its designating Member (or group of Members).
[Each Member's designee Representative shall be drawn from the then-current
officers, directors or full-time employees of such Member (or group of
Members)]. Any Member may remove or replace its Representative at any time or
from time to time, with or without cause, by written notice to the other Members
and to such Representative. In addition, the CEO and any Representatives
designated by the Nominating Committee may be removed, with or without cause, by
the written consent of the Members holding Interests representing a majority of
the Participation Percentages of all the Interests. Except as provided in the
preceding sentence, no Representative may be removed.
(c) On an annual basis, the Management Committee shall elect one
Representative to serve as Chairman of the Management Committee meetings (the
"Chairman"). The Chairman shall be responsible for soliciting from the
Representatives items for the agendas, giving notices, and presiding at
Management Committee meetings. The Chairman, or a person designated by him or
her shall keep minutes of
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all Management Committee meetings, including telephonic meetings, and shall
distribute copies thereof to all Representatives for approval and adoption.
Other than as set forth in the two immediately preceding sentences, the Chairman
shall have no other or additional powers, rights or responsibilities and the
Chairman shall have no additional voting or "tie-breaking" powers.
(d) Management Committee meetings shall take place (whether in person
or by telephone) at least quarterly to consider the financial condition and
performance of and other matters pertaining to the Company and to take such
other actions as are authorized to take place at Management Committee meetings
under this Agreement. Representatives shall be entitled to access to such
information respecting the Company on the same basis and to the same extent as a
director of a corporation under Delaware law would be entitled. The Chairman
shall provide each Representative with at least seven days prior notice of each
regular Management Committee meeting and each Representative will use its
reasonable efforts to attend such meeting in person. The Chairman or any other
Representative shall be entitled to call a special Management Committee meeting
by providing at least ten days prior notice (unless such prior notice is waived
by the applicable Representative, including constructive waiver through
attendance, unless attendance is coupled with an immediate objection at the
start of the meeting) thereof (including a brief description of the action or
actions to be considered thereat) to each Representative.
(e) Subject to Section 8.02(f), no action may be taken by the
Representatives except at a duly convened Management Committee meeting at which
a quorum, consisting of a majority of the entire Management Committee, is
present (in person or by telephone). Each Representative shall be entitled to
vote on all matters presented at the Management Committee meetings, and a vote
will be taken on each such matter. As used herein, the term "entire Management
Committee" means the total number of Representatives there would be if there
were no vacancies.
(f) The Management Committee may act by written consent, as set forth
in a written instrument signed by all the Representatives.
(g) No Representative shall be entitled to any fee, remuneration,
compensation or expense reimbursement in connection with their service at
Management Committee meetings.
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SECTION 8.03. Requisite Vote. (a) Except as otherwise expressly
provided in this Agreement, all matters presented to the Management Committee
shall be approved by the affirmative vote of a majority of the Representatives
present at any meeting of the Management Committee at which there is a quorum
(the foregoing is referred to herein as a "Majority Vote").
(b) The day to day management and operation of the Company shall be
the responsibility of the CEO, who shall be appointed by the Management
Committee as provided in Section 8.01, and who shall have the same type of
authority as is incident to the office of a chief executive officer of a
Delaware corporation.
ARTICLE IX
TRANSFERS OF INTERESTS
SECTION 9.01. Restrictions on Transfers. (a) During the Restricted
Period, except as provided in the next sentence, no Member may make any Transfer
or Indirect Transfer of all or any part of its Interests. At any time and from
time to time during the Restricted Period, a Member may Transfer all or any part
of its Interest in accordance with Section 3.3 of the Stockholders' Agreement,
and in furtherance of the foregoing, such Section 3.3 is hereby incorporated by
reference herein; provided, that references therein to shares of "Class B Common
Stock" shall be deemed to be references to "Class B Interests".
(b) Following the Restricted Period, it is the intent of the Members
that Transfers and Indirect Transfers of Interests shall be made in the same
manner that Transfers and Indirect Transfers of Common Stock will be made
pursuant to the Stockholders' Agreement. Accordingly, and in furtherance of the
foregoing, the provisions of Article III of the Stockholders' Agreement are
hereby incorporated by reference herein, and shall be applicable following the
Restricted Period; provided, that:
(A) (i) references therein to shares of "Class A Common Stock" and
"Class B Common Stock" shall be deemed to be references to "Class A
Interests" and "Class B Interests", respectively, (ii) the Interests shall
not be certificated or legended, (iii) allocations pursuant to Section
3.4(c) of the Stockholders' Agreement based on numbers of shares of Class B
Common Stock owned shall instead be based on Participation Percentages of
Class B Interests owned,
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(iv) the reference in clause (ii) of Section 3.5(a) of the Stockholders'
Agreement to "greater than 33% of the issued and outstanding shares of
Common Stock" shall be deemed to be a reference to "Interests having an
aggregate Participation Percentage greater than 33%", and (v) the fraction
described in clause (y) of Section 3.5(a) of the Stockholders' Agreement
shall be deemed to have a numerator equal to the aggregate Participation
Percentage of the TW Shares, and a denominator equal to the aggregate
Participation Percentage of all the Interests owned by the TW Principal
Stockholder Group.
(c) It shall be a condition to any Transfer otherwise permitted
pursuant to this Article IX that such Transfer shall comply with the provisions
of the Securities Act and applicable state securities laws. Until any Interest
has been registered under the Securities Act, such Interest may not be offered
or sold except pursuant to an exemption from, or in a transaction not subject
to, the registration requirements of the Securities Act and applicable state
securities laws.
ARTICLE X
IPO TRANSACTION
SECTION 10.01. Public Offering. (a) The Members agree that it is their
intention, at the earliest reasonable opportunity based upon the successful
performance of the Company and equity market conditions prevailing from time to
time, to reconstitute the Company as a corporation in the manner set forth in
Section 10.01(b) in order to effect immediately thereafter an initial public
offering of the common stock of such corporation (an "IPO Transaction"). The
decision to effect the IPO Transaction, and 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 100%
of those Distributee Members who are, at the time of such approval, entitled to
designate Representatives pursuant to Section 8.02, but shall not require the
approval of any other Member (including any vote that, but for this provision,
would be required pursuant to Section 8.01(d)(ii)). By acquiring an Interest,
each Member hereby agrees to take the actions described in this Section 10.01
(including, without limitation, exchanging its Interest as described below, if
applicable) if the foregoing approval of the Distributee Members is obtained.
The form and substance of the final version of the Registration Statement on
Form S-1 with respect to the IPO Transaction (the "IPO
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Registration Statement") shall be subject to the approval of the Management
Committee.
(b) Immediately prior to the effectiveness of the IPO Registration
Statement, the Members 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
by the merger of the Company into a newly formed Delaware corporation ("Newco"),
or by a contribution by the Members of their Interests to Newco, in either case
pursuant to which (i) all the Class A Interests will be exchanged for such
number of shares of Class A Common Stock as represent, in the aggregate, a
percentage of the total outstanding shares of Common Stock that is equivalent to
the aggregate Participation Percentages of the Class A Interests so exchanged
and (ii) all the Class B Interests will be exchanged for such number of shares
of Class B Common Stock as represent, in the aggregate, a percentage of the
total outstanding shares of Common Stock that is equivalent to the aggregate
Participation Percentages of the Class B Interests so exchanged. The certificate
of incorporation of Newco shall be in the form of the Charter and the by-laws of
Newco shall be in the form of the By-laws. Pursuant to the Charter, the
authorized capital stock of Newco shall include shares of Class A Common Stock
and Class B 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 ten votes per share.
Shares of Class A Common Stock shall be sold by Newco in the IPO Transaction.
(c) In connection with the Reconstitution, each Distributee Member and
each Class B Member shall execute the Stockholders' Agreement.
Section 10.02. Repayment of Company Indebtedness. A portion of the
proceeds received by Newco pursuant to the IPO Transaction shall be used to
repay the Company Indebtedness.
ARTICLE XI
LIMITATION ON LIABILITY, EXCULPATION
AND INDEMNIFICATION
SECTION 11.01. Limitation on Liability. The debts, obligations and
liabilities of the Company, whether arising in contract, tort or otherwise,
shall be solely the debts, obligations and liabilities of the Company, and no
Covered Person shall be obligated personally for any such
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debt, obligation or liability of the Company; provided, however, that the
foregoing shall not alter each Member's obligation, to the extent required by
applicable law, to return funds wrongfully distributed to it.
SECTION 11.02. Exculpation; Inapplicability of Certain Doctrines. (a)
No Covered Person shall be liable, including under any legal or equitable theory
of fiduciary duty or other theory of liability, to the Company or to any other
Covered Person for any losses, claims, damages or liabilities incurred by reason
of any act or omission performed or omitted by such Covered Person in good faith
on behalf of the Company. Whenever in this Agreement a Covered Person is
permitted or required to make decisions such Covered Person shall make such
decisions in good faith and shall not be subject to any other or different
standard (including any legal or equitable standard of fiduciary or other duty)
imposed by this Agreement or any relevant provisions of law or in equity or
otherwise.
(b) A Covered Person shall be fully protected in relying in good faith
upon the records of the Company and upon such information, opinions, reports or
statements presented to the Company by any Person as to matters the Covered
Person reasonably believes are within such Person's professional or expert
competence.
(c) To the fullest extent permitted by applicable law (including
Section 18-1101(c) of the Delaware Act), no Member shall have any fiduciary or
similar duty, at law or in equity, or any liability relating thereto, to the
Company or any Member, with respect to or in connection with the Company or the
Company's business or affairs. Without limiting the generality of the foregoing,
to the fullest extent permitted by applicable law (including Section 18-1101(c)
of the Delaware Act), the doctrine of corporate opportunity, and any other
analogous doctrine, shall not apply with respect to the Company. To the extent
that the doctrine of corporate opportunity, or any other analogous doctrine, is
applicable to the Company under applicable law, the provisions of Article VII of
the Charter are hereby incorporated by reference herein; provided, that (i)
references therein to the "Corporation" shall be deemed to be references to the
"Company", (ii) references therein to the "DGCL" shall be deemed to be
references to the "Delaware Act", (iii) references therein to directors of the
Corporation shall be deemed to be references to Representatives, (iv) the
reference in Section 4 thereof to Article II of the Charter shall be deemed to
be a reference to the restriction set forth in Section 8.01(c) hereof, and (v)
the reference in Section 5 thereof to ownership of 5% of
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the number of outstanding shares of Common Stock of the Corporation shall be
deemed to be a reference to ownership of an Interest having a Participation
Percentage of 5%.
SECTION 11.03. Indemnification. (a) Each Member (the "Indemnifying
Member") shall indemnify, defend and hold harmless, to the fullest extent
permitted by applicable law, each other Covered Person and the Company against
any losses, claims, damages, liabilities, expenses (including all reasonable
fees and expenses of counsel), judgments, fines, settlements and other amounts
(collectively "Losses") resulting from the breach by the Indemnifying Member of
any provision of this Agreement.
(b) The Company shall indemnify, defend and hold harmless, to the
fullest extent permitted by applicable law, each Covered Person against any
Losses arising out of or in connection with the Company's business or affairs or
this Agreement, unless such Loss is as a result of such Covered Person's fraud,
bad faith, gross negligence or willful misconduct; provided, that an
Indemnifying Member's obligations pursuant to Section 11.03(a) shall not
constitute a "Loss" for purposes of this Section 11.03(b), and such Indemnifying
Member shall not be entitled to indemnification under this Section 11.03(b) to
the extent it (or any related Covered Person) suffers a Loss as a result of any
matter referred to in Section 11.03(a).
If any Covered Person becomes involved in any capacity in any action,
suit, proceeding or investigation in connection with any matter arising out of
or in connection with the Company's business or affairs, or this Agreement or
any related document, other than by reason of any act or omission performed or
omitted by such Covered Person that was not in good faith on behalf of the
Company, the Company shall reimburse such Covered Person for its reasonable
legal and other reasonable out-of-pocket expenses (including the cost of any
investigation and preparation) as they are incurred in connection therewith;
provided that such Covered Person shall promptly repay to the Company the amount
of any such reimbursed expenses paid to it if it shall be finally determined (by
arbitration in accordance with Section 13.05) that such Covered Person was not
entitled to be indemnified by the Company in connection with such action, suit,
proceeding or investigation. If for any reason (other than the bad faith of a
Covered Person) the foregoing indemnification is unavailable to such Covered
Person, or insufficient to hold it harmless, then the Company shall contribute
to the amount paid or payable by such Covered Person as a result of such loss,
claim, damage, liability, expense, judgment, fine, settlement or other amount in
such
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proportion as is appropriate to reflect any relevant equitable considerations.
The obligations of the Company under this Section 11.03(b) shall be satisfied
solely out of and to the extent of the Company's assets, and no Covered Person
shall have any personal liability on account thereof.
SECTION 11.04. Special Indemnification. (a) The Company shall
indemnify, defend and hold harmless, to the fullest extent permitted by
applicable law, any Person that was or is made or is threatened to be made a
party or is otherwise involved in any action, suit or proceeding, by reason of
the fact that such Person is or was an officer of the Company or, while an
officer of the Company, is or was serving at the request of the Company as an
officer, employee or agent of another company or of a partnership, joint
venture, trust, enterprise or nonprofit entity, including service with respect
to employee benefit plans, against all Losses reasonably incurred by such
Person. Subject to the second sentence of Section 11.04(b), the Company shall be
required to indemnify or make advances (pursuant to the following paragraph) to
a Person in connection with such a proceeding (or part thereof) initiated by
such Person only if the initiation of such proceeding (or part thereof) was
authorized by the Management Committee by Majority Vote.
(b) The Company shall pay the reasonable expenses (including
reasonable attorneys' fees) incurred by any Person that is or was an officer of
the Company or, while an officer of the Company, is or was serving at the
request of the Company as a director, officer, employee or agent of another
company or of a partnership, joint venture, trust, enterprise or nonprofit
entity, in defending any proceeding of the type referred to above in advance of
its final disposition; provided, however, that the payment of expenses incurred
by such a Person in advance of the final disposition of such proceeding shall be
made only upon receipt of an undertaking by or on behalf of such Person to repay
all amounts advanced if it should be finally determined that such Person is not
entitled to be indemnified under this Section 11.04 or otherwise. If a claim for
indemnification or advancement of expenses under this Section 11.04 is not paid
in full within sixty (60) calendar days after a written claim therefor has been
received by the Company, the claimant may file suit to recover the unpaid amount
of such claim and, if successful in whole or in part, shall be entitled to be
paid the expense of prosecuting such claim. In any such action, the Company
shall have the burden of proving that the claimant was not entitled to the
requested indemnification or payment of expenses under applicable law.
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(c) The Company's obligation, if any, to indemnify any Person that was
or is serving at its request as a director, officer, employee or agent of
another company, partnership, joint venture, trust, enterprise or nonprofit
entity shall be reduced by any amount such Person may collect as indemnification
from such other company, partnership, joint venture, trust, enterprise or
nonprofit entity, as applicable.
(d) The indemnification and advancement of expenses provided by or
granted pursuant to this Section 11.04 shall, unless otherwise provided when
authorized or ratified, continue as to a Person who has ceased to be an officer,
employee or agent of the Company or other Person indemnified hereunder and shall
inure to the benefit of the heirs, executors and administrators of such Person.
ARTICLE XII
DISSOLUTION AND TERMINATION
SECTION 12.01. Dissolution. (a) The Company shall not be dissolved by
the admission of Additional Members or Substitute Members pursuant to Section
3.02.
(b) No Member shall resign from the Company or take any action to
dissolve, terminate or liquidate the Company or to require apportionment,
appraisal or partition of the Company or any of its assets, or to file a bill
for an accounting, except as specifically provided in this Agreement, and each
Member, to the fullest extent permitted by applicable law, hereby waives any
rights to take any such actions under applicable law, including any right to
petition a court for judicial dissolution under Section 18-802 of the Delaware
Act.
(c) The Company shall be dissolved and its business wound up upon the
earliest to occur of any one of the following events:
(i) the written agreement of all the Class B Members;
[(ii) the bankruptcy or insolvency of any Member, unless within 90
days after such event, Members of a majority in interest of the capital and
profits of the Company (to the extent there is then more than one such
Member) elect in writing to continue the business of the Company] [the last
remaining Member ceasing to be a Member unless otherwise continued in
accordance with the Delaware Act]]; or
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(iii) the entry of a decree of judicial dissolution under Section
18-802 of the Delaware Act, in contravention of this Agreement.
(d) The resignation, expulsion, bankruptcy, insolvency or dissolution
of a Member or the occurrence of any other event that terminates the continued
membership of a Member of the Company shall not in and of itself cause a
dissolution of the Company.
SECTION 12.02. Winding Up of the Company. (a) Upon dissolution, the
Company's business shall be liquidated in an orderly manner. The Class B Members
shall unanimously appoint a liquidating trustee to wind up the affairs of the
Company pursuant to this Agreement. In performing its duties, the liquidating
trustee is authorized to sell, distribute, exchange or otherwise dispose of the
assets of the Company in accordance with the Delaware Act and in any reasonable
manner that the liquidating trustee shall determine to be in the best interest
of the Members.
(b) The proceeds of the liquidation of the Company shall be
distributed in the following order and priority:
(i) first, to the creditors (including any Members or their respective
Affiliates that are creditors) of the Company, to the fullest extent
permitted by applicable law, in satisfaction of all of the Company's
liabilities (whether by payment or by making reasonable provision for
payment thereof, including the setting up of any reserves which are, in the
judgment of the liquidating trustee, reasonably necessary therefor); and
(ii) second, to the Members pro rata in accordance with the respective
Participation Percentages of their Interests.
SECTION 12.03. Distribution of Property. In the event it becomes
necessary in connection with the liquidation of the Company to make a
distribution of property in kind, subject to the priority set forth in Section
12.02, the liquidating trustee shall have the right to compel each Member to
accept a distribution of any asset in kind to the extent that the percentage of
the asset distributed to such Member differs from a percentage of that asset
which is equal to the Participation Percentage of such Member's Interests, with
such distribution being based upon the amount of cash that would be distributed
to such Members if such property were sold for an amount of cash equal to
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the fair market value of such property, as determined by the liquidating trustee
in good faith.
SECTION 12.04. Claims of Members. The Members shall look solely to the
Company's assets for the return of their capital contributions, and if the
assets of the Company remaining after payment of or reasonable provision for the
payment of all liabilities of the Company are insufficient to return such
capital contributions, the Members shall have no recourse against the Company or
any Covered Person.
SECTION 12.05. Termination. The Company shall terminate when all of
the assets of the Company, after payment of or reasonable provision for the
payment of all debts and liabilities of the Company, shall have been distributed
to the Members in the manner provided for in this Article XII, and the
certificate of formation of the Company shall have been canceled in the manner
required by the Delaware Act.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.01. No Third Party Beneficiaries. This Agreement is not
intended to confer any rights or remedies hereunder upon, and shall not be
enforceable by, any Person other than the parties hereto and, with respect to
the provisions of Article XI, each Covered Person.
SECTION 13.02. Amendment and Waiver. The provisions of Section 6.2 of
the Stockholders' Agreement are hereby incorporated by reference herein.
SECTION 13.03. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware without
reference to choice of law principles, including all matters of construction,
validity and performance. To the extent that a document, the provisions of which
are incorporated by reference herein, states that it is to be governed by and
construed in accordance with the laws of another jurisdiction, it shall, when
incorporated by reference herein, be governed by, and construed in accordance
with, the laws of the State of Delaware as set forth above.
SECTION 13.04. Notices. The provisions of Section 6.4 of the
Stockholders' Agreement are hereby incorporated by reference herein.
<PAGE>
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27
SECTION 13.05. Entire Agreement. This Agreement (including the
Schedules and Exhibits attached hereto, all of which are a part hereof) and the
Reorganization Agreement 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.
SECTION 13.06. Headings; References. The provisions of Section 6.6 of
the Stockholders' Agreement are hereby incorporated by reference herein.
SECTION 13.07. Counterparts. The provisions of Section 6.7 of the
Stockholders' Agreement are hereby incorporated by reference herein.
SECTION 13.08. Parties in Interest; Assignment. The provisions of
Section 6.8 of the Stockholders' Agreement are hereby incorporated by reference
herein.
SECTION 13.09. Severability; Enforcement. The provisions of Section
6.9 of the Stockholders' Agreement are hereby incorporated by reference herein.
SECTION 13.10. Specific Performance. The provisions of Section 6.10 of
the Stockholders' Agreement are hereby incorporated by reference herein.
SECTION 13.11. Arbitration. The provisions of Section 6.11 of the
Stockholders' Agreement are hereby incorporated by reference herein.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties as of the day and year first above written.
Initial Members:
TIME WARNER COMPANIES, INC.,
By ___________________________________
Name:
Title:
<PAGE>
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28
MEDIAONE GROUP, INC.,
By ___________________________________
Name:
Title:
ADVANCE/NEWHOUSE PARTNERSHIP,
By ADVANCE COMMUNICATIONS
CORP., General Partner
By ___________________________________
Name:
Title:
By NEWHOUSE BROADCASTING
CORPORATION, General Partner
By ___________________________________
Name:
Title:
TIME WARNER ENTERTAINMENT
COMPANY, L.P.,
By ___________________________________
Name:
Title:
TIME WARNER ENTERTAINMENT --
ADVANCE/NEWHOUSE PARTNERSHIP,
By TIME WARNER ENTERTAINMENT
COMPANY, L.P., General
Partner
By ___________________________________
Name:
Title:
<PAGE>
<PAGE>
29
Distributee Members:
TIME WARNER COMPANIES, INC.
By ___________________________________
Name:
Title:
AMERICAN TELEVISION AND
COMMUNICATIONS CORPORATION,
By ___________________________________
Name:
Title:
WARNER COMMUNICATIONS, INC.,
By ___________________________________
Name:
Title:
TW/TAE INC.,
By ___________________________________
Name:
Title:
FIBERCOMM HOLDINGS L.P.,
By ___________________________________
Name:
Title:
<PAGE>
<PAGE>
30
PARAGON COMMUNICATIONS,
By ___________________________________
Name:
Title:
MEDIAONE GROUP, INC.,
By ___________________________________
Name:
Title:
ADVANCE/NEWHOUSE PARTNERSHIP,
By ADVANCE COMMUNICATIONS
CORP., General Partner,
By ___________________________________
Name:
Title:
By NEWHOUSE BROADCASTING
CORPORATION, General
Partner,
By ___________________________________
Name:
Title:
<PAGE>
<PAGE>
Exhibit A
<PAGE>
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
TIME WARNER TELECOM INC.
The undersigned officers of Time Warner Telecom Inc., a
Delaware corporation (the "Corporation"), do hereby certify as follows:
(1) The present name of the Corporation is Time Warner Telecom
Inc. The Corporation was originally incorporated under the same name, and its
original certificate of incorporation was filed with the office of the Secretary
of State of the State of Delaware on February 5, 1998.
(2) This Restated Certificate of Incorporation was duly
adopted in accordance with Sections 242 and 245 of the General Corporation Law
of the State of Delaware and by unanimous written consent of stockholders in
accordance with Section 228 of the General Corporation Law of the State of
Delaware.
(3) This Restated Certificate of Incorporation restates and
integrates and further amends the certificate of incorporation of the
Corporation.
(4) The text of the certificate of incorporation of the
Corporation is amended and restated so as to read in its entirety as follows:
ARTICLE I
NAME
The name of this corporation (hereinafter the "Corporation")
is TIME WARNER TELECOM INC.
ARTICLE II
ADDRESS; REGISTERED AGENT
The address of the Corporation's registered office in the
State of Delaware is 9 East Loockerman Street, City of Dover, County of Kent.
The name of the Corporation's registered agent at such address is National
Registered Agents, Inc.
<PAGE>
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2
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (the "DGCL"); provided, however, that
until the earlier of (i) the date that is five years after the date of filing of
this Restated Certificate of Incorporation and (ii) the date on which the
outstanding shares of Class B Stock (as defined herein) no longer represent at
least fifty percent (50%) of the total voting power in the election of directors
of the Corporation ("Voting Power") of all outstanding shares of all classes and
series of capital stock of the Corporation entitled generally to vote in such
election ("Voting Stock") (the earlier of (i) and (ii) being called the
"Termination Date"), the Corporation shall not, directly or indirectly (through
a subsidiary or affiliate of the Corporation or any other person or otherwise),
for its own account or that of another, engage in the business of providing,
offering, promoting or branding any Residential Services or engage in the
business of producing, packaging, distributing, marketing, hosting, offering,
promoting, branding or otherwise providing Content Services, unless such action
shall be approved in advance by the affirmative vote of the holders of one
hundred percent (100%) of the Voting Power of the outstanding shares of Class B
Stock, voting separately as a class.
"Residential Services" shall mean wireline telecommunications services
or other services (including, without limitation, data services) of any
nature provided, directly or indirectly, to third party end-users at
address locations other than Business Locations. "Business Locations"
shall mean (i) address locations that are used solely for business
purposes, including, without limitation, public spaces within business
locations and governmental offices and (ii) hotels, hospitals, jails
and the business offices of residential facilities within educational
institutions and within nursing and assisted living complexes.
"Content Services" means entertainment, information or other content
services, whether fixed or interactive, or any services incidental
thereto; provided, however, that Content Services shall not include
acting solely as a carrier of video, audio or data of unaffiliated
third parties by providing transport services, so long as the
Corporation has no other direct or indirect
<PAGE>
<PAGE>
3
pecuniary interest in the transmitted information or content.
ARTICLE IV
CAPITAL STOCK
SECTION 1. Authorized Capital Stock. The total number of
shares of all classes of capital stock that the Corporation shall have authority
to issue is [ ] shares, consisting of (i) [ ] shares of Common
Stock, par value of $0.01 per share ("Common Stock"), and (ii) [ ] shares
of Preferred Stock, par value of $0.01 per share ("Preferred Stock"). The Common
Stock shall be divided into classes as follows: [ ] shares of Class A
Common Stock ("Class A Stock") and [ ] shares of Class B Common Stock
("Class B Stock").
SECTION 2. Common Stock. (a) Except as otherwise provided in
this Restated Certificate of Incorporation, the Class A Stock and the Class B
Stock shall have the same rights and privileges and shall rank equally, share
ratably and be identical in all respects as to all matters.
(b) Subject to provisions of law and the terms of any
outstanding Preferred Stock, the holders of the Class A Stock and the Class B
Stock shall be entitled to receive dividends or other distributions with respect
to such stock, in an equal amount per share, at such times and in such amounts
as may be determined by the Board and declared out of any funds lawfully
available therefor, and shares of Preferred Stock of any series shall not be
entitled to share therein except as otherwise expressly provided in the
resolution or resolutions of the Board providing for the issue of such series.
Dividends and other distributions with respect to the Class A Stock and the
Class B Stock shall be payable only when, as and if declared by the Board.
(c) Subject to the provisions of law and the terms of any
outstanding Preferred Stock, if at any time a dividend or other distribution
with respect to the Class A Stock or Class B Stock is to be paid in shares of
Class A Stock, Class B Stock or any other securities of the Corporation or any
other corporation, partnership, limited liability company, trust or legal entity
("Person") (hereinafter sometimes called a "share distribution"), such share
distribution shall be declared and paid only as follows, and share distributions
declared and paid as follows shall be deemed to be equal distributions for
purposes of the preceding paragraph:
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4
(i) a share distribution (A) consisting of Class A
Stock (or Convertible Securities that are
convertible into, exchangeable for, or evidence
the right to purchase, shares of Class A Stock) to
holders of Class A Stock and Class B Stock, on an
equal per share basis; or (B) consisting of shares
of Class B Stock (or Convertible Securities that
are convertible into, exchangeable for or evidence
the right to purchase shares of Class B Stock) to
holders of Class A Stock and Class B Stock, on an
equal per share basis; or (C) consisting of shares
of Class A Stock (or Convertible Securities that
are convertible into, exchangeable for or evidence
the right to purchase shares of Class A Stock) to
holders of Class A Stock and, on an equal per
share basis, shares of Class B Stock (or
Convertible Securities that are convertible into,
exchangeable for or evidence the right to purchase
shares of Class B Stock) to holders of Class B
Stock; and
(ii) a share distribution consisting of shares of any class or
series of securities of the Corporation or any other Person
other than Class A Stock or Class B Stock (and other than
Convertible Securities that are convertible into, exchangeable
for or evidence the right to purchase shares of Class A Stock
or Class B Stock), either on the basis of a distribution of
identical securities, on an equal per share basis, to holders
of Class A Stock and Class B Stock or on the basis of a
distribution of one class or series of securities to holders
of Class A Stock and another class or series of securities to
holders of Class B Stock, provided that the securities so
distributed (and, if applicable, the securities into which the
distributed securities are convertible, or for which they are
exchangeable, or which the distributed securities evidence the
right to purchase) do not differ in any respect other than
their relative voting rights and related differences in
conversion and share distribution provisions, with holders of
shares of Class B Stock receiving the class or series having
the higher relative voting rights (without regard to whether
such rights differ to a greater or lesser extent than the
corresponding differences in voting rights and related
differences in conversion and share distribution provisions
between the Class A Stock and the Class B Stock), provided
that if the securities so distributed
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<PAGE>
5
constitute capital stock of a Subsidiary of the Corporation,
such rights shall not differ to a greater extent than the
corresponding differences in voting rights, conversion and
share distribution provisions between the Class A Stock and
Class B Stock, and provided in each case that such
distribution is otherwise made on an equal per share basis.
As used herein, the term "Subsidiary" means, when used with
respect to any Person, (i) a corporation in which such Person and/or one or more
Subsidiaries of such Person, directly or indirectly, owns capital stock having a
majority of the Voting Power of such corporation's Voting Stock; and (ii) any
other Person (other than a corporation) in which such Person and/or one or more
Subsidiaries of such Person, directly or indirectly, has (x) a majority
ownership interest or (y) the power to elect or direct the election of a
majority of the members of the governing body of such first-named Person.
As used herein, the term "Convertible Securities" shall mean
any securities of the Corporation (other than any class of Common Stock) that
are convertible into, exchangeable for, or evidence the right to purchase any
class of Common Stock, whether upon conversion, exercise or exchange, pursuant
to anti-dilution provisions of such securities or otherwise.
(d) If the Corporation shall in any manner reclassify,
subdivide or combine the outstanding shares of Class A Stock or Class B Stock,
the outstanding shares of the other class of Common Stock shall be
proportionally reclassified, subdivided or combined in the same manner and on
the same basis as the outstanding shares of Class A Stock or Class B Stock, as
the case may be, that have been reclassified, subdivided or combined so as to
preserve the relative Voting Power of each class and the relative proportion of
the equity of the Corporation represented by each class immediately prior to the
transaction giving rise to an adjustment pursuant to this paragraph.
(e)
(i) Each share of Class B Stock may at any time be converted
into one fully paid and nonassessable share of Class A Stock. Such
right shall be exercised by the surrender of the certificate
representing such share of Class B Stock to be converted to the
Corporation at any time during normal business hours at the principal
executive offices of the Corporation, or
<PAGE>
<PAGE>
6
if an agent for the registration of transfer of shares of Class B Stock
is then duly appointed and acting (said agent being hereinafter called
the "Transfer Agent"), then at the office of the Transfer Agent,
accompanied by a written notice of the election by the holder thereof
to convert and (if so required by the Corporation or the Transfer
Agent) by instruments of transfer, in form satisfactory to the
Corporation and to the Transfer Agent, duly executed by such holder or
such holder's duly authorized attorney, and together with any necessary
transfer tax stamps or funds therefor, if required pursuant to
subparagraph (v) of this subsection (e).
(ii) As promptly as practicable after the surrender for
conversion of a certificate representing shares of Class B Stock in the
manner provided in paragraph (i) of this subsection (e) and the payment
in cash of any amount required by the provisions of paragraphs (i) and
(v) of this subsection (e), the Corporation will deliver or cause to be
delivered at the office of the Transfer Agent to or upon the written
order of the holder of such certificate, a certificate or certificates
representing the number of full shares of Class A Stock issuable upon
such conversion, issued in such name or names as such holder may
direct. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of the surrender of the
certificates representing shares of Class B Stock, and all rights of
the holder of such shares as such holder shall cease at such time and
the person or persons in whose name or names the certificate or
certificates representing the shares of Class A Stock are to be issued
shall be treated for all purposes as having become the record holder or
holders of such shares of Class A Stock at such time; provided,
however, if any such surrender and payment is made on any date when the
stock transfer books of the Corporation shall be closed, the person or
persons in whose name or names the certificate or certificates
representing shares of Class A Stock are to be issued as the record
holder or holders thereof shall be treated for all purposes as having
become the record holder or holders of such shares immediately prior to
the close of business on the next succeeding day on which such stock
transfer books are open.
(iii) No adjustments in respect of dividends shall be made
upon the conversion of any share of Class B Stock; provided, however,
that if a share shall be converted subsequent to the record date for
the payment
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<PAGE>
7
of a dividend or other distribution on shares of Class B Stock but
prior to such payment, the registered holder of such share at the close
of business on such record date shall be entitled to receive the
dividend or other distribution payable on such share upon the date set
for payment of such dividend or other distribution notwithstanding the
conversion thereof or the Corporation's default in payment of the
dividend due on such date.
(iv) The Corporation will at all times reserve and keep
available, solely for the purpose of issuance upon conversion of the
outstanding shares of Class B Stock, such number of shares of Class A
Stock as shall be issuable upon the conversion of all such outstanding
shares; provided, however, that nothing contained herein shall be
construed to preclude the Corporation from satisfying its obligations
in respect of the conversion of the outstanding shares of Class B Stock
by delivery of purchased shares of Class A Stock which are held in the
treasury of the Corporation. If any shares of Class A Stock required to
be reserved for purposes of conversion hereunder require registration
with or approval of any governmental authority under any Federal or
state law before such shares of Class A Stock may be issued upon
conversion, the Corporation will cause such shares to be duly
registered or approved, as the case may be. All shares of Class A Stock
which shall be issued upon conversion of the shares of Class B Stock
will, upon issue, be fully paid and nonassessable and not subject to
any preemptive rights.
(v) The issuance of certificates for shares of Class A Stock
upon conversion of shares of Class B Stock shall be made without charge
for any stamp or other similar tax in respect of such issuance.
However, if any such certificate is to be issued in a name other than
that of the holder of the share or shares of Class B Stock converted,
the person or persons requesting the issuance thereof shall pay to the
Corporation the amount of any tax which may be payable in respect of
any transfer involved in such issuance or shall establish to the
satisfaction of the Corporation that such tax has been paid.
(vi) Any shares of Class B Stock which shall have been
converted into Class A Stock at any time pursuant to the provisions of
this subsection (e) of this Section 2 shall, after such conversion,
have the status of authorized but unissued shares of Class B Stock.
<PAGE>
<PAGE>
8
(f) Upon the liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, subject to any preferential or
other amounts to be distributed to the holders of the Preferred Stock and any
other class or series of stock then outstanding, the holders of Class A Stock
and Class B Stock shall be entitled to receive all the assets of the Corporation
available for distribution to its stockholders ratably as a single class in
proportion to the number of shares held by them.
(g) The Class A Stock and the Class B Stock are subject to all
the powers, rights, privileges, preferences and priorities of any series of
Preferred Stock as shall be stated and expressed in any resolution or
resolutions adopted by the Board, pursuant to authority expressly granted to and
vested in it by the provisions of this Article IV.
SECTION 3. Preferred Stock. The Board is hereby expressly
authorized, by resolution or resolutions, to provide, out of the unissued shares
of Preferred Stock, for series of Preferred Stock and, with respect to each such
series, to fix the number of shares constituting such series and the designation
of such series, the voting powers (if any) of the shares of such series, and the
preferences and relative, participating, optional or other special rights, if
any, and any qualifications, limitations or restrictions thereof, of the shares
of such series. The powers, preferences and relative, participating, optional
and other special rights of each series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding.
SECTION 4. Redemption of Capital Stock. Notwithstanding any
other provision of this Restated Certificate of Incorporation to the contrary,
but subject to the provisions of any resolution or resolutions of the Board of
Directors adopted pursuant to this Article IV creating any series of Preferred
Stock, outstanding shares of Class A Common Stock, Preferred Stock or any other
class or series of stock of the Corporation, other than Class B Stock, shall
always be subject to redemption by the Corporation, by action of the Board, if
in the judgment of the Board such action should be taken, pursuant to Section
151(b) of the DGCL (or any other applicable provision of law), to the extent
necessary to prevent the loss or secure the reinstatement of any license or
franchise from any governmental agency held by the Corporation or any Subsidiary
to conduct any portion of the business of the Corporation or such Subsidiary,
which license or franchise
<PAGE>
<PAGE>
9
is conditioned upon some or all of the holders of the Corporation's stock of any
class or series possessing prescribed qualifications. The terms and conditions
of such redemption shall be as follows:
(a) the redemption price of the shares to be redeemed pursuant
to this Section 4 shall be equal to the Fair Market Value of such
shares;
(b) the redemption price of such shares may be paid in cash,
Redemption Securities or any combination thereof;
(c) if less than all the shares held by Disqualified Holders
are to be redeemed, the shares to be redeemed shall be selected in such
manner as shall be determined by the Board, which may include selection
first of the most recently purchased shares thereof, selection by lot
or selection in any other manner determined by the Board of Directors;
(d) at least 30 days' written notice of the Redemption Date
shall be given to the record holders of the shares selected to be
redeemed (unless waived in writing by such holder), provided that the
Redemption Date may be the date on which written notice shall be given
to record holders if the cash or Redemption Securities necessary to
effect the redemption shall have been deposited in trust for the
benefit of such record holders and subject to immediate withdrawal by
them upon surrender of the stock certificates for their shares to be
redeemed;
(e) from and after the Redemption Date, any and all rights of
whatever nature, which may be held by the owners of shares selected for
redemption (including without limitation any rights to vote or
participate in dividends declared on stock of the same class or series
as such shares), shall cease and terminate and they shall thenceforth
be entitled only to receive the cash or Redemption Securities payable
upon redemption; and
(f) such other terms and conditions as the Board shall
determine.
For purposes of this Section 4:
(i) "Disqualified Holder" shall mean any holder of shares of
stock of the Corporation of any class or series whose holding of such
stock may result in the loss of any license or franchise from any
governmental
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10
agency held by the Corporation or any Subsidiary to conduct any portion
of the business of the Corporation or any Subsidiary.
(ii) "Fair Market Value" of a share of the Corporation's stock
of any class or series shall mean the average (unweighted) Closing
Price for such a share for each of the 45 most recent days on which
shares of stock of such class or series shall have been traded
preceding the day on which notice of redemption shall be given pursuant
to paragraph (d) of this Section 4; provided, however, that if shares
of stock of such class or series are not traded on any securities
exchange or in the over-the-counter market, "Fair Market Value" shall
be determined by the Board of Directors in good faith; and provided
further, however, that "Fair Market Value" as to any stockholder who
purchases his stock within 120 days of a Redemption Date need not
(unless otherwise determined by the Board of Directors) exceed the
purchase price paid by him. "Closing Price" on any day means the
reported last sales price regular way or, in case no such sale takes
place, the average of the reported closing bid and asked prices regular
way on the New York Stock Exchange Composite Tape, or, if stock of the
class or series in question is not quoted on such Composite Tape, on
the New York Stock Exchange, or, if such stock is not listed on such
exchange, on the principal United States registered securities exchange
on which such stock is listed, or, if such stock is not listed on any
such exchange, the highest closing sales price or bid quotation for
such stock on The Nasdaq Stock Market or any system then in use, or if
no such prices or quotations are available, the fair market value on
the day in question as determined by the Board of Directors in good
faith.
(iii) "Redemption Date" shall mean the date fixed by the Board
of Directors for the redemption of any shares of stock of the
Corporation pursuant to this Section 4.
(iv) "Redemption Securities" shall mean any debt or equity
securities of the Corporation, any Subsidiary or any other corporation,
or any combination thereof, having such terms and conditions as shall
be approved by the Board of Directors and which, together with any cash
to be paid as part of the redemption price, in the opinion of any
nationally recognized investment banking firm selected by the Board of
Directors (which may be a firm which provides other investment banking,
brokerage or other services to the Corporation or its
<PAGE>
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11
affiliates), has a value, at the time notice of redemption is given
pursuant to paragraph (d) of this Section 4, at least equal to the Fair
Market Value of the shares to be redeemed pursuant to this Section 4
(assuming, in the case of Redemption Securities to be publicly traded,
such Redemption Securities were fully distributed and subject only to
normal trading activity).
SECTION 5. Stockholder Voting. (a) Except as otherwise
provided in this Restated Certificate of Incorporation or required by law, with
respect to all matters upon which stockholders are entitled to vote or to which
stockholders are entitled to give consent, the holders of any outstanding shares
of Class A Stock and the holders of any outstanding shares of Class B Stock
shall vote together without regard to class, and every holder of the outstanding
shares of Class A Stock shall be entitled to cast thereon one (1) vote in person
or by proxy for each share of Class A Stock standing in such holder's name, and
every holder of the outstanding shares of Class B Stock shall be entitled to
cast thereon ten (10) votes in person or by proxy for each share of Class B
Stock standing in such holder's name.
(b) Until such time as the outstanding shares of Class B Stock
no longer represent at least fifty percent (50%) of the Voting Power of the
Voting Stock, in addition to any other vote required hereunder or by applicable
law (and notwithstanding the fact that a lesser percentage may be specified by
law or this Restated Certificate of Incorporation), the affirmative vote of the
holders of one hundred percent (100%) of the Voting Power of all outstanding
shares of Class B Stock, voting separately as a class, shall be required:
(i) to amend, alter or repeal any provision of this Restated
Certificate of Incorporation, other than an amendment to Article II to
change the registered office or registered agent of the Corporation,
and other than an amendment effected pursuant to Section 151(g) of the
DGCL (or any successor provision thereto); or
(ii) for (x) the disposition, directly or indirectly, by the
Corporation (or by one or more direct or indirect subsidiaries thereof)
by sale, merger, new issuances or otherwise, to a Person (other than
the Corporation or a direct or indirect wholly owned subsidiary of the
Corporation), in any transaction or series of related transactions, of
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12
shares of the capital stock of one or more direct or indirect
Subsidiaries of the Corporation which, in the aggregate, hold all or
substantially all of the assets of the Corporation and its Subsidiaries
on a consolidated basis or (y) the disposition, directly or indirectly,
by the Corporation (or by one or more direct or indirect subsidiaries
thereof) by sale, merger or otherwise, (other than to the Corporation
or a direct or indirect wholly owned subsidiary of the Corporation) in
any transaction or series of related transactions outside the ordinary
course of the business of the Corporation, of all or substantially all
of the assets of the Corporation and its Subsidiaries on a consolidated
basis, except, in each case referred to in the foregoing clauses (x)
and (y), for pledges, grants of security interests, security deeds,
mortgages or similar encumbrances securing bona fide indebtedness, and
any foreclosure in respect thereof.
(c) In addition to any other vote required hereunder or by
applicable law, the affirmative vote of the holders of a majority of the
combined Voting Power of the Voting Stock, voting together as a single class,
shall be required for (x) the disposition, directly or indirectly, by the
Corporation (or by one or more direct or indirect subsidiaries thereof) by sale,
merger, new issuances or otherwise, to a Person (other than the Corporation or a
direct or indirect wholly owned subsidiary of the Corporation), in any
transaction or series of related transactions, of shares of the capital stock of
one or more direct or indirect Subsidiaries of the Corporation which, in the
aggregate, hold all or substantially all of the assets of the Corporation and
its Subsidiaries on a consolidated basis or (y) the disposition, directly or
indirectly, by the Corporation (or by one or more direct or indirect
subsidiaries thereof) by sale, merger or otherwise, (other than to the
Corporation or a direct or indirect wholly owned subsidiary of the Corporation)
in any transaction or series of related transactions outside the ordinary course
of the business of the Corporation, of all or substantially all of the assets of
the Corporation and its Subsidiaries on a consolidated basis, except, in each
case referred to in the foregoing clauses (x) and (y), for pledges, grants of
security interests, security deeds, mortgages or similar encumbrances securing
bona fide indebtedness, and any foreclosure in respect thereof.
(d) Until such time as the outstanding shares of Class B Stock
no longer represent at least fifty (50%) percent of the Voting Power of the
Voting Stock, in addition
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13
to any other vote required hereunder or by applicable law, the affirmative vote
of the holders of a majority of the Voting Power of all outstanding shares of
Class A Stock, voting separately as a class, shall be required to amend the
definition of Termination Date as specified in Article III so as to extend the
date specified in clause (i) thereof or to reduce the percentage specified in
clause (ii) thereof.
ARTICLE V
DGCL SECTION 203
The Company hereby expressly elects not to be governed by the
provisions of Section 203 of the DGCL, and the restrictions and limitations set
forth therein.
ARTICLE VI
DIRECTORS
SECTION 1. Election of Directors. Directors shall be elected
at the annual meeting of stockholders, and each director elected shall hold
office until such director's successor has been elected and qualified. Directors
need not be stockholders of the Corporation.
SECTION 2. Advance Notice of Nominations. Advance notice of
nominations for the election of directors shall be given in the manner and to
the extent permitted provided in the By-laws of the Corporation.
SECTION 3. Number of Directors. Subject to any rights of the
holders of any series of Preferred Stock outstanding at any time to elect
additional directors to the Board, the number of directors that shall constitute
the whole Board of the Corporation shall be determined from time to time
pursuant to the Stockholders' Agreement dated as of [ ], among [TW], [USW],
[A/N] (and their successors and permitted assigns) and the Corporation, as
amended from time to time, or, if such agreement is no longer in effect, as
specified in the By-laws of the Corporation, as the same may be amended from
time to time. In the absence of such a provision in such Stockholders' Agreement
or the By-laws of the Corporation, the number of directors that shall constitute
the whole Board of the Corporation shall be three.
SECTION 4. Limitation on Director Liability. To the fullest
extent that the DGCL or any other law of the
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14
State of Delaware as it exists or as it may hereafter be amended permits the
limitation or elimination of the liability of directors, no director of the
Corporation shall be liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. No amendment to or repeal of
this Article VI shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
SECTION 5. Removal of Directors; Filling of Newly Created
Directorships and Vacancies. (a) Subject to the rights of the holders of any
series of Preferred Stock outstanding at any time, directors may be removed from
office with or without cause, but only upon the affirmative vote of the holders
of a majority of the combined Voting Power of the Voting Stock, voting together
as a single class.
(b) Subject to the rights of holders of any series of
Preferred Stock outstanding at any time, any newly created directorship or
vacancy in the office of a director shall be filled only by (A) during the 20
day period following the date such newly created directorship or vacancy comes
into existence, the affirmative vote of the remaining directors or the sole
remaining director, as the case may be, or (B) if not so filled within such 20
day period, either (i) the affirmative vote of the holders of a majority of the
combined Voting Power of the Voting Stock, voting together as a single class, or
(ii) the affirmative vote of the remaining directors or the sole remaining
director, as the case may be.
ARTICLE VII
PROVISIONS RELATING TO FOUNDING STOCKHOLDERS
SECTION 1. Founding Stockholders. In anticipation that the
capital stock of Corporation will cease to be owned exclusively, directly or
indirectly, by affiliates of Time Warner Inc. ("TW"), U S West Media Group, Inc.
and Advance/Newhouse Partnership (collectively and as further defined in Section
4 below, the "Founding Stockholders"), but that the Founding Stockholders will
remain, directly or indirectly, stockholders of the Corporation, and in
anticipation that the Corporation and the Founding Stockholders may engage in
the same or similar activities or lines of business and have an interest in the
same areas of corporate opportunities, and in recognition of
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15
the benefits to be derived by the Corporation through its continued contractual,
corporate and business relations with the Founding Stockholders (including
service of officers, directors or employees of the Founding Stockholders as
directors of the Corporation), the provisions of this Article VII are set forth
to regulate, define and guide, to the fullest extent permitted by the DGCL, the
conduct of certain affairs of the Corporation as they may involve the Founding
Stockholders and their respective officers and directors, and the powers, rights
and duties of the Corporation and the Founding Stockholders and their respective
officers and directors in connection therewith.
SECTION 2. Competition and Corporate Opportunities. None of
the Founding Stockholders shall have any duty to refrain from engaging directly
or indirectly in the same or similar business activities or lines of business as
the Corporation. In the event that any of the Founding Stockholders acquires
knowledge of a potential transaction or matter that may be a corporate
opportunity for any of the Founding Stockholders and the Corporation, subject to
Section 3 of this Article VIII, none of the Founding Stockholders shall have any
duty to communicate or offer such corporate opportunity to the Corporation and
any other Founding Stockholders as applicable shall be entitled to pursue or
acquire such corporate opportunity for itself or to direct such corporate
opportunity to another person or entity. In addition, the fact that a Founding
Stockholder shall engage in a particular business activity shall not, of itself,
provide a basis for determining that there has been a violation of Section 3 of
this Article.
SECTION 3. Allocation of Corporate Opportunities. The
following provisions shall be applicable to the maximum extent consistent with,
and permitted by, applicable Delaware law. In the event that a director, officer
or employee of the Corporation who is also a director, officer or employee of
any of the Founding Stockholders acquires knowledge of a potential transaction
or matter that may be a corporate opportunity for both the Corporation and any
of the Founding Stockholders, such director, officer or employee of the
Corporation shall act in good faith in a manner consistent with the following:
(a) a corporate opportunity offered to any person who is an
officer or employee (whether or not a director) of the Corporation and
who is also a director but not an officer or employee of a Founding
Stockholder shall belong to the Corporation, unless such opportunity is
expressly offered to such person primarily in his or her capacity as a
director of a
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16
Founding Stockholder, in which case such opportunity shall belong to
the relevant Founding Stockholder;
(b) a corporate opportunity offered to any person who is a
director but not an officer or employee of the Corporation and who is
also an officer or employee (whether or not a director) of a Founding
Stockholder shall belong to the relevant Founding Stockholder, unless
such opportunity is expressly offered to such person in his or her
capacity as a director of the Corporation, in which case such
opportunity shall belong to the Corporation; and
(c) a corporate opportunity:
(i) offered to any other person who is either (A) an
officer or employee of both the Corporation and a Founding
Stockholder or (B) a director of both the Corporation and a
Founding Stockholder (but not an officer or employee of the
Corporation or any Founding Stockholder), and
(ii) that is expressly offered to such person
(A) in his or her capacity as an officer, employee or
director of the Corporation shall belong to the
Corporation; and
(B) in his or her capacity as an officer, employee or director of a
Founding Stockholder shall belong to the relevant Founding Stockholder.
SECTION 4. Certain Matters Deemed Not Corporate Opportunities.
(a) In addition to and notwithstanding the foregoing provisions of this Article
VII, a corporate opportunity shall not be deemed to belong to the Corporation if
it is a business opportunity that the Corporation is not permitted to undertake
under the terms of Article II or that the Corporation is not financially able or
contractually permitted or legally able to undertake, or that is, from its
nature, not in the line of the Corporation's business or is of no practical
advantage to it or that is one in which the Corporation has no interest or
reasonable expectancy.
(b) For purposes of this Article VII only, (i) the term
"Corporation" shall mean the Corporation and all corporations, limited liability
companies, partnerships, joint ventures, associations and other entities in
which the Corporation beneficially owns (directly or indirectly) 50% or more of
the outstanding voting stock, voting power or similar voting interests, except
that for purposes of
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17
determining those persons who are directors of the Corporation, such term shall
mean the Corporation without regard to any other entities in which it may hold
an interest and (ii) the term "Founding Stockholder" shall mean a Founding
Stockholder and all corporations, limited liability companies, partnerships,
joint ventures, associations and other entities (other than the Corporation) in
which such Founding Stockholder beneficially owns (directly or indirectly) 50
percent or more of the outstanding voting stock, voting power or similar
interests and, if a Founding Stockholder is a partnership, shall also include
those entities which constitute its corporate general partners, except that for
purposes of determining those persons who are directors of Founding
Stockholders, such term shall mean Time Warner Inc., U S West Media Group, Inc.
and, in the case of Advance/Newhouse Partnership, Advance Communication Corp.
and Newhouse Broadcasting Corporation, its general partners.
SECTION 5. Expiration of Certain Provisions. Notwithstanding
anything in this Restated Certificate of Incorporation to the contrary, the
provisions of this Article VII shall expire as to any Founding Stockholder on
the date that both (i) such Founding Stockholder ceases to own beneficially
Common Stock representing at least 5% of the number of outstanding shares of
Common Stock of the Corporation and (ii) no person who is a director or officer
of the Corporation is also a director or officer of such Founding Stockholder.
Neither the alteration, amendment, change or repeal of any provision of this
Article VII nor the adoption of any provision of this Restated Certificate of
Incorporation inconsistent with any provision of this Article VII shall
eliminate or reduce the effect of this Article VII in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article VII,
would accrue or arise, prior to such alteration, amendment, repeal or adoption.
SECTION 6. Deemed Notice. Any person or entity purchasing or
otherwise acquiring any interest in any shares of the Corporation shall be
deemed to have notice of and to have consented to the provisions of this Article
VII.
ARTICLE VIII
STOCKHOLDER MEETINGS
SECTION 1. Meetings Generally. Meetings of stockholders may be
held within or without the State of Delaware, as the By-laws of the Corporation
may provide.
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18
The books of the Corporation may be kept (subject to any provision of Delaware
law) outside the State of Delaware at such place or places as may be designated
from time to time by the Board or in the By-laws of the Corporation. Elections
of directors need not be by written ballot unless the By-laws of the Corporation
shall so provide.
SECTION 2. Special Meetings. Special meetings of the
stockholders shall be called only (i) upon written request of the holders of not
less than a majority of the total voting power of the outstanding capital stock
of the Corporation entitled to vote at such meeting or (ii) upon request of any
director. Special meetings of the stockholders may be held at such time and
place as may be stated in the notice of meeting.
ARTICLE IX
BY-LAWS
In furtherance and not in limitation of the powers conferred
upon it by law, the Board of Directors is expressly authorized to adopt, repeal,
alter or amend the By-laws of the Corporation by the vote of a majority of the
entire Board of Directors. In addition to any requirements of law and any other
provision of this Restated Certificate of Incorporation or any resolution or
resolutions of the Board of Directors adopted pursuant to Article IV of this
Restated Certificate of Incorporation (and notwithstanding the fact that a
lesser percentage may be specified by law, this Restated Certificate of
Incorporation or any such resolution or resolutions), the affirmative vote of
the holders of a majority of the combined Voting Power of the Voting Stock,
voting together as a single class, shall be required for stockholders to adopt,
amend, alter or repeal any provision of the By-laws.
IN WITNESS WHEREOF, the Corporation has caused this Restated
Certificate of Incorporation to be duly executed this day of [ ], 1998.
TIME WARNER TELECOM INC.,
a Delaware corporation,
_________________________
Name:
Title:
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Exhibit B
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BY-LAWS
OF
TIME WARNER TELECOM INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES AND AGENT
SECTION 1. Registered Office and Agent. The address of the registered
office of the Corporation in the State of Delaware is 9 East Loockerman Street,
City of Dover, County of Kent. The name of its registered agent at such address
is National Registered Agents, Inc.
SECTION 2. Other Offices. The Corporation may also have offices at
other places, either within or without the State of Delaware, as the Board of
Directors of the Corporation (the "Board") may from time to time determine or as
the business of the Corporation shall require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Place of Meetings. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at any place,
either within or without the State of Delaware, as shall be designated from time
to time by the Board and stated in the notice of meeting or in a duly executed
waiver of notice thereof. Adjournments of meetings may be held at the place at
which the meeting adjourned is being held, or at any other place determined by
the Board, whether or not a quorum shall have been present at such meeting.
SECTION 2. Annual Meetings. To the extent required by applicable law
or the Restated Certificate of Incorporation of the Corporation, an annual
meeting of the stockholders for the election of directors and the transaction of
such other business as may properly come before the meeting shall be held at
such time and on such date as shall be determined by the Board and stated in the
notice of the meeting.
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2
SECTION 3. Special Meetings. Except as otherwise provided by
applicable law, special meetings of the stockholders shall be called only in
accordance with the provisions of the Restated Certificate of Incorporation of
the Corporation.
SECTION 4. Notice of Meetings. Written notice of stockholder meetings,
stating the time, place and date, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given by the
Chairman of the Board, the President, any Vice President, the Secretary or an
Assistant Secretary to each stockholder entitled to vote at such meeting, at
least ten days but not more than sixty days before the date of the meeting,
unless a different period is prescribed by applicable law.
SECTION 5. Quorum. Except as otherwise provided by applicable law or
by the Restated Certificate of Incorporation of the Corporation, the holders of
a majority in total voting power of the outstanding capital stock of the
Corporation entitled to vote at a meeting of the stockholders, present in person
or represented by proxy, shall constitute a quorum for the transaction of
business at any annual or special meeting of the stockholders; provided, that
where a separate vote by a class or series of capital stock is required, the
holders of a majority in total voting power of the outstanding capital stock of
such class or series, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to such vote on such
matter. In the absence of a quorum, the Chairman of the meeting or the holders
of a majority in voting power of the capital stock entitled to vote thereat that
are present in person or represented by proxy, shall have the power to adjourn
the meeting from time to time, without notice other than announcement at the
meeting of the time and place of the adjourned meeting, until a quorum shall be
present or represented. At such adjourned meeting, any business may be
transacted which may have been transacted at the original meeting. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a written notice of the
adjourned meeting shall be given to each stockholder entitled to vote at the
meeting not less than ten nor more than sixty days before the date of the
meeting, unless a different period is prescribed by applicable law.
SECTION 6. Proxies. Any stockholder entitled to vote at a meeting of
the stockholders may do so in person or by proxy appointed by such stockholder
or by such stockholder's attorney thereto authorized, and bearing a date not
more than three years prior to such meeting, unless
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3
such instrument provides for a longer period. All proxies must be filed with the
Secretary of the Corporation at the beginning of the applicable meeting in order
to be counted in any vote at such meeting.
SECTION 7. Voting. Except as otherwise provided by applicable law, the
Restated Certificate of Incorporation of the Corporation or these By-laws, and
except for the election of directors, any question brought before any meeting of
the stockholders at which a quorum is present shall be decided by the
affirmative vote of the holders of a majority of the total number of votes of
the capital stock present in person or represented by proxy and entitled to vote
on the applicable subject matter.
SECTION 8. Organization; Order of Business. (a) At every meeting of
stockholders, the Chairman of the Board, or in such person's absence, the
President, or in the absence of both of them, any Vice President, shall act as
Chairman of the meeting. In the absence of the Chairman of the Board, the
President, and all Vice Presidents, the Board, or if the Board fails to act, the
stockholders may appoint any stockholder, director or officer of the Corporation
to act as Chairman of any meeting. The Secretary of the Corporation shall act as
Secretary of the meeting, but in the absence of the Secretary, the Chairman of
the meeting may appoint any person to act as Secretary of the meeting.
(b) (1) Nominations of persons for election to the Board of Directors
of the Corporation and the proposal of business to be considered by the
stockholders may be made at any annual meeting of the stockholders, only (i)
pursuant to the Corporation's notice of meeting, (ii) by or at the direction of
the Board of Directors of the Corporation or (iii) by any stockholder who is a
holder of record at the time of the giving of the notice provided for in this
Section 8, who is entitled to vote at the meeting and who complies with the
procedures set forth in this Section 8.
(2) For nominations or business properly to be brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in proper written form to the Secretary of the Corporation. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 70 days nor
more than 120 days prior to the anniversary date of the immediately preceding
annual meeting; provided, however, that in the event that the date of the annual
meeting is more than 30 days earlier or more than 60 days later than such
anniversary date,
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4
notice by the stockholder to be timely must be so delivered or received not
earlier than the 120th day prior to such annual meeting and not later than the
close of business on the later of the 70th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made. To be in proper written form, a stockholder's notice to
the Secretary of the Corporation shall set forth in writing as to each matter
the stockholder proposes to bring before the annual meeting: (i) as to each
person whom the stockholder proposes to nominate for election or re-election as
a director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11
thereunder (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); (ii) as to any
other business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting and
in the event that such business includes a proposal to amend the by-laws of the
Corporation, the language of the proposed amendment; (iii) the name and address,
as they appear on the Corporation's books, of the stockholder proposing such
business; (iv) the class or series and number of shares of the Corporation which
are beneficially owned by the stockholder; (v) any material interest of the
stockholder in such business; (vi) a representation that the stockholder is a
holder of record of stock of the Corporation entitled to vote at such annual
meeting and intends to appear in person or by proxy at such meeting to propose
such business; and (vii) if the stockholder intends to solicit proxies in
support of such stockholder's proposal, a representation to that effect. The
foregoing notice requirements shall be deemed satisfied by a stockholder if the
stockholder has notified the Corporation of his or her intention to make a
nomination or present a proposal at an annual meeting and such stockholder's
nominee or proposal has been included in a proxy statement that has been
prepared by management of the Corporation to solicit proxies for such annual
meeting; provided, however, that if such stockholder does not appear or send a
qualified representative to present such nominee or proposal at such annual
meeting, the Corporation need not present such nominee or proposal for a vote at
such meeting notwithstanding that proxies in respect of such vote may have been
received by the Corporation.
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(c) Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to the
Board of Directors of the Corporation may be made at a special meeting of
stockholders at which directors are to be elected pursuant to the Corporation's
notice of meeting (i) by or at the direction of the Board of Directors or (ii)
provided that the Board of Directors has determined that directors shall be
elected at such meeting, by any stockholder who is a holder of record at the
time of the giving of notice provided for in this Section 8, who is entitled to
vote at the meeting and who complies with the procedures set forth in this
Section 8. In the event the Corporation calls a special meeting of stockholders
for the purpose of electing one or more directors to the Board of Directors of
the Corporation, any such stockholder may nominate a person or persons (as the
case may be), for election to such position(s) as specified in the Corporation's
notice of meeting, if the stockholder has given timely notice thereof in proper
written form to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation not earlier than the 120th day prior to such special
meeting and not later than the close of business on the later of the 70th day
prior to such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. To be in proper written
form, such notice must meet the requirements of either of the last two sentences
of paragraph (b)(2) above.
(d) Only such persons who are nominated in accordance with this
Section 8 (including, for avoidance of doubt, pursuant to the last sentence of
paragraph (b)(2) above) shall be eligible to serve as directors of the
Corporation and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 8 (including, for avoidance of doubt,
pursuant to the last sentence of paragraph (b)(2) above). The Chairman of a
meeting shall refuse to permit any business to be brought before the meeting
which fails to comply with the foregoing or if a stockholder solicits proxies in
support of such stockholder's nominee or proposal without such stockholder
having made the representation required by clause (vii) of paragraph (b)(2)
above.
SECTION 9. Action by Written Consent. Except as otherwise provided by
applicable law or by the Restated Certificate of Incorporation of the
Corporation, any action required or permitted to be taken at any annual or
special
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6
meeting of the stockholders may be taken without a meeting, without prior notice
and without a vote if a consent or consents in writing, setting forth the action
so taken, shall be signed by the holders of outstanding stock of the Corporation
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares of stock of the
Corporation entitled to vote thereon were present and voted.
SECTION 10. Voting List. The officer of the Corporation who has charge
of the stock ledger of the Corporation shall prepare and make, at least ten days
before every meeting of the stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof and may be inspected by any
stockholder of the Corporation who is present.
SECTION 11. Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to the identity of the stockholders entitled to examine the
stock ledger, the list required by Section 10 of this Article II or the books of
the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
SECTION 12. Record Date. In order that the Corporation may determine
the stockholders entitled to (i) notice of or to vote at any meeting of the
stockholders or any adjournment thereof, (ii) unless otherwise provided in the
Restated Certificate of Incorporation of the Corporation, express consent to
corporate action by written consent without a meeting or (iii) receive payment
of any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion, or exchange of stock,
or (iv) for the purpose of any other lawful action, the Board may fix a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the Board and which record date shall, unless
otherwise required by law, not be: (a) in the case of clause (i) above, more
than sixty nor less than ten days before the date of such meeting, (b) in
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the case of clause (ii) above, more than ten days after the date upon which the
resolution fixing the record date was adopted by the Board, and (c) in the case
of any other action, more than sixty days prior to such other action. If no
record date is fixed: (a) the record date for determining stockholders entitled
to notice of or to vote at a meeting of the stockholders shall be at the close
of business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held; (b) the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting
(unless otherwise provided in the Restated Certificate of Incorporation of the
Corporation), when no prior action by the Board is required under the General
Corporation Law of the State of Delaware, as amended from time to time (the
"General Corporation Law"), shall be the first day on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the Corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded; and when prior action by the Board is required under the General
Corporation Law, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the close
of business on the date on which the Board adopts the resolution taking such
prior action; and (c) the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board adopts
the resolution relating thereto. A determination of stockholders of record
entitled to notice of or to vote at a meeting of the stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board may fix a new
record date for the adjourned meeting.
SECTION 13. Inspectors of Election. The Corporation may, and at the
request of any stockholder or if required by law shall, before or at each
meeting of stockholders, appoint one or more inspectors of elections to act at
the meeting and make a written report thereof. The Corporation may designate one
or more persons as alternate inspectors to replace any inspector who fails to
act. If no inspector or alternate is able to act at a meeting of the
stockholders, the Chairman of the meeting may, and at the request of any
stockholder or if required by law shall, appoint one or more inspectors to act
at the meeting. Unless otherwise required by law, inspectors may be officers,
employees or agents of the Corporation. Each inspector, before entering upon the
discharge of his or her
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duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspector or inspectors so appointed or designated shall (i)
ascertain the number of outstanding shares of capital stock of the Corporation
and the voting power of each such share, (ii) determine the shares of capital
stock of the Corporation represented at the meeting and the validity of proxies
and ballots, (iii) count all votes and ballots, (iv) determine and retain for a
reasonable period a record of the disposition of any challenges made to any
determination by the inspectors and (v) certify their determination of the
number of shares of capital stock of the Corporation represented at the meeting
and such inspectors' count of all votes and ballots. Such certification and
report shall specify such other information as may be required by law. In
determining the validity and counting of proxies and ballots cast at any meeting
of the stockholders of the Corporation, the inspectors may consider such
information as is permitted by applicable law. No person who is a candidate for
an office at an election may serve as an inspector at such election.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business of the Corporation shall be
managed by or under the direction of the Board. In addition to the powers and
authority herein or by statute expressly conferred upon them, the directors are
hereby empowered to exercise all such powers and do all such acts and things as
may be exercised or done by the Corporation, subject, nevertheless, to the
provisions of applicable law, the Restated Certificate of Incorporation of the
Corporation and these By-laws; provided, however, that no By-laws hereafter
adopted by the stockholders shall invalidate any prior act of the directors
which would have been valid if such By-laws had not been adopted.
SECTION 2. Number of Directors. Subject to any rights of the holders
of any series of Preferred Stock of the Corporation outstanding at any time to
elect additional directors to the Board, the number of directors that shall
constitute the entire Board of the Corporation shall be determined from time to
time pursuant to the Stockholders' Agreement dated as of [ ], among [TW], [USW],
[A/N] (and their successors and permitted assigns) and the Corporation, as
amended from time to time, or, if such agreement is no longer in effect, the
number of directors that shall constitute the entire Board of the Corporation
shall be not
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less than three members, the exact number of which shall from time to time be
determined by resolution of the Board.
SECTION 3. Election of Directors. (a) Except as otherwise required by
statute or by the Restated Certificate of Incorporation of the Corporation,
directors shall be elected by a plurality of the votes cast at a meeting of
stockholders by the holders of shares of Class A Common Stock of the Corporation
and Class B Common Stock of the Corporation, voting together as a single class.
(b) Subject to the provisions of the Restated Certificate of
Incorporation of the Corporation and to this Article III, each director shall
serve until the next succeeding annual meeting of stockholders and until his or
her respective successor has been duly elected and qualified.
SECTION 4. Independent Directors. For so long as any class of capital
stock of the Corporation is traded on a national securities exchange or
authorized for quotation on any nationally recognized over-the-counter quotation
system, the Board shall have at least two independent directors in compliance
with the requirements of any such national securities exchange or quotation
system then applicable to the Corporation. The Board's nominees for election as
independent directors shall be approved by a committee of the Board comprised of
all of the directors other than the Chief Executive Officer and the independent
directors.
SECTION 5. Resignations. Any director of the Corporation may resign at
any time, by giving written notice to the Board, the Chairman of the Board, the
President or the Secretary of the Corporation. Such resignation shall take
effect after receipt of the applicable written notice of resignation by the
Board, the Chairman of the Board, the President or the Secretary of the
Corporation at the time specified in such written notice or, if no time is
specified, immediately upon receipt of such written notice by the Board, the
Chairman of the Board, the President or the Secretary of the Corporation. Unless
otherwise specified in such notice, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 6. Removal of Directors. Directors may
only be removed as provided in Section 5 of Article VI of
the Restated Certificate of Incorporation of the
Corporation.
SECTION 7. Newly Created Directorships and Vacancies. Newly created
directorships resulting from an
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10
increase in the number of directors and any vacancy on the Board occurring for
any other reason shall be filled in accordance with Section 5 of Article VI of
the Restated Certificate of Incorporation of the Corporation.
SECTION 8. Chairman of the Board. The directors shall elect one of
their members to be Chairman of the Board. The Chairman of the Board shall
perform such duties as may from time to time be assigned by the Board. The
Chairman of the Board shall be subject to the control of and may be removed from
such office by the Board.
SECTION 9. Annual Meetings. The Board shall meet for the election of
officers and the transaction of other business as soon as practicable after each
annual meeting of the stockholders, and no notice of such meeting shall be
necessary in order legally to constitute the meeting, provided a quorum is
present. Such meeting may be held at any other time or place specified in a
notice given as hereinafter provided for regular meetings of the Board.
SECTION 10. Regular Meetings. The Board may hold meetings, both
regular and special, either within or without the State of Delaware. Regular
meetings of the Board may be held at such time and at such place as may from
time to time be determined by the Board. Notice of each regular meeting shall be
furnished in writing to each member of the Board not less than five days in
advance of such meeting, unless such notice requirement is waived in writing by
each such member.
SECTION 11. Special Meetings. Special meetings of the Board may be
called by the Chairman of the Board, and shall be called by the President or the
Secretary of the Corporation upon the written request of not less than a
majority of the members of the Board then in office. Special meetings of the
Board shall be held at such time and place as shall be designated in the notice
of the meeting. The Secretary, or in his or her absence any other officer of the
Corporation, shall give each director notice of the time and place of holding of
special meetings of the Board by mail at least ten days before the meeting, or
by facsimile, telegram, cable or personal service at least three days before the
meeting, unless such notice requirement is waived in writing by each director.
Unless otherwise stated in the notice thereof, any and all business shall be
transacted at any meeting without specification of such business in the notice.
SECTION 12. Quorum. Except as otherwise required by applicable law,
the Restated Certificate of Incorporation
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11
of the Corporation or these By-laws, at all meetings of the Board, a majority of
the entire Board shall constitute a quorum for the transaction of business. If a
quorum shall not be present at any meeting of the Board, a majority of those
present may adjourn the meeting from time to time, without notice other than
announcement at the meeting of the time and place of the adjourned meeting,
until a quorum shall be present. For purposes of these By-laws, "the entire
Board" means the total number of directors which the Corporation would have if
there were no vacancies or unfilled newly created directorships.
SECTION 13. Manner of Acting. (a) Except as otherwise provided by
applicable law, the Restated Certificate of Incorporation of the Corporation or
these By-laws, and except for those matters that may be specified in the
Restated Certificate of Incorporation of the Corporation as requiring
stockholder approval, all matters presented to the Board (or a committee
thereof) shall be approved by the affirmative vote of a majority of the
directors present at any meeting of the Board (or such committee) at which there
is a quorum (the foregoing is referred to herein as a "simple majority").
(b) Except as otherwise provided by applicable law, the Restated
Certificate of Incorporation of the Corporation or these By-laws, the Board may
from time to time, by resolution of a simple majority of the Board, specify,
amend, supplement, substitute, remove or add matters that may not be effected by
the Corporation without the affirmative vote of a simple majority of the Board.
SECTION 14. Organization. Meetings shall be presided over by the
Chairman of the Board, or in the absence of the Chairman of the Board, by such
other person as the directors may select. The Board shall keep written minutes
of its meetings. The Secretary of the Corporation shall act as Secretary of the
meeting, but in the absence of the Secretary, the Chairman of the meeting may
appoint any person to act as Secretary of the meeting.
SECTION 15. Action by Written Consent. Unless otherwise required by
the Restated Certificate of Incorporation of the Corporation or these By-laws,
any action required or permitted to be taken at any meeting of the Board or of
any committee thereof may be taken without a meeting, if all the members of the
Board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee thereof.
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12
SECTION 16. Meetings by Means of Conference Telephone. Unless
otherwise required by the Restated Certificate of Incorporation of the
Corporation or these By-laws, members of the Board, or any committee thereof,
may participate in a meeting of the Board or such committee by means of a
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other. Participation in a
meeting pursuant to this Section 16 shall constitute presence in person at such
meeting.
SECTION 17. Compensation. The directors shall receive such
compensation for attendance at any meetings of the Board and any expenses
incidental to performance of their duties as the Board shall from time to time
determine by resolution. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
ARTICLE IV
COMMITTEES
SECTION 1. Constitution and Powers. Except as provided by applicable
law, the Restated Certificate of Incorporation of the Corporation or these
By-laws, the Board may, by resolution of a simple majority of its members,
designate one or more committees. Except as provided in these By-laws, each
committee shall consist of one or more directors of the Corporation. Except as
provided by applicable law, the Restated Certificate of Incorporation of the
Corporation or these By-laws, the Board, by a simple majority vote of its
members, shall have the right from time to time to delegate to or to remove from
any board committee the authority to approve any matters which would not
otherwise require a higher vote than a simple majority vote of the Board. Except
as required by applicable law, the Restated Certificate of Incorporation of the
Corporation or these By-laws, for those matters that require a higher vote of
the Board than a simple majority vote, the Board, by such requisite higher vote,
shall have the right from time to time to delegate to or to remove from any
board committee the authority to approve any such matters requiring such
requisite higher vote.
SECTION 2. Organization of Committees. The Board may designate one or
more directors as alternate members of
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any committee, who may replace any absent or disqualified member at any meeting
of such committee. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not they constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in place
of any such absent or disqualified member. Each committee that may be
established by the Board may fix its own rules and procedures. All committees so
appointed shall keep regular minutes of the transactions of their meetings and
shall be responsible to the Board for the conduct of the enterprises and affairs
entrusted to them. Notice of meetings of committees, other than of regular
meetings provided for by such rules, shall be given to committee members.
SECTION 3. Executive Committee. The Board, by the affirmative vote of
all the members of the entire Board may designate an executive committee of the
Board to manage and operate the affairs of the Corporation. Except as provided
by applicable law, the Restated Certificate of Incorporation of the Corporation
or these By-laws, such executive committee shall exercise all powers and
authority of the Board in the management of the business and affairs of the
Corporation; provided, however, that an executive committee shall not have the
authority to approve any matters which (pursuant to applicable law, the Restated
Certificate of Incorporation of the Corporation or these By-laws) require a
higher vote than a simple majority vote of the Board, unless the resolution
establishing such executive committee (or vesting such executive committee with
such authority) states otherwise and such resolution is approved by such
requisite higher vote. The executive committee shall report to the Board not
less often than quarterly.
ARTICLE V
OFFICERS
SECTION 1. Officers. The Board shall elect a Chairman of the Board, a
Chief Executive Officer, a President, one or more Vice Presidents, a Chief
Financial Officer, a Treasurer and a Secretary. The Chairman of the Board and
the Chief Executive Officer shall be chosen from the Board. The Board may elect
from time to time such other officers as, in the opinion of the Board, are
desirable for the conduct of the business of the Corporation. Any two or more
offices may be held by the same person, provided, however, that the President
shall not hold any other office except that of Chairman of the Board and/or
Chief Executive Officer.
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SECTION 2. Chairman of the Board. The Chairman of the Board, if
present, shall preside at all meetings of the stockholders and of the Board. The
Chairman of the Board may enter into and execute in the name of the Corporation
powers of attorney, contracts, bonds and other obligations which implement
policies established by the Board. The Chairman of the Board shall be a senior
officer of the Corporation and in case of the inability or failure of the
President to perform his or her duties, the Chairman of the Board shall perform
the duties of the President. In addition, the Chairman of the Board shall
perform such other duties as may from time to time be assigned to such officer
by the Board.
SECTION 3. Chief Executive Officer. The Chief Executive Officer shall
have supervisory authority over the business, affairs and property of the
Corporation, and over the activities of the President and other executive
officers of the Corporation (excluding the Chairman of the Board). In general,
the Chief Executive Officer shall have all authority incident to the office of
Chief Executive Officer and shall have such other authority and perform such
other duties as may from time to time be assigned by the Board. If the Board
shall not have elected another person to such office, the President shall be the
Chief Executive Officer. If so elected by the Board, the Chairman of the Board
may be the Chief Executive Officer.
SECTION 4. President. The President shall be the chief operating
officer of the Corporation and shall have general supervision of the daily
business, affairs and property of the Corporation. The President shall have the
power to appoint and terminate the appointment or election of officers, agents
or employees other than those appointed or elected by the Board. The President
may enter into and execute in the name of the Corporation powers of attorney,
contracts, bonds and other obligations which implement policies established by
the Board. In general, the President shall have all authority incident to the
office of President and chief operating officer and shall have such other
authority and perform such other duties as may from time to time be assigned by
the Board. The President shall, at the request or in the absence or disability
of the Chairman of the Board or the Chief Executive Officer, perform the duties
and exercise the powers of such officer.
SECTION 5. Vice Presidents. The Vice Presidents shall have such powers
and shall perform such duties as may from time to time be assigned to them by
the Chairman of the Board, the President, the executive committee, if any, or
the Board. Without limiting the generality of the
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15
foregoing, Vice Presidents may enter into and execute in the name of the
Corporation contracts and other obligations pertaining to the regular course of
their duties which implement policies established by the Board.
SECTION 6. Chief Financial Officer. The Chief Financial Officer shall
be the principal financial officer of the Corporation and shall have such powers
and perform such duties as may be assigned by the Chairman of the Board, the
President, the executive committee, if any, or the Board. Without limiting the
generality of the foregoing, the Chief Financial Officer may sign and execute
contracts and other obligations pertaining to the regular course of his or her
duties which implement policies established by the Board.
SECTION 7. Treasurer. The Treasurer shall, if required by the Chairman
of the Board, the President, the executive committee, if any, the Board or any
other officer to whom the Treasurer reports, give a bond for the faithful
discharge of duties, in such sum and with such sureties as may be so required.
Unless the Board otherwise declares by resolution, the Treasurer shall have
custody of, and be responsible for, all funds and securities of the Corporation;
receive and give receipts for money due and payable to the Corporation from any
source whatsoever; deposit all such money in the name of the Corporation in such
banks, trust companies, or other depositories as the Board may designate;
against proper vouchers, cause such funds to be disbursed by check or draft on
the authorized depositories of the Corporation signed in such manner as shall be
determined by the Board, and be responsible for the accuracy of the amounts of
all funds so disbursed; regularly enter or cause to be entered in books to be
kept by the Treasurer or under the Treasurer's direction, full and adequate
accounts of all money received and paid by the Treasurer for the account of the
Corporation; render to the Board, any duly authorized committee of directors,
the Chairman of the Board, the President or any officer to whom the Treasurer
reports, whenever they or any of them, respectively, shall require the Treasurer
to do so, an account of the financial condition of the Corporation and of all
transactions of the Treasurer; and, in general, have all authority incident to
the office of Treasurer and such other authority and perform such other duties
as from time to time may be assigned by the Board. Any Assistant Treasurer
shall, in the absence or disability of the Treasurer, perform the duties and
exercise the powers of the Treasurer and shall have such other duties and have
such other powers as the Board may from time to time prescribe.
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16
SECTION 8. Secretary. The Secretary shall act as Secretary of all
meetings of the stockholders and of the Board; shall keep the minutes thereof in
the proper book or books to be provided for that purpose; shall see that all
notices required to be given by the Corporation in connection with meetings of
stockholders and of the Board are duly given; shall be the custodian of the seal
of the Corporation and shall affix the seal or cause it or a facsimile thereof
to be affixed to all certificates for stock of the Corporation and to all
documents or instruments requiring the same, the execution of which on behalf of
the Corporation is duly authorized in accordance with the provisions of these
By-laws; shall have charge of the stock records and also of the other books,
records and papers of the Corporation relating to its organization and acts as a
corporation, and shall see that the reports, statements and other documents
related thereto required by law are properly kept and filed, all of which shall,
at all reasonable times, be open to the examination of any director; and shall,
in general, have all authority incident to the office of Secretary and such
other authority and perform such other duties as from time to time may be
assigned by the Board.
SECTION 9. Removal. Any officer may be terminated or removed from
office, either with or without cause, by the Board at any meeting thereof or by
written consent, provided, however, that such removal shall be without prejudice
to the contract rights, if any, of the person so removed.
SECTION 10. Resignation. Any officer may resign at any time by giving
written notice to the Board, the Chairman of the Board, the President or the
Secretary of the Corporation. Any such resignation shall take effect at the time
therein specified or if no time is specified, immediately. Unless otherwise
specified in such notice, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 11. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause may be filled at any
time by the Board, or if such officer was appointed by the Chairman of the Board
or the President, then by the Chairman of the Board or the President, as
applicable.
SECTION 12. Bank Accounts. In addition to such bank accounts as may be
authorized in the usual manner by resolution of the Board, the Treasurer, with
approval of the Chairman of the Board or the President, may authorize such bank
accounts to be opened or maintained in the name and on
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17
behalf of the Corporation as the Treasurer shall deem necessary or appropriate,
provided that payments from such bank accounts are to be made upon and according
to the check of the Corporation as shall be specified in the written
instructions of the Treasurer or Assistant Treasurer of the Corporation with the
approval of the Chairman of the Board or the President of the Corporation.
SECTION 13. Voting of Stock Held. Unless otherwise provided in the
Restated Certificate of Incorporation of the Corporation or directed by the
Board, the Chairman of the Board and the President may from time to time
personally or by an attorney or attorneys or agent or agents of the Corporation,
in the name and on behalf of the Corporation, cast the votes which the
Corporation may be entitled to cast as a stockholder or otherwise in any other
corporation, limited liability company, partnership, trust or legal entity
("Person") any of the stock or securities of which may be held by the
Corporation, at meetings of the holders of the stock or other securities of such
Person, or consent in writing to any action by any such Person, and may instruct
any person or persons so appointed as to the manner of casting such votes or
giving such consent, and may execute or cause to be executed on behalf of the
Corporation and under its corporate seal, or otherwise, such written proxies,
consents, waivers or other instruments as the Secretary may deem necessary or
proper in the premises; or may attend any meeting of the holders of stock or
other securities of any such Person and thereat vote or exercise any or all
other powers of the Corporation as the holder of such stock or other securities
of such Person.
ARTICLE VI
CAPITAL STOCK
SECTION 1. Form of Certificates. (a) Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board, the President or any of the Vice
Presidents and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of the Corporation, certifying the number of shares
owned by him or her in the Corporation.
(b) For each class or series of stock that the Corporation shall be
authorized to issue, the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
or rights shall be set
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forth in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent each class or series of stock, provided
that, except as otherwise required by Section 202 of the GCL, in lieu of the
foregoing requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock, a statement that the Corporation will furnish without charge to each
stockholder that so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
or rights.
SECTION 2. Signatures. Any or all signatures on the certificate may be
a facsimile. In case an officer, transfer agent or registrar that has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he or she
were such officer, transfer agent or registrar at the date of issue.
SECTION 3. Lost Certificates. The Board may direct a new certificate
to be issued in place of any certificate theretofore issued by the Corporation
alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of the fact by the person claiming the certificate of stock to be lost, stolen
or destroyed. When authorizing such issue of a new certificate the Board may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate, or his or her legal
representative, to advertise the same in such manner as the Board shall require
and/or to give the Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Corporation and its transfer
agents and registrars with respect to the certificate alleged to have been lost,
stolen or destroyed or the issuance of such new certificate.
SECTION 4. Transfers. Except as otherwise prescribed by applicable law
or by the Restated Certificate of Incorporation of the Corporation, and subject
to any transfer restrictions applicable thereto and conspicuously noted on the
stock certificate, stock of the Corporation shall be transferable in the manner
prescribed in these By-laws. Transfers of stock shall be made on the books of
the Corporation only by the person named in the certificate or by such person's
duly authorized attorney appointed by a power of attorney duly executed and
filed with the Secretary
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19
of the Corporation or a transfer agent of the Corporation, and upon surrender of
the certificate or certificates for such stock properly endorsed. Every
certificate exchanged, returned or surrendered shall be marked "Canceled," with
the date of cancelation, by the Secretary or an Assistant Secretary of the
Corporation or the transfer agent thereof. No transfer of stock shall be valid
as against the Corporation, its stockholders or creditors for any purpose until
it shall have been entered in the stock records of the Corporation by an entry
showing from and to whom transferred.
SECTION 5. Transfer Agent and Registrar. The Board may appoint one or
more transfer agents and one or more registrars and may require all certificates
for shares to bear the manual or facsimile signature or signatures of any of
them.
SECTION 6. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise required by
law.
SECTION 7. Regulations. Except as otherwise provided by applicable law
or in the Restated Certificate of Incorporation of the Corporation, the Board
shall have the power and authority to make all such rules and regulations as it
may deem expedient concerning the issue, transfer, registration, cancelation and
replacement of certificates representing stock of the Corporation.
SECTION 8. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions in the Restated Certificate of
Incorporation of the Corporation, may be declared by the Board at any regular or
special meeting, and may be paid in cash, in property, or in securities of the
Corporation. Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the Board
from time to time, in its absolute discretion, deems proper as a reserve or
reserves to meet contingencies, or for purchasing any of the shares of capital
stock, warrants, rights, options, bonds, debentures, notes, scrip or other
securities or evidences of indebtedness of the Corporation, or for equalizing
dividends, or for repairing or maintaining
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any property of the Corporation, or for any proper purpose, and the Board may
modify or abolish any such reserve.
ARTICLE VII
INDEMNIFICATION
SECTION 1. Directors' Indemnification. The Corporation shall indemnify
and hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any person that was or is made or
is threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(collectively, a "Proceeding"), by reason of the fact that such person is or was
a director or officer of the Corporation or, while a director or officer of the
Corporation, is or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust, enterprise or nonprofit entity, including service with respect
to employee benefit plans, against all liability and loss suffered and expenses
(including attorneys' fees) reasonably incurred by such person in connection
with such proceeding or any claim made in connection therewith. Such right of
indemnification shall inure whether or not the claim asserted is based on
matters which antedate the adoption of this Section 1 of Article VII. Subject to
the second sentence of the next paragraph, the Corporation shall be required to
indemnify or make advances to a person in connection with a Proceeding (or part
thereof) initiated by such person only if the initiation of such Proceeding (or
part thereof) was authorized by the Board.
The Corporation shall pay the expenses (including attorneys' fees)
incurred by any person that is or was a director or officer of the Corporation
or, while a director or officer of the Corporation, is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, enterprise or nonprofit
entity, in defending any Proceeding in advance of its final disposition;
provided, however, that the payment of expenses incurred by such a person in
defending any Proceeding in advance of its final disposition shall be made only
upon receipt of an undertaking by such person to repay all amounts advanced if
it should be ultimately determined that such person is not entitled to be
indemnified under this Section 1 of Article VII or otherwise. If a claim for
indemnification or payment of expenses under this Section 1 of Article VII is
not paid
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in full within sixty (60) calendar days after a written claim therefor has been
received by the Corporation, the claimant may file suit to recover the unpaid
amount of such claim and, if successful in whole or in part, shall be entitled
to be paid the expense of prosecuting such claim. In any such action, the
Corporation shall have the burden of proving that the claimant was not entitled
to the requested indemnification or payment of expenses under applicable law.
The rights conferred on any person by this Section 1 of Article VII
shall not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, the Restated Certificate of Incorporation,
these By-laws, agreement, vote of stockholders or resolution of disinterested
directors or otherwise. The Corporation's obligation, if any, to indemnify any
person that was or is serving at its request as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, enterprise or
nonprofit entity shall be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, joint venture, trust,
enterprise or nonprofit entity, as applicable.
Any amendment, modification or repeal of the foregoing provisions of
this Section 1 of Article VII shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission occurring prior to the
time of such amendment, modification or repeal.
SECTION 2. Survival of Indemnification and Advancement of Expenses.
The indemnification and advancement of expenses provided by or granted pursuant
to this Article VII shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent of the Corporation or other person indemnified hereunder and
shall inure to the benefit of the heirs, executors and administrators of such
person.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 1. Books and Records. The books and record of the Corporation
may be kept at such places within or without the State of Delaware as the Board
may from time to time determine.
SECTION 2. Seal. The Board shall approve a corporate seal which shall
be in the form of a circle and shall bear the name of the Corporation, the year
of its
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incorporation and the word "Delaware". The seal may be used by causing it
or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 3. Fiscal Year. The fiscal year of the Corporation shall be
determined and may be changed by resolution of the Board.
SECTION 4. Notices and Waivers Thereof. (a) Whenever written notice is
required by applicable law, the Restated Certificate of Incorporation of the
Corporation or these By-laws to be given to any director, member of a committee
or stockholder, such notice may be given personally, or by mail, or in the case
of directors or officers, by facsimile transmission, addressed to such address
as appears on the books of the Corporation. Any notice given by facsimile
transmission shall be deemed to have been given upon confirmation of receipt by
the addressee.
(b) Whenever any notice is required by applicable law, the Restated
Certificate of Incorporation of the Corporation, or these By-laws, to be given
to any director, member of a committee or stockholder, a waiver thereof in
writing, signed by the person or persons entitled to said notice, whether before
or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting, present in person or represented by proxy,
shall constitute a waiver of notice of such meeting, except where the person
attends the meeting for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the stockholders, directors, or members of
a committee of directors needs to be specified in any written waiver of notice
unless so required by applicable law, the Restated Certificate of Incorporation
of the Corporation or these By-laws.
SECTION 5. Amendments. These By-laws may be amended only as set forth
in Article IX of the Restated Certificate of Incorporation of the Corporation.
SECTION 6. Saving Clause. These By-laws are subject to the provisions
of the Restated Certificate of Incorporation of the Corporation and applicable
law. If any provision of these By-laws is inconsistent with the Restated
Certificate of Incorporation of the Corporation or the General Corporation Law,
such provision shall be invalid only to the extent of such conflict, and such
conflict shall
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not affect the validity of any other provision of these By-laws.
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Exhibit C
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STOCKHOLDERS' AGREEMENT
AGREEMENT, dated as of _____ __, 1998, among TIME WARNER TELECOM INC., a
Delaware corporation (the "Company"), TIME WARNER COMPANIES, INC., a Delaware
corporation ("TWX"), AMERICAN TELEVISION AND COMMUNICATIONS CORPORATION, a
Delaware corporation ("ATC"), WARNER COMMUNICATIONS INC., a Delaware corporation
("WCI"), TW/TAE INC., a Delaware corporation ("TW/TAE"), FIBERCOMM HOLDINGS
L.P., a Delaware limited partnership that is owned by TW/KBLCOM INC., a Delaware
corporation ("TW/KBLCOM"), PARAGON COMMUNICATIONS, a New York general
partnership ("Paragon" and, together with TWX, ATC, WCI, TWI/TAE and TW/KBLCOM,
the "TW Stockholders"), MEDIAONE GROUP, INC. (formerly U S WEST Multimedia
Communications, Inc.), a Colorado corporation (the "MediaOne Stockholder"), and
ADVANCE/NEWHOUSE PARTNERSHIP, a New York general partnership ("A/N").
W I T N E S S E T H:
WHEREAS, the TW Stockholders, the MediaOne Stockholder and A/N own all
of the issued and outstanding shares of Class B Common Stock of the Company; and
WHEREAS, the parties hereto desire to set forth herein their agreement
concerning the composition of the Board of Directors of the Company, the
ownership and transfer of the Common Stock of the Company and such other matters
as are set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and 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 and shall include, with respect to A/N, any Newhouse
<PAGE>
<PAGE>
Family Member. For purposes of this Agreement, neither the Company, nor any
Person controlled by the Company, shall be deemed to be an Affiliate of a
Principal Stockholder.
"Agreement" shall mean this Stockholders' Agreement, as it may be
amended, restated, modified or supplemented from time to time in accordance with
its terms.
"beneficially own" (and beneficial ownership, owned beneficially and
other correlative terms) is defined in Rule 13d-3 promulgated under the Exchange
Act; provided, however, that a party shall not be deemed to beneficially own
securities merely as a result of the voting agreements set forth in this
Agreement.
"A/N Stockholder Group" shall mean A/N and any other Affiliates of A/N
that become parties to this Agreement pursuant to Section 3.3.
"Board" shall mean the Board of Directors of the Company.
"Business Day" shall mean any day (other than a day which is a Saturday
or Sunday) on which banks are permitted to be open for business in the City of
New York.
"CEO" shall mean the officer elected by the Board as the chief executive
officer of the Company.
"Certificate of Incorporation" shall mean, as of any date, the Restated
Certificate of Incorporation of the Company as in effect on such date.
"Class A Common Stock" shall mean the Class A Common Stock, par value
$0.01 per share, of the Company.
"Class B Common Stock" shall mean the Class B Common Stock, par value
$0.01 per share, of the Company.
"Common Stock" shall mean the Class A Common Stock and the Class B
Common Stock.
"control" shall mean possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person whether
through the ownership of equity securities or voting securities, by contract or
otherwise.
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"Controlled Affiliate" shall mean, with respect to any Person as of any
relevant date, shall mean the Parent of such Person and each Subsidiary of such
Parent.
"Distribution" shall mean the distribution by a Parent to its
stockholders (whether by divided, redemption, exchange, merger or otherwise) of
the capital stock of a Subsidiary of such Parent the assets of which include all
of the shares of Common Stock beneficially owned by such Parent.
"Equity Securities" shall have the meaning ascribed to such term in Rule
405 promulgated under the Securities Act, and in any event includes any security
having the attendant right to vote for directors or similar representatives.
"Exchange Act" shall mean the Securities and Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Independent Director" shall mean a director who is neither employed by
nor affiliated with the Company or any Principal Stockholder.
"Indirect Transfer" shall mean a Transfer of common stock or other
equity interests of a Principal Stockholder or of a Person (other than the
Parent of such Principal Stockholder) of which such Principal Stockholder is a
direct or indirect Subsidiary to any Person after giving effect to which such
Principal Stockholder is no longer a Subsidiary of the Person that was its
Parent prior to such Transfer; provided, however, that a Distribution shall not
constitute an "Indirect Transfer."
"MediaOne" shall mean MediaOne Group, Inc. (formerly U S WEST, Inc.), a
Delaware corporation.
"MediaOne Stockholder Group" shall mean the MediaOne Stockholder and any
other Affiliates of MediaOne that become parties to this Agreement pursuant to
Section 3.3.
"Monetizing Securities" shall mean any security which is convertible
into or exchangeable for Class A Common Stock. Asused herein, "Monetizing
Securities" offered by an Eligible Holder or its Parent shall include securities
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offered by an independent trust established at the request of such Eligible
Holder or its Parent.
"NASD" shall mean the National Association of Securities Dealers.
"Newhouse Family Member" shall mean any Person who is a lineal
descendant (including adoptees) of Meyer and Rose Newhouse, or any Person which
is wholly-owned directly or indirectly by one or more of such lineal
descendants, or the trustee of any trust, or a custodian under the Uniform Gift
to Minors Act or similar fiduciary, the primary beneficiaries of which (or the
primary income beneficiaries of which, in the case of a charitable remainder or
similar trust) include only one or more of such lineal descendants (provided
that such trust may grant a general or special power of appointment to any such
Person and may permit trust assets to be used to pay taxes, legacies and other
obligations of the trust or the estate of any such Person, payable by reason of
the death of such Person, as applicable) or the executor, administrator,
guardian or personal representative of the estate of any such lineal descendant.
"Nominating Committee" shall mean (i) so long as the Principal
Stockholder Groups have the right to designate a total of at least three Agreed
Nominees pursuant to Section 2.1(c), a committee of the Board comprised of all
of the members of the Board other than the CEO and the Independent Directors and
(ii) if the Principal Stockholder Groups have the right to designate a total of
less than three Agreed Nominees pursuant to Section 2.1(c), a committee of three
members of the Board comprised of all Agreed Nominees designated by the
Principal Stockholder Groups and such other director or directors as shall be
determined by majority vote of the Board.
"Ownership Percentage" shall mean, with respect to any Principal
Stockholder Group as of any date, the percentage determined by multiplying 100
by a fraction (x) the numerator of which is the number of shares of Common Stock
beneficially owned by the members of such Principal Stockholder Group as of such
date and (y) the denominator of which is the aggregate issued and outstanding
shares of Common Stock as of such date (rounded to the nearest one-hundredth (or
if there shall not be a nearest one-hundredth, to the next highest
one-hundredth).
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"Parent" shall mean, with respect to any Person as of any relevant date,
such Person (i) if it is its own ultimate parent entity (within the meaning of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations promulgated thereunder, as in effect on the date hereof)
or (ii) if it has no ultimate parent entity that is a corporation or
partnership; otherwise, "Parent" shall mean such ultimate (corporate or
partnership) parent entity of such Person as so defined.
"Person" shall mean an individual, corporation, limited liability
company, partnership, trust or unincorporated organization or a government or
any agency or political subdivision thereof.
"Principal Stockholder" shall mean each of the TW Stockholders, the
MediaOne Stockholder, A/N and any other Person that becomes a party to this
Agreement pursuant to Section 3.3, Section 3.4 or Section 3.5.
"Principal Stockholder Group" shall mean (i) the TW Stockholder Group,
(ii) the MediaOne Stockholder Group, (iii) the A/N Stockholder Group or (iv) any
ther Principal Stockholder that becomes a party to this Agreement pursuant to
Section 3.4 or 3.5, together with any transferees of such Principal Stockholder
that become parties to this Agreement pursuant to Section 3.3.
"Public Offering" shall mean an offering of Class A Common Stock in
compliance with Section 5 of the Securities Act pursuant to a registration
statement on a form applicable to the sale of securities to the general public.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"SEC" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Subsidiary" of any Parent shall mean a Person (a)(i) more than fifty
percent of the voting power of the outstanding shares or securities of which
(representing the right to vote for the election of directors or other managing
authority) are owned or controlled, directly or indirectly through one or more
Subsidiaries, by such Parent
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or (ii) which does not have outstanding shares or securities, but more than
fifty percent of the ownership interests of which representing the right to make
the decisions for such Person are owned or controlled, directly or indirectly
through one or more Subsidiaries, by such Parent and (b) that in either case is
controlled by such Parent; provided, however, that in each case, such Person
shall be deemed to be a Subsidiary of such Parent only for so long as the
foregoing requirements remain satisfied.
"Transfer" shall mean to directly offer for sale, sell, transfer,
tender, pledge, encumber, assign or otherwise dispose of, or enter into any
contract, option, or other arrangement or understanding (other than this
Agreement) with respect to or consent to the direct offer for sale, sale,
transfer, tender, pledge, encumbrance, assignment or other disposition of.
Without limiting the foregoing, any redemption, purchase or other acquisition in
any manner (whether or not for consideration) by the Company of any Common Stock
shall be deemed to be a Transfer of such security. The terms "Transferred,"
"Transferee" and similar variations shall have correlative meanings.
"TWE" shall mean Time Warner Entertainment Company, L.P., a Delaware
limited partnership.
"TWE-A/N" shall mean Time Warner Entertainment-Advance/Newhouse
Partnership, a New York general partnership.
"TW Stockholder Group" shall mean the TW Stockholders and any other
Affiliates of TWX that become parties to this Agreement pursuant to Section 3.3.
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:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
A/N ........................................ recitals
Agreed Nominee ............................. 2.1(b)
Company Notice ............................. 4.1(a)
Demand Notice .............................. 4.1(a)
Demand Registrations ....................... 4.1(a)
Eligible Holder ............................ 4.1(a)
First Refusal Electing Stockholder ........ 3.4(b)
</TABLE>
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<TABLE>
<S> <C>
First Refusal Notice of Sale ............... 3.4(a)
First Refusal Rejection Date ............... 3.4(d)
First Refusal Shares ....................... 3.4(a)
First Refusal Stockholders ................. 3.4(a)
First Refusal Termination Date ............. 3.4(f)
Incidental Registration ................... 4.2(a)
Indemnified Party .......................... 4.6(c)
Indemnifying Party ......................... 4.6(c)
Inspectors ................................. 4.4(g)
Maximum Amount ............................. 4.1(e)
MediaOne Stockholder ....................... recitals
Minimum Condition .......................... 4.1(a)
Qualifying First Offer Amount .............. 3.4(a)
Records .................................... 4.4(g)
Reorganization Agreement ................... recitals
Selling Stockholders ....................... 3.4(a)
Tag Notice of Sale ......................... 3.5(e)
Tag Offer .................................. 3.5(a)
Tag Offeror ................................ 3.5(a)
Tag Shares ................................. 3.5(a)
Tag Stockholders ........................... 3.5(a)
Third Party Offer .......................... 3.4(a)
Third Party Offeror ........................ 3.4(a)
TW Selling Stockholders .................... 3.5(a)
TW Stockholders ............................ recitals
TW Shares ................................... 3.5(a)
</TABLE>
1.2. 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.
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ARTICLE II
BOARD OF DIRECTORS AND STOCKHOLDERS
2.1. Composition of the Board. (a) The Board shall initially consist of
10 directors. In the event the right of any Principal Stockholder Group to
designate one or more Agreed Nominees pursuant to Section 2.1(c)(i) terminates,
the size of the Board shall be reduced by a number of directors equal to the
number of Agreed Nominees as to which such right to nominate has terminated;
provided, however, that in no circumstances shall the Board consist of less than
six directors. Individuals to serve on the Board shall be nominated in
accordance with this Agreement and nomination procedures established by the
Board, the Company's By-Laws and the rules and regulations of the SEC and the
principal stock exchange or association, if any, on which the Common Stock is
listed. Directors shall be elected in accordance with the Certificate of
Incorporation, the Company's By-Laws and the General Corporation Law of
Delaware.
(b) For purposes of this Agreement, an individual designated as a
director in accordance with Section 2.1(c) or Section 2.3 is referred to as an
"Agreed Nominee." No Principal Stockholder shall nominate any individual to
serve as a director of the Company except an individual designated as an Agreed
Nominee pursuant to the provisions of Section 2.1(c) or Section 2.3. A Principal
Stockholder may nominate for election as a director any individual designated by
its Principal Stockholder Group as an Agreed Nominee pursuant to Section
2.1(c)(i) or Section 2.3 or any individual designated as Agreed Nominee pursuant
to Section 2.1(c)(ii) if, in any such case, such individual was not duly
nominated in connection with such election by the Board or a nominating
committee of the Board pursuant to the Company's nomination procedures. Each
Principal Stockholder hereby agrees to vote (x) all shares of Common Stock held
of record or owned beneficially by such Principal Stockholder at the time of
such vote or action by written consent and (y) all shares of Common Stock as to
which such Principal Stockholder at the time of such vote or action by written
consent has voting control, in each case (A) in favor of the election to the
Board of the Agreed Nominees designated in accordance with Section 2.1(c) and
Section 2.3 and (B) against any other individual nominated to serve as a
director of the Company.
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(c) The Agreed Nominees shall be designated as follows:
(i) (A) So long as the TW Stockholder Group has an Ownership Percentage
which is greater than or equal to 18.88% (as adjusted from time to time pursuant
to Section 2.5), the TW Stockholder Group shall have the right to designate
three Agreed Nominees. If the TW Stockholder Group has an Ownership Percentage
which is less than 18.88% (as adjusted from time to time pursuant to Section
2.5), the TW Stockholder Group shall have the right to designate a number of
Agreed Nominees determined in accordance with the following table (with the
percentages set forth in such table being adjusted from time to time pursuant to
Section 2.5).
<TABLE>
<CAPTION>
TW Stockholder Group Number of
Ownership Percentage Agreed Nominees
-------------------- ---------------
<S> <C>
14.16% to 18.87% 2
9.44% to 14.15% 1
less than 9.44% 0
</TABLE>
(B) So long as the TW Stockholder Group has an Ownership Percentage
which is greater than or equal to 18.88% (as adjusted from time to time pursuant
to Section 2.5), the MediaOne Stockholder Group shall have the right to
designate a number of Agreed Nominees determined in accordance with the
following table (with the percentages set forth in such table being adjusted
from time to time pursuant to Section 2.5).
<TABLE>
<CAPTION>
MediaOne
Stockholder Group Number of
Ownership Percentage Agreed Nominees
-------------------- ---------------
<S> <C>
9.44% or greater 3
less than 9.44% 0
</TABLE>
If the TW Stockholder Group has an Ownership Percentage which is less than
18.88% (as adjusted from time to time pursuant to Section 2.5), the MediaOne
Stockholder Group shall have the right to designate a number of Agreed Nominees
determined in accordance with the following table (with the percentages set
forth in such table being adjusted from time to time pursuant to Section 2.5).
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<TABLE>
<CAPTION>
MediaOne
Stockholder Group Number of
Ownership Percentage Agreed Nominees
-------------------- ---------------
<S> <C>
18.88% or greater 3
14.16% to 18.87]% 2
9.44% to 14.15% 1
less than 9.44% 0
</TABLE>
(C) So long as the A/N Stockholder Group has an Ownership Percentage
which is greater than or equal to 9.44% (as adjusted from time to time pursuant
to Section 2.5), the A/N Stockholder Group shall have the right to designate one
Agreed Nominee. If the A/N Stockholder Group has an Ownership Percentage of less
than 9.44% (as adjusted from time to time pursuant to Section 2.5), the A/N
Stockholder Group shall not have the right to designate any Agreed Nominees.
(D) Except as set forth below, the members of a Principal Stockholder
Group shall not have the right to Transfer or effect an Indirect Transfer of the
rights of such Principal Stockholder Group to designate Agreed Nominees (and any
Indirect Transfer shall result in the termination of the rights of such
Principal Stockholder Group to designate Agreed Nominees). The members of a
Principal Stockholder Group shall have the right to Transfer (or effect an
Indirect Transfer of) all, but not less than all, of the rights of such
Principal Stockholder Group to designate Agreed Nominees pursuant to this
Section 2.1(c)(i) in connection with the Transfer (or Indirect Transfer) by such
Principal Stockholders of all of the shares of Class B Common Stock owned by
them pursuant to the provisions of Section 3.4 or 3.5. In such event, the
acquiring Principal Stockholder Group (and any future Principal Stockholder
Group to which such Principal Stockholder Group transfers its shares of Class B
Common Stock in accordance with the provisions of Section 3.4 or 3.5) shall have
the right to designate Agreed Nominees in the same circumstances as the
transferring Principal Stockholder Group had the right to designate Agreed
Nominees as set forth in Section 2.1(c)(i). It is acknowledged and agreed that
the Transfer of all or a portion of the capital stock of a Parent of a Principal
Stockholder Group (or the consummation of any other indirect transaction which
does not constitute an Indirect Transfer) shall not result in the termination of
the rights of such Principal Stockholder Group to designate Agreed Nominees.
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(ii) The CEO shall be an Agreed Nominee.
(iii) Two individuals nominated by the Nominating Committee shall be
Agreed Nominees if such individuals would be Independent Directors at the time
of their election and are approved by a majority of the members of the
Nominating Committee.
(iv) If the Principal Stockholder Groups do not have the right to
designate at least three Agreed Nominees pursuant to this Section 2.1(c), the
Nominating Committee shall have the right to designate a number of Agreed
Nominees equal to the difference between (x) three and (y) the number of Agreed
Nominees which the Principal Stockholder Groups have the right to designate at
such time (such Agreed Nominees being "Other Directors").
(d) The Principal Stockholder Groups agree that the initial Board shall
consist of the Agreed Nominees listed on Annex A hereto and shall cause such
Agreed Nominees to be elected as directors promptly following the date hereof to
serve until the next annual meeting of the stockholders of the Company.
Thereafter, Agreed Nominees shall be designated as described in this Section 2.1
prior to each annual meeting of the stockholders of the Company in a manner that
is consistent with the rules and regulations of the SEC and the principal stock
exchange or association, if any, on which the Common Stock is listed.
2.2 Removal of Directors. (a) Each Principal Stockholder hereby agrees
to vote or act by written consent with respect to (or cause to be voted or acted
upon by written consent) all shares of Common Stock held of record or
beneficially owned by it at the time of such vote or action by written consent
or as to which such Principal Stockholder has voting control at the time of such
vote or action by written consent to remove or cause the removal from office of
any director who was an Agreed Nominee designated by a Principal Stockholder
Group pursuant to Section 2.1(c)(i) or Section 2.3(c) if the Principal
Stockholder Group that so designated such Agreed Nominee requests such removal
by notice to the other Principal Stockholders.
(b) In the event the right of any Principal Stockholder Group to
designate one or more Agreed Nominees pursuant to Section 2.1(c)(i) terminates
or if the number of Agreed Nominees such Principal Stockholder Group has the
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right to designate pursuant to Section 2.1(c)(i) decreases, the members of such
Principal Stockholder Group shall use their reasonable best efforts to cause
specified individual(s) comprising a corresponding number of Agreed Nominees
previously designated by such Principal Stockholder Group to resign from the
Board. In the event that such Principal Stockholder Group is unable to cause
such Agreed Nominees to promptly resign, each Principal Stockholder hereby
agrees to vote or act by written consent with respect to (or cause to be voted
or acted upon by written consent) all shares of Common Stock held of record or
beneficially owned by it at the time of such vote or action by written consent
or as to which such Principal Stockholder has voting control at the time of such
vote or action by written consent for the removal of such Agreed Nominees.
(c) Each Principal Stockholder hereby agrees to vote or act by written
consent with respect to (or cause to be voted or acted upon by written consent)
all shares of Common Stock held of record or beneficially owned by it at the
time of such vote or action by written consent or as to which such Principal
Stockholder has voting control at the time of such vote or action by written
consent for the removal of an individual designated as an Agreed Nominee
pursuant to Section 2.1(c)(ii) and thereafter elected as a director if such
individual ceases to serve as CEO for any reason. An Independent Director and
any Other Director may be removed in accordance with the Certificate of
Incorporation and the Company's By-laws.
2.3. Vacancies. If, as a result of death, disability, retirement,
resignation, removal (with or without cause) or otherwise there shall exist or
occur any vacancies on the Board, individuals to fill such vacancies shall be
nominated and elected in the manner provided in this Agreement and in the
Certificate of Incorporation and the Company's By-laws including at a special
meeting of the stockholders called by any one director. Agreed Nominees with
respect to an election to fill any such vacancies shall be designated as
follows:
(a) In the case of the CEO, the successor CEO shall be an Agreed
Nominee.
(b) In the case of an Independent Director, an individual nominated in
the manner described in Section 2.1(c)(iii) shall be an Agreed Nominee.
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(c) In the case of an Other Director, an individual nominated in the
manner described in Section 2.1(c)(iv) shall be an Agreed Nominee.
(d) In all other cases, the Principal Stockholder Group or Principal
Stockholder Groups that, under Section 2.1(c), are then entitled to designate a
greater number of Agreed Nominees than the number of directors currently sitting
on the Board who are Agreed Nominees designated by such Principal Stockholder
Group or Principal Stockholder Groups shall designate Agreed Nominees for such
vacancies (with each such Principal Stockholder Group designating the number of
additional Agreed Nominees that each such Principal Stockholder Group is so
entitled to designate).
(e) In the event that such vacancies are not promptly filled by the
Board of Directors in the manner provided herein, each Principal Stockholder
hereby agrees to vote or act by written consent with respect to (or cause to be
voted or acted by written consent) all shares of Common Stock held of record or
beneficially owned by it at the time of such vote or action by written consent
or as to which such Principal Stockholder has voting control at the time of such
vote or action by written consent for the election of such Agreed Nominees
designated in accordance with the above provisions and for the removal of any
directors whose election is inconsistent with such provisions.
2.4. Conflicting Charter or By-law Provisions. Each Principal
Stockholder shall vote its shares of Common Stock, and shall take all other
actions necessary, to ensure that the Certificate of Incorporation and the
Company's By-laws facilitate and do not at any time conflict with the provisions
of this Agreement.
2.5. Certain Adjustments. In the event the Company from time to time
takes any action which affects the number of issued and outstanding shares of
Common Stock, including, without limitation, (i) primary issuances of shares of
Common Stock (including pursuant to the initial Public Offering of the Company),
(ii) repurchases or redemptions of shares of Common Stock and (iii) stock
splits, reverse stock splits, stock dividends of Common Stock (or any other
class or series of common stock) or similar subdivisions, reclassifications or
recapitalizations, then the percentages used in Section 2.1(c) immediately prior
to such action shall be appropriately adjusted to reflect the percentages that
would
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have been in effect on the date of this Agreement had such action been taken on
the date of this Agreement prior to the computation of such percentages.
ARTICLE III
TRANSFERS AND CONVERSIONS
3.1 Transfers; Conversion. (a) Except as permitted by Section 3.3, 3.4
or 3.5, prior to any Transfer or Indirect Transfer by a Principal Stockholder of
shares of Class B Common Stock, such Principal Stockholder shall be required to
convert such shares of Class B Common Stock into shares of Class A Common Stock
in accordance with the procedures set forth in the Certificate of Incorporation.
There shall be no restrictions on the ability of a Principal Stockholder to (i)
convert shares of Class B Common Stock into shares of Class A Common Stock or
(ii) transfer shares of Class A Common Stock (including shares of Class A Common
Stock received upon conversion of shares of Class B Common Stock). Nothing set
forth in this Agreement shall prevent the transfer of all or a portion of the
capital stock of a Parent of a Principal Stockholder (or any other indirect
transaction which does not constitute an Indirect Transfer) or require the
conversion of the Class B Common Stock of such Principal Stockholder into Class
A Common Stock in connection therewith.
(b) Except as expressly permitted or required by this Agreement, (i)
each Principal Stockholder shall be the record and beneficial owner of such
shares of Class B Common Stock indicated in the Company's records as being owned
by such Principal Stockholder and (ii) no Principal Stockholder shall enter into
any agreement or arrangement, grant any proxies or powers of attorney or deposit
into a voting trust with or otherwise directly or indirectly transfer voting
power, with respect to the exercise of its rights to designate Agreed Nominees
or to request the removal of a director pursuant to this Agreement (other than
an agreement or arrangement solely among Principal Stockholders that are
included in the same Principal Stockholder Group); provided, however, that the
foregoing shall not be construed to limit the ability of a Principal Stockholder
to enter into agreements with respect to the voting of its shares of Common
Stock pending a sale of such stock permitted by Section 3.1(a).
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(c) The Company agrees not to record any transfer of Class B Common
Stock by any Principal Stockholder in the stock transfer books of the Company
unless the transfer complies with the provisions of this Article III.
3.2. Legend. Each certificate evidencing outstanding shares of Class B
Common Stock held by a Principal Stockholder shall bear the following legends:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO, AND
TRANSFERABLE ONLY UPON COMPLIANCE WITH, THE PROVISIONS OF A
STOCKHOLDERS' AGREEMENT, DATED AS OF _____________, 1998, AMONG TIME
WARNER TELECOM INC. AND CERTAIN STOCKHOLDERS THEREOF. A COPY OF THIS
AGREEMENT IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICE OF TIME WARNER
TELECOM INC. AT 5700 S. QUEBEC STREET, GREENWOOD VILLAGE, COLORADO
80111.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND ACCORDINGLY MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO
THE REQUIREMENTS OF THE SECURITIES ACT OR AN EXEMPTION THEREFROM.
All certificates evidencing shares of Class B Common Stock hereafter issued by
the Company to a Principal Stockholder shall bear the legends set forth above.
Upon termination of this Agreement and surrender to the Company for such purpose
of any certificates bearing the first legend set forth above, the Company shall
reissue such certificates to the owner thereof without such legend. The Company
shall reissue certificates without the second legend set forth above upon the
delivery to the Company of an opinion of counsel to the effect that such legend
is no longer required.
3.3. Transfers to Affiliates. Subject to applicable law, (i) any
Principal Stockholder other than A/N shall have the right to Transfer shares of
Class B Common Stock to its Parent or to any direct or indirect Subsidiary of
its Parent if the transferee assumes the obligations of the transferor under
this Agreement with respect to such shares and becomes a party to this Agreement
and (ii) A/N (and any member of the A/N Stockholder Group which is a transferee
of shares of Class B Common Stock pursuant to this Section 3.3(ii)) shall have
the right to Transfer
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shares of Class B Common Stock to a Newhouse Family Member or to an Affiliate of
A/N so long as at least 80% of the equity of such Affiliate is owned directly or
indirectly by one or more Newhouse Family Members and the transferee assumes the
obligations of the transferor under this Agreement with respect to such shares
and becomes a party to this Agreement. A Principal Stockholder shall be
permitted to Transfer shares of Class B Common Stock pursuant to this Section
3.3 without converting such shares into Class A Common Stock. Notwithstanding
any Transfer permitted by this Section 3.3, the transferor shall remain liable
for the performance by any transferee of its obligations hereunder if the
transferee owns no material assets other than the shares of Common Stock
transferred.
3.4. Right of First Refusal. (a)If, other than pursuant to Section 3.3,
all of the members of a Principal Stockholder Group (the "Selling Stockholders")
shall propose to sell to an unaffiliated third party (the "Third Party Offeror")
all but not less than all of the shares of Class B Common Stock beneficially
owned by the Selling Stockholders at such time (the "First Refusal Shares") or
to effect an Indirect Transfer of such shares (in which case the "First Refusal
Shares" shall be the shares of Class B Common Stock beneficially owned by the
Selling Stockholders) (such proposal being the "Third Party Offer"), the Selling
Stockholders shall deliver to each other Principal Stockholder (the "First
Refusal Stockholders") a notice (a "First Refusal Notice of Sale") containing a
copy of the Third Party Offer, the identity of the Third Party Offeror and an
offer to sell all but not less than all of the First Refusal Shares to the First
Refusal Stockholders on the following terms: (i) if the Third Party Offer
contemplates a purchase of the First Refusal Shares by the Third Party Offeror
for consideration consisting solely of cash, then the Selling Stockholders'
offer shall be to sell the First Refusal Shares for cash in an amount equal to
the purchase price specified in, and otherwise on the terms and conditions
contained in, the Third Party Offer, and (ii) if the Third Party Offer
contemplates an acquisition of the First Refusal Shares by the Third Party
Offeror for consideration any portion of which is not cash or if the Third Party
Offer contemplates an Indirect Transfer, then the Selling Stockholder's offer
shall be to sell the First Refusal Shares for cash in an amount equal to the
cash consideration plus the fair market value of the non-cash consideration (as
determined pursuant to Section 3.6) and otherwise on the terms and conditions
contained in the Third
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Party Offer. The First Refusal Notice of Sale shall specify the price at which
the First Refusal Shares are offered, as provided in the preceding sentence, as
well as other material terms of the Third Party Offer. The First Refusal
Stockholders shall enter into an appropriate confidentiality agreement relating
to the Third Party Offer on customary terms if reasonably requested by the
Selling Stockholders with respect to the Third Party Offer.
(b) If a First Refusal Stockholder desires to accept all or any portion
of the offer set forth in a First Refusal Notice of Sale as to any part of the
First Refusal Shares, such First Refusal Stockholder (a "First Refusal Electing
Stockholder") shall, within 45 days of receipt of such First Refusal Notice of
Sale, notify the Selling Stockholders of its intention to acquire First Refusal
Shares and the number of such shares it desires to acquire, and deliver a copy
of such notice to each other First Refusal Stockholder.
(c) If the First Refusal Electing Stockholders desire to acquire, in the
aggregate, all of the First Refusal Shares, then the First Refusal Electing
Stockholders shall have the right to acquire all of the First Refusal Shares,
allocated among them as follows (or in such other manner as the First Refusal
Electing Stockholders may agree):
(i) The First Refusal Shares shall be allocated among the First Refusal
Electing Stockholders pro rata (based on the number of shares of Class B Common
Stock owned by each of them) until all of the First Refusal Shares have been
allocated or any First Refusal Electing Stockholder has been allocated the
number of First Refusal Shares that it desires to acquire, as specified in its
notice to the Selling Stockholders, as it may have been amended pursuant to
Section 3.4(d).
(ii) If all First Refusal Shares are not allocated pursuant to
paragraph (i) or any prior application of this paragraph (ii), any First Refusal
Shares that were not allocated pursuant to paragraph (i) or any prior
application of this paragraph (ii) shall be allocated among the First Refusal
Electing Stockholders (other than any First Refusal Electing Stockholder that
has been allocated the number of First Refusal Shares that it desires to
acquire), as specified in its notice to the Selling Stockholders, as it may have
been amended pursuant to
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Section 3.4(d), pro rata (based on the number of shares of Class B Common Stock
owned by each of them). If all First Refusal Shares are not allocated pursuant
to paragraph (i) and any prior application of this paragraph (ii), any First
Refusal Shares that were not allocated pursuant to paragraph (i) and any prior
application of this paragraph (ii) shall be allocated by continuing to apply
this paragraph (ii) as required.
(d) If the First Refusal Electing Stockholders desire to acquire, in the
aggregate, less than all of the First Refusal Shares, then the Selling
Stockholders shall so notify the First Refusal Electing Stockholders. Each First
Refusal Electing Stockholder shall have the right, by written notice sent to the
Selling Stockholder (with a copy of such notice to each other Principal
Stockholder) within 10 days after its receipt of the notice from the Selling
Stockholders pursuant to this Section 3.4(d) to amend its notice to increase the
number of First Refusal Shares that it desires to purchase. If, after giving
effect to any amendment to any First Refusal Electing Stockholder's notice
pursuant to this Section 3.4(d), the First Refusal Electing Stockholders desire
to acquire, in the aggregate, all of the First Refusal Shares, then the First
Refusal Electing Stockholders shall have the right to acquire all the First
Refusal Shares, allocated among them in accordance with Section 3.4(c). If,
after giving effect to any amendment to any First Refusal Electing Stockholder's
notice pursuant to this Section 3.4(d), the First Refusal Electing Stockholders
desire to acquire, in the aggregate, less than all of the First Refusal Shares,
then the Selling Stockholders' offer of the First Refusal Shares shall be deemed
rejected as of the last day for a First Refusal Electing Stockholder to amend
its notice pursuant to this Section 3.4(d) (the "First Refusal Rejection Date").
(e) Any purchase of First Refusal Shares by the First Refusal Electing
Stockholders pursuant to this Section 3.4 shall be subject to the following
terms and conditions:
(i) The Selling Stockholders shall represent and warrant that the First
Refusal Electing Stockholders will receive good and valid title to the First
Refusal Shares to be purchased by them, free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, limitations
on voting rights, charges and other encumbrances of any nature whatsoever except
as set forth in this Agreement and except for governmental,
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regulatory and other third party consents and approvals required for transfers
of shares of Common Stock generally.
(ii) The closing of the purchase of First Refusal Shares by the First
Refusal Electing Stockholders shall be subject to the satisfaction of following
conditions:
(A) All applicable waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder, shall have expired or been terminated.
(B) All governmental approvals and other third party consents expressly
required with respect to the transactions to be consummated at such closing
shall have been obtained, to the extent the failure to obtain such approvals or
consents would prevent the Selling Stockholders from performing any of their
material obligations under the transaction documents or would result in any
materially adverse change in, or materially adverse effect on, the business,
assets, results of operations, financial condition or prospects of the Company
and the Persons controlled by the Company taken as a whole.
(C) There shall be no preliminary or permanent injunction or other order
by any court of competent jurisdiction restricting, preventing or prohibiting
the consummation of the transactions to be consummated at such closing.
(D) The representation and warranty of the Selling Stockholders
contemplated by clause (i) of this sentence shall be true and correct at the
closing of such sale with the same force and effect as if then made.
(iii) The closing of any purchase of First Refusal Shares by the First
Refusal Electing Stockholders pursuant to this Section 3.4 shall take place on
the date and at the place and time determined by the Selling Stockholders and
communicated to the First Refusal Electing Stockholders in writing, at least
seven days prior to such closing, but in any event within sixty days after the
acceptance by the First Refusal Electing Stockholders of the offer, subject to
extension for a maximum of one hundred eighty additional days to the extent
required to obtain all required governmental, regulatory and other third party
consents and approvals.
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(f) If (i) the Selling Stockholders' offer of the First Refusal
Shares is rejected as provided in Section 3.4(d) or (ii) the purchase by the
First Refusal Stockholders of the First Refusal Shares is not consummated within
the period set forth in Section 3.4(e)(iii) for any reason other than an action
by the Selling Stockholders, then the Selling Stockholders shall have the right,
at any time during the 90-day period beginning on the First Refusal Rejection
Date or the day following the last day of the period set forth in Section
3.4(e)(iii) (the "First Refusal Termination Date"), as applicable, to enter into
a binding agreement to sell all of the First Refusal Shares to the Third Party
Offeror, or to effect the Indirect Transfer contemplated by the Third Party
Offer, as applicable, in either case on terms and conditions no less favorable
in the aggregate to the Selling Stockholders (and, in the case of an Indirect
Transfer, the Person receiving the consideration) than those set forth in the
Third Party Offer, and thereafter to sell all of the First Refusal Shares to the
Third Party Offeror or effect the Indirect Transfer, as applicable, pursuant to
such agreement. If the Selling Stockholders do not enter into such an agreement
during such 90-day period, or do not close the sale thereunder within sixty days
after the execution of such agreement (subject to extension for a maximum of one
hundred eighty additional days to the extent required to obtain all required
governmental, regulatory and other third party consents and approvals), the
procedure set forth above with respect to the First Refusal Notice of Sale shall
be repeated with respect to the Third Party Offer or any subsequent proposed
transfer of Class B Common Stock by the Selling Stockholders which is subject to
the provisions of this Section 3.4.
(g) In connection with a sale or Indirect Transfer of shares of
Class B Common Stock to a Third Party Offeror permitted by Section 3.4(f), (i)
the Selling Stockholders shall have the right to sell to the Third Party Offeror
all, but not less than all, of their shares of Class B Common Stock or permit
the Indirect Transfer, as applicable, without converting such shares to Class A
Common Stock, (ii) the Selling Stockholders shall have the right to transfer to
the Third Party Offeror all, but not less than all, of their rights to designate
Agreed Nominees pursuant to Section 2.1(c)(i) and (iii) (A) in the case of a
sale of the First Refusal Shares, the Third Party Offeror shall be required to
assume the obligations of the Selling Stockholders under this Agreement with
respect to such
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shares and become a party to this Agreement and (B) in the case of an Indirect
Transfer, the Third Party Offeror, upon taking control of the Selling
Stockholders, shall be required to cause the Selling Stockholders to confirm in
writing the continuing validity and effectiveness of their obligations under
this Agreement.
(h) In furtherance of the rights set forth in this Section 3.4, the
Company agrees that, on reasonable notice following the delivery of a First
Refusal Notice of Sale, at reasonable times and without interfering with the
business or operations of the Company, it will assist the Selling Stockholders
in obtaining all necessary consents to any disposition of the shares to be sold.
3.5 Tag-Along Rights. (a) If the members of the TW Stockholder Group
(the "TW Selling Stockholders") propose to sell to an unaffiliated third party
(the "Tag Offeror") (i) all but not less than all of the shares of Class B
Common Stock and (ii) shares of Class A Common Stock beneficially owned by them
which collectively represent greater than 33% of the issued and outstanding
shares of Common Stock (the "TW Shares") or to effect an Indirect Transfer of
such shares (in which case the "TW Shares" shall be all the shares of Common
Stock owned by the TW Selling Stockholders) (such proposed sale being a "Tag
Offer"), then, as a condition to effecting such sale or Indirect Transfer, the
TW Selling Stockholders shall cause proper provisions to be made so that each
other Principal Stockholder (each, a "Tag Stockholder") shall have the right to
participate in such Tag Offer and sell to the Tag Offeror a number of shares of
Common Stock owned by it equal to the product of (x) the number of shares of
Common Stock owned by such Tag Stockholder multiplied by (y) a fraction, the
numerator of which is the number of TW Shares and the denominator of which is
the number of issued and outstanding shares of Common Stock owned by the TW
Principal Stockholder Group (collectively, with respect to all Tag Stockholders,
the "Tag Shares"); provided, however, that if a Tag Stockholder owns both shares
of Class B Common Stock and Class A Common Stock, the shares of Class B Common
Stock owned by such Tag Stockholder shall be included in the Tag Shares prior to
the inclusion of any shares of Class A Common Stock owned by such Tag
Stockholder. In connection with a Tag Offer, the TW Selling Stockholders shall
cause the Tag Offeror to deliver to each Tag Stockholder a notice (a "Tag Notice
of Sale") containing a copy of the Tag Offer, the identity of the Tag Offeror
and an offer to purchase all
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of the Tag Shares owned by such Tag Stockholder on the same terms and conditions
(including as to price and form of consideration) as the terms and conditions
contained in the Tag Offer. The Tag Notice of Sale shall specify the price at
which the Tag Shares are to be purchased, as provided in the preceding sentence.
If the Tag Offer also constitutes a Third Party Offer pursuant to Section 3.4,
the TW Selling Stockholders shall deliver the Tag Notice of Sale at the same
time that the First Refusal Notice of Sale is delivered. The Tag Stockholders
shall enter into an appropriate confidentiality agreement relating to the Tag
Offer on customary terms if reasonably requested by the TW Selling Stockholders
with respect to the Tag Offer. If the Tag Offer contemplates an Indirect
Transfer, the Tag Offeror shall offer the Tag Stockholders the option of selling
the Tag Shares pursuant to an Indirect Transfer.
(b) If a Tag Stockholder desires to accept the offer set forth in a Tag
Notice of Sale as to all of the Tag Shares beneficially owned by such Tag
Stockholder, such Tag Stockholder shall, within 45 days of receipt of such Tag
Notice of Sale, notify the Tag Offeror and the TW Selling Stockholders of its
intention to sell all but not less than all of its Tag Shares to the Tag
Offeror, and deliver a copy of such notice to each other Tag Stockholder. If a
Tag Stockholder desires to sell its Tag Shares, then the Tag Offeror shall
purchase all of such Tag Shares together with the TW Shares pursuant to Section
3.5(c).
(c) The TW Selling Stockholders shall have the right, at any time
during the 90-day period beginning on the day following the end of the 45-day
period referred to in Section 3.5(b), to enter into a binding agreement to sell
all but not less than all of the TW Shares to the Tag Offeror, or to effect the
Indirect Transfer contemplated by the Tag Offer, as applicable, in either case
on terms and conditions no less favorable in the aggregate to the TW Selling
Stockholders (and, in the case of an Indirect Transfer, the Person receiving the
consideration) than those set forth in the Tag Offer. The Tag Stockholders
electing to sell their Tag Shares pursuant to Section 3.5(b) shall become party
to such agreement and agree to sell all but not less than all of their Tag
Shares to the Tag Offeror (or to effect an Indirect Transfer, as applicable)
pursuant thereto on the terms and conditions set forth therein. In connection
with such agreement, each Tag Stockholder which is a member of a Principal
Stockholder Group which has the right to designate Agreed Nominees pursuant to
Section
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2.1(c) at such time shall be required to make the same representations,
warranties and agreements, including as to indemnification, as the TW Selling
Stockholders and each Tag Stockholder which is a member of a Principal
Stockholder Group which does not have the right to designate Agreed Nominees
pursuant to Section 2.1(c) at such time shall not be required to make any
representations or warranties and agreements, including as to indemnification,
other than representations and warranties (and related indemnification) as to
title to the Tag Shares to be transferred and as to organization and due
execution and delivery and enforceability of the transfer agreements (and, in
the case of an Indirect Transfer, such other representations and warranties
regarding the entity the equity of which is being sold as are comparable to the
foregoing representations). The TW Stockholders and Tag Stockholders shall
thereafter have the right to sell such TW Shares and Tag Shares to the Tag
Offeror and/or effect the Indirect Transfers, as applicable, pursuant to such
agreement. If the TW Selling Stockholders do not enter into such an agreement
during such 90-day period, or do not close the sale thereunder within sixty days
after the execution of such agreement (subject to extension for delays caused by
actions by the Tag Stockholders and to extension for a maximum of one hundred
eighty additional days to the extent required to obtain all required
governmental, regulatory and other third party consents and approvals), the
procedure set forth above with respect to the Tag Notice of Sale shall be
repeated with respect to the Tag Offer or any subsequent proposed transfer of
Common Stock by the TW Selling Stockholders which is subject to the provisions
of this Section 3.5.
(d) In connection with a sale or Indirect Transfers of shares of
Class B Common Stock to a Tag Offeror pursuant to Section 3.5(d), (i) the TW
Selling Stockholders and the Tag Stockholders shall have the right to sell to
the Tag Offeror all but not less than all of their shares of Class B Common
Stock or permit the Indirect Transfers, as applicable, without converting such
shares to Class A Common Stock, (ii) (A) when the TW Selling Stockholders sell
all of the shares of Class B Common Stock owned by them to the Tag Offeror, the
TW Selling Stockholders shall have the right to transfer to the Tag Offeror
their rights to designate Agreed Nominees pursuant to Section 2.1(c)(i) and (B)
when all of the members of any Principal Stockholder Group other than the TW
Stockholder Group sell all of the shares of Class B Common Stock owned by them
to the Tag Offeror, such Tag Stockholders shall have the right to transfer to
the Tag
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Offeror their rights to designate Agreed Nominees pursuant to Section 2.1(c)(i)
and (iii) (A) in the case of a sale of the TW Shares or Tag Shares, the Third
Party Offeror shall be required to assume the obligations of the TW Selling
Stockholders and the Tag Stockholders under this Agreement with respect to such
shares and become a party to this Agreement and (B) in the case of an Indirect
Transfer, the Tag Offeror, upon taking control of the TW Selling Stockholders or
Tag Stockholders, as applicable, shall be required to cause the TW Selling
Stockholders or Tag Stockholders to confirm in writing the continuing validity
and effectiveness of their obligations under this Agreement.
(e) In furtherance of the rights set forth in this Section 3.5, the
Company agrees that, on reasonable notice following the delivery of a Tag Notice
of Sale, at reasonable times and without interfering with the business or
operations of the Company, it will assist the TW Selling Stockholders and the
Tag Stockholders in obtaining all necessary consents to any disposition of the
shares to be sold. In the event the TW Selling Stockholders transfer the TW
Shares to the Tag Offeror, the provisions of this Section 3.5 shall apply to any
subsequent transfer by the Tag Offeror and/or any of its future transferees of
shares of Class B Common Stock which represent greater than 33% of the voting
power of the outstanding Common Stock as if any such transferors were TW Selling
Stockholders.
3.6. Valuation of Consideration. Before submitting a First Refusal
Notice of Sale pursuant to Section 3.4(a) in response to a Third Party Offer
that contemplates (i) an acquisition of the First Refusal Shares by the Third
Party Offeror for consideration any portion of which is not cash or (ii) an
Indirect Transfer, the Selling Stockholders and the other Principal Stockholders
shall cause the fair market value of the non-cash consideration to be determined
by an investment banking firm in the following manner. The Selling Stockholders
shall deliver to each other Principal Stockholder a notice stating that the
Selling Stockholders intend to deliver a First Refusal Notice of Sale. The
Selling Stockholders and the Principal Stockholder (other than the Selling
Stockholders) that, together with its Controlled Affiliates, owns the greatest
number of shares of Class B Common Stock, shall each 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 delivery of
such notice by the Selling Stockholders. The investment banking
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firm selected in accordance with the foregoing procedure shall submit a written
report setting forth its determination of its appraisal of the First Refusal
Shares 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 the
Selling Stockholders. In determining the fair market value of the non-cash
consideration, if applicable, the investment banking firm retained pursuant to
this Section 3.6 shall: (A) assume that the fair market value of the applicable
non-cash consideration asset is the price at which such asset would change hands
between a willing buyer and a willing seller, neither being under any compulsion
to buy or sell and each having reasonable knowledge of all relevant facts; (B)
assume that the applicable non-cash consideration asset would be sold for cash;
(C) take into account any applicable control premium relating to the shares to
be sold; and (D) use valuation techniques then prevailing in the relevant
industry. If the Third Party Offer contemplates a sale of First Refusal Shares
or an Indirect Transfer in exchange for tax-deferred consideration, the fair
market value of the First Refusal Shares shall not be grossed-up to the extent
of any taxes which shall be payable by the Selling Stockholders as a result of a
sale of the First Refusal Shares to the First Refusal Electing Stockholders;
provided, however, that the parties agree to negotiate in good faith to
structure any such transaction in a tax-efficient manner.
3.7. Transferee Principal Stockholders; Other Parties to Agreement. A
Principal Stockholder shall remain a Principal Stockholder for so long as it
owns any Class B Common Stock regardless of the percentage of Class B Common
Stock it may own from time to time. Any transferee of a Principal Stockholder
required to become a party to this Agreement pursuant to Section 3.3, Section
3.4(g) or Section 3.5(d) shall become a Principal Stockholder by delivering to
the Company (which shall promptly send notice thereof to the Principal
Stockholders) a counterpart signature page to this Agreement. No further action
by the Company or the Principal Stockholders shall be required for such person
to become a party to this Agreement. Following any Indirect Transfer permitted
by this Agreement, the Principal Stockholder with respect to which such Indirect
Transfer has occurred shall confirm to the other Principal Stockholders in
writing the continuing validity and effectiveness of its obligations under this
Agreement.
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(b) If any Principal Stockholder Group transfers to any Person shares of
Class A Common Stock which represent at least 5% of the shares of Common Stock
then outstanding, such Person shall have the right to become a party to this
Agreement with respect to the registration rights granted under Article IV only.
3.8. Cooperation. (a) The Company shall use commercially reasonable
efforts to cooperate with any transferring Principal Stockholder in connection
with its efforts to Transfer any interest in its Common Stock in accordance with
the provisions of this Article III, including making qualified personnel
available for attending hearings and meetings respecting any consents, approvals
and authorizations required for such Transfer and, at the request of the
transferring Principal Stockholder, making all filings with, and giving all
notices to, third parties and governmental authorities that may be necessary or
reasonably required to be made or given by the Company in order to effect the
contemplated Transfers. Each Principal Stockholder also agrees to use
commercially reasonable efforts to cooperate with any transferring Principal
Stockholder by making any filings with, and giving notices to, third parties and
governmental authorities that may be necessary or reasonably required to be made
or given by such Principal Stockholder in connection with such contemplated
Transfer. Subject to the other provisions of this Section, no Principal
Stockholder or the Company shall take any action to delay, impair or impede the
receipt of any required consents, approvals or authorizations. "Commercially
reasonable efforts" as used in this Section shall not require any party to
undertake extraordinary or unreasonable measures to obtain any consents,
approvals or other authorizations, including requiring such party to make any
material expenditures (other than normal filing fees or the like) or to accept
any material changes in the terms of the contract, license or other instrument
for which a consent, approval or authorization is sought.
(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
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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 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 this Agreement or any
limitations on the ability of such party to exercise any such rights.
ARTICLE IV
REGISTRATION RIGHTS
4.1 Demand Registration. (a) At any time after the date which is 180
days after the closing of the Company's initial Public Offering, any stockholder
of the Company which is a party to this Agreement (an "Eligible Holder") may
request that the Company effect the registration under the Securities Act of all
or part of its shares of Class A Common Stock (including shares of Class A
Common Stock issuable upon conversion of shares of Class B Common Stock held by
it) for sale in the manner specified in such request. A stockholder that
previously owned shares of Class B Common Stock but ceased to be a Principal
Stockholder upon the conversion of its shares of Class B Common Stock to shares
of Class A Common Stock shall continue to be a party to this Agreement so long
as it owns any shares of Class A Common Stock and therefore shall be an Eligible
Holder. Such request shall be made by furnishing written notice thereof (a
"Demand Notice") to the Company, setting forth the number of shares of Class A
Common Stock requested to be registered and such Eligible Holder's intended
method of distribution. Within ten days after receipt of any Demand Notice, the
Company shall give written notice of such Demand Notice to all other Eligible
Holders.
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Following receipt of such notice from the Company (the "Company Notice"), each
such other Eligible Holder shall have the right to give the Company a written
request to register any or all of such Eligible Holder's Class A Common Stock
(including shares of Class A Common Stock issuable upon conversion of shares of
Class B Common Stock held by it) in the registration described in the Company
Notice, provided that such written request is given within fifteen days after
the date on which the Company Notice is given (with such request stating (i) the
number of shares of Class A Common Stock to be so included, (ii) such other
Eligible Holder's intended method of distribution of such shares and (iii) any
other information that the Company Notice reasonably requests be included in
such notice from such Eligible Holder). All registrations requested pursuant to
this Section 4.1(a) are referred to herein as "Demand Registrations." The
Company shall not be required to effect a Demand Registration unless the
aggregate number of shares of Class A Common Stock demanded to be so registered
is at least one percent of the number of shares of Class A Common Stock then
outstanding (the "Minimum Condition"). If the Minimum Condition is met, then,
subject to Sections 4.1(c), 4.1(e) and 4.1(f) below, the Company shall, as soon
as practicable, file with the SEC and use its best efforts to cause to become
effective as promptly as practicable, a Registration Statement which shall cover
the shares of Class A Common Stock requested to be registered pursuant to such
Demand Notice and Company Notices.
(b) Once a Demand Registration has been effected, the Company shall not
be obligated to register Class A Common Stock pursuant to another Demand
Registration prior to the expiration of 180 days from the date on which the
previous Demand Registration was declared effective; provided, however, that a
registration will not count as a Demand Registration unless it has become
effective, and such effectiveness has been maintained under the Securities Act
(and not subject to any stop order, injunction or other order or requirement of
the SEC or other governmental agency or court for any reason) for the period
specified in Section 4.4(a).
(c) The Company may postpone for a reasonable period (not to exceed two
months) after its receipt of a Demand Notice the filing of a Registration
Statement for a Demand Registration if the Board reasonably believes that such
Demand Registration would have a material adverse effect on any proposal or plan
by the Company or any of its
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Subsidiaries to engage in any financing, acquisition of assets (other than in
the ordinary course of business) or any merger, consolidation, tender offer or
other significant transaction and notifies the Eligible Holders in writing of
such postponement; provided however, that the Company shall have the right to so
postpone a filing only one time during any period of twelve consecutive months.
(d) In the event that the Demand Notice and the notices in response to
the Company Notices for a Demand Registration contemplate more than one intended
method of distribution by the Eligible Holders, then the Company will use its
best efforts to include in the Registration Statement for such Demand
Registration multiple prospectuses and/or plans of distributions covering each
intended method of distribution. The Company acknowledges and agrees that an
intended method of distribution of an Eligible Holder may include the
registration of shares of Class A Common Stock in connection with an
underwritten offering of Monetizing Securities of such Eligible Holder or its
Parent. If, in the event of such an underwritten offering of Monetizing
Securities, the other Eligible Holders desire to offer their own Monetizing
Securities or to sell shares of Class A Common Stock for cash as part of such
underwritten offering, the Eligible Holders will negotiate in good faith, in
consultation with the managing underwriter for the offering, to include such
securities to the extent practicable.
(e) If a Demand Registration involves an underwriting of shares of Class
A Common Stock for cash (or, to the extent permitted by Section 4.1(d), an
underwriting of Monetizing Securities of one or more Eligible Holders or their
Parents or shares of Class A Common Stock for cash and Monetizing Securities of
one or more Eligible Holders or their Parents) and the managing underwriter
advises the Company and the Eligible Holders in writing that marketing factors
require a limitation of the number of shares of Class A Common Stock (and/or
Monetizing Securities) to be underwritten, then the managing underwriter may
exclude shares (and/or Monetizing Securities) requested to be included in such
Demand Registration from such underwriting. If the managing underwriter imposes
a limit on the number of shares of Class A Common Stock (and/or Monetizing
Securities) to be included in such underwriting, then each Eligible Holder shall
have the right to include in such underwriting up to its pro rata share (based
on the ratio that the number of shares of Class A Common Stock (and/or
Monetizing Securities) proposed to be sold by each Eligible
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Holder bears to the total numbers of shares of Class A Common Stock (and/or
Monetizing Securities) proposed to be sold by all Eligible Holders who have
elected to participate in the Demand Registration) of the maximum number of
shares (and/or Monetizing Securities) permitted by the managing underwriter to
be included in the Demand Registration (the "Maximum Amount").
(f) If, in connection with an underwriting involving the offering of
shares of Class A Common Stock for cash, the managing underwriter has not
limited the number of shares of Class A Common Stock (and/or Monetizing
Securities) to be underwritten or if the number of shares (and/or Monetizing
Securities) which the Eligible Holders have requested to be registered is less
than the Maximum Amount, then the Company may include shares of Class A Common
Stock for its own account or for the account of others in such underwriting if
the managing underwriter so agrees and if the number of shares of Class A Common
Stock (and/or Monetizing Securities) which would otherwise have been included in
such underwriting by Eligible Holders will not thereby be limited. The inclusion
of such shares shall be on the same terms as the offering for cash of shares of
Class A Common Stock by the Eligible Holders. In the event that the managing
underwriter excludes some of the securities to be registered, the securities to
be sold for the account of the Company and any other holders shall be excluded
in their entirety prior to the exclusion of any shares of Class A Common Stock
(and/or Monetizing Securities) of the Eligible Holders.
4.2. Incidental Registration. (a) If the Company proposes to register
any shares of Class A Common Stock under the Securities Act (other than a
registration (i) on Form S-8 or S-4 or any successor or similar forms, (ii)
relating to shares of Common Stock issuable upon exercise of employee share
options or in connection with any employee benefit or similar plan of the
Company or (iii) in connection with a direct or indirect acquisition by the
Company of another Person or any transaction with respect to which Rule 145 (or
any successor provision) under the Securities Act applies), whether or not for
sale for its own account, it will each such time, subject to the provisions of
Section 4.2(b) hereof, give prompt written notice at least 20 days prior to the
anticipated filing date of the Registration Statement relating to such
registration to each Eligible Holder, which notice shall set forth such Eligible
Holder's rights under this Section 4.2 and shall offer all
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Eligible Holders the opportunity to include in such Registration Statement such
number of shares of Class A Common Stock as each such Eligible Holder may
request (an "Incidental Registration"); provided, however, that the provisions
of Section 4.1 hereof and not this Section 4.2 shall apply to the ability of any
Eligible Holder to participate in any registration being effected pursuant to a
Demand Registration contemplated by Section 4.1 hereof. Upon the written request
of any such Eligible Holder made within ten days after the receipt of notice
from the Company (which request shall specify the number of shares of Class A
Common Stock intended to be disposed of by such Eligible Holder), the Company
will use its best efforts to effect the registration under the Securities Act of
all of the Class A Common Stock that the Company has been so requested to
register by such Eligible Holders; provided, however, that (A) if such
registration involves an underwriting, all such Eligible Holders requesting to
be included in the Company's registration must sell their shares of Class A
Common Stock to the underwriters selected as provided in Section 4.4(f) hereof
on the same terms and conditions as apply to the Company and (B) if, at any time
after giving written notice of its intention to register any shares pursuant to
this Section 4.2(a) and prior to the effective date of the Registration
Statement filed in connection with such registration, the Company shall
determine for any reason not to register such shares, the Company shall give
written notice to all such Eligible Holders and, thereupon, shall be relieved of
its obligation to register any shares of Class A Common Stock owned by the
Eligible Holders (without prejudice, however, to rights of any of the Eligible
Holders under Section 4.1 hereof). No registration effected under this Section
4.2 shall relieve the Company of its obligations to effect a Demand Registration
to the extent required by Section 4.1 hereof.
(b) If an Incidental Registration pursuant to this Section 4.2 involves
an underwriting and the managing underwriter thereof advises the Company and the
Eligible Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the managing underwriter may exclude
shares requested to be included in such Incidental Registration from such
underwriting. If the managing underwriter imposes a limit on the number of
shares of Common Stock to be included in such underwriting, then there shall be
included in the offering, (i) first, all shares of Common Stock proposed by the
Company to be sold for its account or the account of any
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other party not covered by this Agreement that triggers registration rights and
(ii) second, that number of shares of Class A Common Stock requested to be
included in such underwriting by the Eligible Holders, on a pro rata basis
(based on the ratio that the number of shares of Class A Common Stock proposed
to be sold by each Eligible Holder bears to the total numbers of shares of Class
A Common Stock proposed to be sold by all Eligible Holders who have elected to
participate in the Incidental Registration).
4.3. Lockup Agreements. In the event of an underwritten offering
pursuant to Section 4.1 or Section 4.2, each Eligible Holder agrees not to
effect any public sale or other distribution of Class A Common Stock during the
seven days prior to the effective date of such registration or during the
ninety-day period (or such lesser period as is agreed upon in connection with
such underwritten offering) beginning on such effective date (except in either
case as part of such underwriting), unless the managing underwriter otherwise
agrees. The Company agrees not to effect any public sale or other distribution
of Class A Common Stock during the seven days prior to the effective date of any
registration or during the ninety-day period beginning on such effective date
(except in either case as part of such underwriting or pursuant to registrations
on Form S-8 or any successor form), unless the managing underwriter otherwise
agrees.
4.4. Registration Procedures. Whenever Eligible Holders request that any
shares of Class A Common Stock be registered pursuant to Section 4.1 or 4.2
hereof, the Company will, subject to the provisions of such Sections, use its
best efforts to effect the registration and the sale of such shares in
accordance with the intended method of distribution thereof and the applicable
provisions of Section 4.1 or 4.2, as appropriate, as promptly as practicable,
and in connection with any such request:
(a) The Company will as expeditiously as possible prepare and file with
the SEC a registration statement on any form for which the Company then
qualifies or which counsel for the Company shall deem appropriate and which form
shall be available for the distribution of the shares of Class A Common Stock to
be registered thereunder in accordance with the intended method of distribution
thereof, and use its best efforts to cause such filed registration statement to
become and remain effective for a period of not less than 120 days. In the event
that an Eligible Holder is
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to effect an offering of Monetizing Securities which requires an effective
Registration Statement to cover shares of Class A Common Stock which may be
transferred by such Eligible Holder or its Parent to holders of such Monetizing
Securities upon the exchange or conversion of such Monetizing Securities during
the term of such Monetizing Securities, then the Company shall use its best
efforts to cause the Registration Statement filed in connection with such
offering to remain effective until the maturity of such Monetizing Securities;
provided, however, that the Company shall have the right to suspend the
effectiveness of such Registration Statement for a reasonable period (not to
exceed two months) during such period if the Board reasonably believes that the
continued effectiveness of such Registration Statement would have a material
adverse effect on any proposal or plan by the Company or any of its Subsidiaries
to engage in any merger, consolidation, tender offer or other significant
transaction (other than in the ordinary course of business) and notifies the
Eligible Holders in writing of such suspension (provided that the Company shall
have the right to so suspend such effectiveness only one time during any period
of twelve consecutive months).
(b) The Company will, if requested, prior to filing a Registration
Statement or prospectus or any amendment or supplement thereto, furnish to each
Eligible Holder and each underwriter, if any, of the shares of Class A Common
Stock covered by such Registration Statement copies of such Registration
Statement as proposed to be filed, and thereafter the Company will furnish to
such Eligible Holder and underwriter, if any, such number of copies of such
Registration Statement, each amendment and supplement thereto (in each case
including all exhibits thereto and documents incorporated by reference therein),
the prospectus included in such Registration Statement (including each
preliminary prospectus) and such other documents as such Eligible Holder or
underwriter may reasonably request in order to facilitate the disposition of the
Class A Common Stock owned by such Eligible Holder.
(c) After the filing of the Registration Statement, the Company will
promptly notify each Eligible Holder holding Class A Common Stock covered by
such Registration Statement of any stop order, injunction or other order or
requirement of the SEC and take all reasonable actions required to prevent the
entry of such
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stop order, injunction or other order or requirement or to remove or revoke it
if entered.
(d) The Company will use its best efforts to (i) register or qualify the
Class A Common Stock covered by such registration statement under such other
securities or blue sky laws of such jurisdictions in the United States as any
Eligible Holder holding such Class A Common Stock reasonably (in light of such
Eligible Holders's intended method of distribution) requests and (ii) cause such
shares of Class A Common Stock to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company and do any and all other acts and things
that may be reasonably necessary or advisable to enable such Eligible Holder to
consummate the disposition of the Class A Common Stock owned by such Eligible
Holder; provided that the Company will not be required to (A) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this paragraph (d), (B) subject itself to taxation in any such
jurisdiction or (C) consent to general service of process in any such
jurisdiction.
(e) The Company will immediately notify each Eligible Holder holding
such shares of Class A Common Stock, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the occurrence
of an event requiring the preparation of a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such Class A
Common Stock, such prospectus will contain full, true and plain disclosure of
all material facts relating to the securities covered thereby and will not
contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances in which they were made and
promptly prepare and make available to each such Eligible Holder any such
supplement or amendment.
(f) In connection with any underwritten offering pursuant to a Demand
Registration, (i) the Principal Stockholder Group holding the largest number of
the shares of Class A Common Stock to be included in such offering by all
Principal Stockholder Groups shall have the right to select the lead managing
underwriter for such offering, so long as such lead managing underwriter shall
be reasonably satisfactory to the Company, (ii) the Principal Stockholder
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Group holding the second largest number of the shares of Class A Common Stock to
be included in such offering by all Principal Stockholder Groups shall have the
right to select the co-lead managing underwriter for such offering, so long as
such co-lead managing underwriter shall be reasonably satisfactory to the
Company, (iii) each other Principal Stockholder Group participating in the
offering shall have the right to select one co-managing underwriter for such
offering, so long as each such co-managing underwriter shall be reasonably
satisfactory to the Company and (iv) the Company shall have the right to select
one co-managing underwriter for such offering, so long as such co-managing
underwriter shall be reasonably satisfactory to Eligible Holders holding a
majority of the shares of Class A Common Stock to be included in such offering
by Eligible Holders. In connection with any underwritten offering pursuant to an
Incidental Registration, (i) the Company shall have the right to select the lead
managing underwriter for such offering, so long as such managing underwriter
shall be reasonably satisfactory to Eligible Holders holding a majority of the
shares of Class A Common Stock to be included in such offering by Eligible
Holders and (ii) each Principal Stockholder Group participating in such offering
shall have the right to select one co-managing underwriter for such offering, so
long as each such co-managing underwriter shall be reasonably satisfactory to
the Company. The Company will enter into customary agreements (including an
underwriting agreement or indemnity agreement in customary form) and take such
other actions as are reasonably required in order to expedite or facilitate the
disposition of shares in any such underwriting.
(g) Upon the execution of confidentiality agreements in form and
substance satisfactory to the Company, the Company will make available for
inspection by any Eligible Holder and any underwriter participating in any
disposition pursuant to a Registration Statement being filed by the Company
pursuant to this Article IV and any attorney, accountant or other professional
retained by any such Eligible Holder or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any Inspectors in connection with
such Registration Statement. Records that the Company determines, in good
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faith, to be confidential and that it notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in such
Registration Statement or (ii) the release of such Records is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction. Each
Eligible Holder agrees that information obtained by it as a result of such
inspections shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of the Company unless and
until such is made generally available to the public. Each Eligible Holder
further agrees that it will, upon learning that disclosure of such Records is
sought in a court of competent jurisdiction, give notice to the Company and
allow the Company, at its own expense, to undertake appropriate action to
prevent disclosure of the Records deemed confidential.
(h) The Company will furnish to each such Eligible Holder and to each
such underwriter, if any, a signed counterpart, addressed to such underwriter,
of (i) an opinion or opinions of counsel to the Company and (ii) a comfort
letter or comfort letters from the Company's independent public or chartered
accountants, each in customary form and covering such matters of the type
customarily covered by opinions or comfort letters, as the case may be, as the
Eligible Holders or the managing underwriter, if any, reasonably request.
(i) The Company shall use its best efforts to cause all the Class A
Common Stock to be included in any registration under this Article IV to be
listed on the principal securities exchange or included in the over-the-counter
market on which similar securities issued by the Company are then listed or
quoted, as the case may be, or eligible for listing or quotation, or on The
Nasdaq National Market or such other national securities exchange as the Board
may designate.
(j) The Company will otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC including, without limitation,
making available to its security holders, as soon as reasonably practicable, an
earnings statement covering a period of 12 months, beginning within three months
after the effective date of the Registration Statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act.
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(k) The Company shall make available its executive officers for a
reasonable period of time to participate in road show or other investor
presentations in connection with any underwritten offering of Class A Common
Stock or Monetizing Securities by Eligible Holders.
(l) The Company may require, as a condition to including any Eligible
Holder's Class A Common Stock in any registration under this Article IV, each
such Eligible Holder to promptly furnish in writing to the Company such
information regarding such Eligible Holder, the distribution of the Class A
Common Stock and such other information as the Company may from time to time
reasonably request in connection with such registration in order to comply with
applicable disclosure requirements. The Company shall permit any Eligible
Holder, which holder, in its sole judgment, exercised in good faith, and upon
advice of counsel, might be deemed to be an underwriter or a controlling person
of the Company, to participate in the preparation of such Registration Statement
and to require the insertion therein of material, furnished to the Company in
writing, which in the reasonable judgment of such holder and its counsel should
be included.
(m) Each such Eligible Holder agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
4.4(e), such Eligible Holder will forthwith discontinue disposition of shares of
Class A Common Stock pursuant to the registration statement covering such Class
A Common Stock until such Eligible Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 4.4(e) (provided that
such discontinuance shall not be required for a period in excess of two months
and may not occur more than once in any 365 day period), and, if so directed by
the Company, such Eligible Holder will deliver to the Company all copies, other
than any permanent file copies then in such Eligible Holder's possession, of the
most recent prospectus covering such Class A Common Stock at the time of receipt
of such notice. In the event that the Company shall give such notice, the
Company shall extend the period during which such Registration Statement shall
be maintained effective (including the period referred to in Section 4.4(a)) by
the number of days during the period from and including the date of the giving
of notice pursuant to Section 4.4(e) to the date when the Company shall make
available to such Eligible Holder a prospectus supplemented
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or amended to conform with the requirements of Section 4.4(e).
4.5. Expenses. Each Eligible Holder that participates in a Demand
Registration or an Incidental Registration shall pay all underwriting discounts
and commissions and any transfer taxes attributable to the sale of such Eligible
Holder's shares, the fees and expenses of counsel for such Eligible Holder
(other than the fees and expenses for one counsel for the Eligible Holders as
set forth below) and any other out-of-pocket expenses of such Eligible Holder
incurred in connection with its participation in such Demand Registration or
Incidental Registration. The Company shall pay any and all other expenses in
connection with a Demand Registration or an Incidental Registration, including,
without limitation, (i) all SEC, NASD and securities exchange registration and
filing fees, (ii) all fees and expenses of complying with state securities or
blue sky laws (including fees and disbursements of counsel for any underwriters
in connection with blue sky qualifications), (iii) all processing, printing,
copying, messenger and delivery expenses, (iv) all fees and expenses incurred in
connection with the listing of the shares being sold on any securities exchange,
(v) the fees and disbursements of counsel for the Company and of its independent
public accountants and (vi) the reasonable fees and expenses of any special
experts retained in connection with the requested registration and one counsel
representing Eligible Holders and acting as Inspector.
4.6. Indemnification. (a) The Company agrees to indemnify and hold
harmless each Eligible Holder holding shares of Class A Common Stock covered by
a Registration Statement, its officers, directors and agents, and each Person,
if any, who controls such Eligible Holder within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act from and against any and
all losses, claims, damages and liabilities (including those resulting from any
order made or any inquiry, investigation or proceeding commenced or threatened
by any securities regulatory authority, stock exchange or by any other competent
authority) caused by any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement or prospectus relating to
the shares of Class A Common Stock (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material
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fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were made,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information furnished in writing to the Company by such Eligible Holder or
on such Eligible Holder's behalf expressly for use therein; provided however,
that the Company shall not be liable for any untrue statement or omission
contained in a preliminary prospectus, which untrue statement or omission was
corrected in a final prospectus or supplement that was furnished to such
Eligible Holder. The Company also agrees to indemnify any underwriters of the
Eligible Holders, their officers, directors, employees and agents, and each
Person, if any, who controls such underwriters (other than in respect of loss of
profit or information relating solely to the underwriters) on substantially the
same basis as that of the indemnification of the Eligible Holders provided in
this Section 4.6(a).
(b) Each Eligible Holder holding shares of Class A Common Stock included
in any Registration Statement agrees, severally but not jointly, to indemnify
and hold harmless the Company, its officers, directors and agents and each
Person, if any, who controls the Company within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the Company to such Eligible Holder, but only with
respect to information furnished in writing by such Eligible Holder or on such
Eligible Holder's behalf expressly for use in any Registration Statement or
prospectus relating to the Class A Common Stock, or any amendment or supplement
thereto, or any preliminary prospectus, and only up to an amount equal to the
aggregate purchase price received by such Eligible Holder from the sale of such
Eligible Holder's Class A Common Stock in such registration or from Monetizing
Securities in connection with such registration. As a condition to including
shares of Class A Common Stock in any Registration Statement filed in accordance
with Article IV hereof, the Company may require that it shall have received an
undertaking reasonably satisfactory to it from any underwriter to indemnify and
hold it harmless to the extent customarily provided by underwriters with respect
to similar securities.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving
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any Person in respect of which indemnity may be sought pursuant to this Section
4.6, such Person (an "Indemnified Party") shall promptly notify the Person
against whom such indemnity may be sought (the "Indemnifying Party") in writing
and the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Party, and
shall assume the payment of all fees and expenses; provided, however, that the
failure of any Indemnified Party so to notify the Indemnifying Party shall not
relieve the Indemnifying Party of his or its obligations hereunder except to the
extent that the Indemnifying Party is materially prejudiced by such failure to
notify. In any such proceeding, any Indemnified Party shall have the right to
retain his or its own counsel, but the fees and expenses of such counsel shall
be at the expense of such Indemnified Party unless (i) the Indemnifying Party
and the Indemnified Party shall have mutually agreed to the retention of such
counsel, (ii) the Indemnifying Party shall have failed to assume the defense and
employ counsel or (iii) in the reasonable judgment of such Indemnified Party,
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them or differing legal defenses
available to them. It is understood that the Indemnifying Party shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys (in addition to any local counsel) at any time for all such
Indemnified Parties, and that all such fees and expenses shall be reimbursed as
they are incurred. In the case of any such separate firm for the Indemnified
Parties, such firm shall be designated in writing by the Indemnified Parties.
The Indemnifying Party shall not be liable for any settlement of any proceeding
effected without his or its written consent (not to be unreasonably withheld),
but if settled with such consent, or if there be a final judgment for the
plaintiff, the Indemnifying Party shall indemnify and hold harmless such
Indemnified Parties from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment; provided, however, that, if any
case where the fees and expenses of counsel are at the expense of the
Indemnifying Party in accordance with this Section 4.6 and an Indemnified Party
shall have requested the Indemnifying Party to reimburse the Indemnified Party
for such fees and expenses of counsel as incurred, such Indemnifying Party
agrees that it shall be liable for any settlement of any action effected without
its written consent if (i) such
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settlement is entered into more than ten (10) Business Days after the receipt by
such Indemnifying Party of the aforesaid request and (ii) such Indemnifying
Party shall have failed to reimburse the Indemnified Party in accordance with
such request for reimbursement prior to the date of such settlement. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party (not to be unreasonably withheld), effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Party is or could have
been a party and indemnity could have been sought hereunder by such Indemnified
Party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability arising out of such proceeding.
(d) If the indemnification provided for in this Section 4.6 is
unavailable to the Indemnified Parties in respect of any losses, claims, damages
or liabilities referred to herein, then each such Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) as between the Company and the Eligible Holder holding shares of
Class A Common Stock covered by a registration statement on the one hand and the
underwriters on the other, in such proportion as is appropriate to reflect the
relative benefits received by the Company and such Eligible Holders on the one
hand and the underwriters on the other, from the offering of the Class A Common
Stock or Monetizing Securities, or if such allocation is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits but also the relative fault of the Company and such Eligible
Holders on the one hand and of such underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations and (ii) as
between the Company on the one hand and each such Eligible Holder on the other,
in such proportion as is appropriate to reflect the relative fault of the
Company and of each such Eligible Holder in connection with such statements or
omissions, as well as any other relevant equitable considerations. The relative
benefits received by the Company and such Eligible Holders on the one hand and
such underwriters on the other shall be deemed to be in the same proportion as
the total proceeds from the offering of the Class A Common Stock or Monetizing
Securities (net of underwriting discounts and commissions but before deducting
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expenses) received by the Company and such Eligible Holders bear to the total
underwriting discounts and commissions received by such underwriters, in each
case as set forth in the table on the cover page of the applicable prospectus.
The relative fault of the Company and such Eligible Holders on the one hand and
of such underwriters on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company and such Eligible Holders or by such
underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The relative
fault of the Company on the one hand and of each such Eligible Holder on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied in writing by
such party, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and the Eligible Holders agree that it would not be just and
equitable if contribution pursuant to this Section 4.6(d) were determined by pro
rata allocation (even if the underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 4.6(d), no underwriter shall be
required to contribute any amount in excess of the amount of the total fees,
discounts and commissions received by it, and no Eligible Holder shall be
required to contribute any amount in excess of the amount of the proceeds
received by such Eligible Holder in respect of a sale of its shares of Class A
Common Stock or Monetizing Securities. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Each such Eligible Holder's
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obligation to contribute pursuant to this Section 4.6(d) is several in the
proportion that the proceeds of the offering received by such Eligible Holder
bears to the total proceeds of the offering received by all such Eligible
Holders and not joint.
4.7. Unregistered Offerings. In connection with any offering by an
Eligible Holder of Monetizing Securities which do not require the registration
by the Company of the shares of Class A Common Stock issuable upon the
conversion or exchange thereof, the Company shall (i) at the request of such
Eligible Holder, provide reasonable cooperation to such Eligible Holder and its
advisors in connection with such offering, (ii) to the extent relevant, comply
with the other covenants specified in Section 4.4 and provide the Indemnity
specified in Section 4.6 with respect to any unregistered offering and (iii) at
the request of such Eligible Holder, make available its executive officers for a
reasonable period of time to participate in road show or other investor
presentations in connection with such offering.
4.8. Rule 144. The Company agrees that it shall timely file the reports
required to be filed by it under the Securities Act or the Exchange Act
(including, without limitation, the reports under sections 13 and 15 (d) of the
Exchange Act referred to in paragraph (c)(1) of Rule 144 under the Securities
Act), and shall take such further actions as any Eligible Holder may reasonably
request, all to the extent required to enable Eligible Holders to sell Class A
Common Stock, from time to time, pursuant to the resale limitations of (a) Rule
144 under the Securities Act, as such rule may be hereafter amended, or (b) any
similar rules or regulations hereafter adopted by the SEC. Upon the written
request of any Eligible Holder, the Company shall deliver to such Eligible
Holder a written statement verifying that it has complied with such
requirements.
ARTICLE V
OTHER AGREEMENTS
5.1. Confidentiality. Each Principal Stockholder agrees that it will
not, directly or indirectly, without the prior written consent of the Company,
use or disclose to any person, firm or corporation, any information, trade
secrets, confidential customer information, technical data or know-how relating
to the products, processes, methods, equipment
43
<PAGE>
<PAGE>
or business practices of the Company or any of its Subsidiaries, except (a) to
the extent any of the foregoing is or becomes available to the public other than
as a result of disclosure by such Principal Stockholder or any of its Affiliates
or the directors, officers, employees, agents, advisors and controlling persons
of it or any of its Affiliates, (b) as necessary to effect a transaction under
and in compliance with Article III or IV, (c) as may be required by law and (d)
as a Principal Stockholder may disclose to its lenders, rating agencies and
business, legal and financial advisors. In the event any Principal Stockholder
is required by applicable law or regulation or by legal process to disclose any
of the foregoing, it will provide the Company and other Principal Stockholders
with prompt notice thereof to enable them to seek an appropriate protective
order. The covenants made by a Principal Stockholder in this Section 5.1 shall
continue to apply for a period of two years after such Principal Stockholder
ceases to be a Principal Stockholder.
5.2. Issuance of Additional Class B Common Stock. Without the consent of
each Principal Stockholder which has the right to designate Agreed Nominees
pursuant to Article II, the Company shall not issue any additional shares of
Class B Common Stock other than shares of Class B Common Stock issued: in
connection with a stock split; or as a stock dividend with respect to issued and
outstanding shares of Class B Common Stock (in which event any dividend to a
holder of Class B Common Stock shall only be in shares of Class B Common Stock).
5.3 Voting; Written Consent. (a) Any agreement by a Principal
Stockholder herein to vote its shares of Common Stock in a certain manner shall
be deemed, in each instance, to include an agreement by that Principal
Stockholder to use its best efforts to take all actions necessary to call, or
cause the Company and the appropriate officers and directors of the Company to
call, as promptly as practicable, a special meeting of stockholders or to act by
written consent.
(b) When any action is required to be taken by a Principal
Stockholder pursuant to this Agreement, such Principal Stockholder shall take
all steps necessary to implement such action, including executing or causing to
be executed, as promptly as practicable, a consent in writing in lieu of an
annual or special meeting of the stockholders pursuant to Section 228 of the
General Corporation Law of
44
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<PAGE>
Delaware or any successor statute thereto to effect such stockholder action.
ARTICLE VI
GENERAL PROVISIONS
6.1. Expiration and Termination. This Agreement (other than any
provision for which a different term is specified) shall terminate (i) with
respect to the applicability of any voting agreements outlined in Article II to
a particular Principal Stockholder, if and when such Principal Stockholder no
longer holds a number of shares of Class B Common Stock equal to at least two
percent of the number of shares of Common Stock then issued and outstanding;
(ii) with respect to the applicability of any transfer restrictions outlined in
Article III to a particular Principal Stockholder, if and when such Principal
Stockholder no longer holds any shares of Class B Common Stock; and (iii) with
respect to the applicability of any registration rights outlined in Article IV
to a particular Eligible Holder, if and when such Eligible Holder no longer
holds a number of shares of Common Stock equal to at least one percent of the
number of shares of Class A Common Stock then issued and outstanding.
6.2. Amendment and Waiver. Subject to Section 3.7, this Agreement may
not be amended or modified in any respect except by an instrument in writing
signed by all of the parties hereto; provided, however, that the Company need
only be a party to such modifications or amendments the result of which is a
change in the Company's obligations hereunder. Any failure of any party hereto
to comply with any obligation, covenant, agreement or condition contained herein
may be waived by the party or parties entitled to the benefits thereof, but such
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure.
6.3. Governing 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 except to the extent the laws of Delaware are mandatorily
applicable.
45
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<PAGE>
6.4. Notices. Notices, requests, permissions, waivers, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if 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 the Company, to:
TIME WARNER TELECOM INC.
5700 S. Quebec Street
Greenwood Village, Colorado 80111
Telephone: (303)
Telecopy: (303)
Attention: General Counsel
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Telephone: (212) 474-1000
Telecopy: (212) 474-3700
Attention: William P. Rogers, Jr.
and to each of the Principal Stockholders at the
address provided below or to such other address
provided in accordance with this Section 6.4.
If to the TW Stockholders, to:
TIME WARNER COMPANIES, INC.
75 Rockefeller Plaza
New York, New York 10019
Telephone: (212) 484-7580
Telecopy: (212) 956-7281
Attention: General Counsel
46
<PAGE>
<PAGE>
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Telephone: (212) 474-1000
Telecopy: (212) 474-3700
Attention: William P. Rogers, Jr.
If to the MediaOne Stockholder, to:
MEDIAONE GROUP, INC.
188 Inverness Drive West
Englewood, Colorado 80112
Telephone: (303) 858-3562
Telecopy: (303) 858-3487
Attention: Vice President-Law
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Telephone: (212) 310-8000
Telecopy: (212) 310-8007
Attention: Akiko Mikumo, Esq.
If to A/N, to:
ADVANCE/NEWHOUSE PARTNERSHIP
5015 Campuswood Drive
East Syracuse, New York 13057
Telephone: (315) 463-7675
Telecopy: (315) 463-4127
Attention: Robert J. Miron
with a copy to:
Sabin, Bermant & Gould LLP
350 Madison Avenue
New York, New York 10017
Telephone: (212) 692-4418
Telecopy: (212) 692-4406
Attention: Arthur J. Steinhauer
Such names and addresses may be changed by notice given in accordance with this
Section 6.4.
47
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<PAGE>
6.5. 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.
6. 6. 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," or "Exhibits" shall be deemed to be references to
Articles or Sections hereof or Exhibits hereto unless otherwise
indicated.
6.7. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same agreement.
6.8. 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
intended to confer upon any Person not a party to this Agreement any rights or
remedies under or by reason of this Agreement. Except as permitted herein, 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.
6.9. Severability; Enforcement. The invalidity of any portion hereof
shall not affect the validity, force or effect of the remaining portions hereof.
If any term or other provision of this Agreement is invalid, illegal or
incapable or being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an
48
<PAGE>
<PAGE>
acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the greatest extent possible.
6.10. Specific Performance. Without intending to limit the remedies
available to any of the parties hereto, each of the parties hereto acknowledges
and agrees that a violation by such party of any term of this Agreement will
cause the other parties hereto irreparable injury for which an adequate remedy
at law is not available. Therefore, the parties hereto agree that each such
party shall be entitled to an injunction, restraining order or other form of
equitable relief from any court of competent jurisdiction restraining any other
party hereto from committing any breach or threatened breach of, or otherwise
specifically to enforce, any provision of this Agreement.
6.11. 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.
49
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Stockholders'
Agreement as of the date and year first above written.
TIME WARNER TELECOM INC.
By:
------------------------------------------
Name:
Title:
TIME WARNER COMPANIES, INC.
By:
------------------------------------------
Name:
Title:
AMERICAN TELEVISION AND
COMMUNICATIONS CORPORATION
By:
------------------------------------------
Name:
Title:
WARNER COMMUNICATIONS INC.
By:
-----------------------------------------
Name:
Title:
TW/TAE INC.
By:
-----------------------------------------
Name:
Title:
50
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<PAGE>
TW/KBLCOM INC.
By:
----------------------------------------
Name:
Title:
MEDIAONE GROUP, INC.
(a Colorado corporation)
By:
----------------------------------------
Name:
Title:
ADVANCE/NEWHOUSE PARTNERSHIP
By: ADVANCE COMMUNICATIONS CORP.,
General Partner
By:___________________________
Name:
Title:
By: NEWHOUSE BROADCASTING
CORPORATION, General Partner
By:___________________________
Name:
Title:
51
<PAGE>
<PAGE>
EXHIBIT A
LEASE BETWEEN
QUEBEC COURT JOINT VENTURE NO. 2
6312 S. Fiddler's Green Circle, Suite 350N
Englewood, Colorado 80111
LANDLORD
AND
TENANT
Intelligent Advanced Systems, Inc.,
a Delaware corporation
Englewood, Colorado 80111
Dated
June 3, 1994
<PAGE>
<PAGE>
INDEX
-----
<TABLE>
<CAPTION>
Paragraph CAPTION Page
- --------- ------- ----
<S> <C> <C>
Index 2
Schedule of Exhibits 3
1. Terms and Conditions 4
2. Uses 5
3. Rent 5
4. Utilities 8
5. Building Services 8
6. Insurance, Indemnity 8
7. Waiver of Subrogation 9
8. Repairs 9
9. Tenant's Property 9
10. Improvements and Alterations by Tenant 9
11. Casualty 10
12. Assignments, Letting and Subletting 10
13. Liens 11
14. Condemnation 11
15. Construction Conditions/Condition of Leased Premises 11
16. Occupancy, Lease Commencement Date 12
17. Rules and Regulations 12
18. Parking 12
19. Access 12
20. Signs 12
21. Tenant's Default 12
22. Removal of Property 14
23. Quiet Enjoyment, Inability to Perform 14
24. Hold Over Tenancy 15
25. Attorneys' Fees 15
26. Amendment, Waiver 15
27. Notices 15
28. Binding Effect, Gender 16
29. Addenda and Attachments 16
30. Limitation of Landlord's Liability/Indemnification 16
31. Landlord's Reserved Rights 16
32. Offset Statement 17
33. Accord and Satisfaction 17
34. Severability 17
35. Subordination 17
36. Time 18
37. Applicable Law 18
38. Broker's Indemnification 18
39. Options 18
40. Security Deposit 19
41. Moving Carriers 19
42. Guarantee 19
43. Substitute Premises 19
44. Other 19
Addendum No. I 21
</TABLE>
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<PAGE>
<PAGE>
SCHEDULE OF EXHIBITS
--------------------
EXHIBIT A Plan of Leased Premises
EXHIBIT B Legal Description of Building
EXHIBIT B1 Parking Lot Exhibit At Quebec Court I
EXHIBIT B2 Parking Lot Exhibit At Quebec Court II
EXHIBIT C Janitorial Services
EXHIBIT D Lease Commencement Date Statement
EXHIBIT E Rules and Regulations
EXHIBIT F Subordination, Nondisturbance and Attornment Agreement
EXHIBIT G Guarantee of Lease
EXHIBIT H Work Letter
EXHIBIT I ERISA Rider Clause
EXHIBIT J Hutchinson & Associates Letter
EXHIBIT K Compliance with Laws
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<PAGE>
<PAGE>
LEASE
This Lease ("Lease") is made between Intelligent Advanced Systems, Inc.,
a Delaware corporation, whose address is 5700 S. Quebec Street, Suite 100, 200 &
300, Englewood, Colorado 80111, ("Tenant"), and QUEBEC COURT JOINT VENTURE NO.
2, 6312 S. Fiddler's Green Circle, Suite 350N, Englewood, Colorado 80111
(Landlord"), on the day set forth on the cover page of this Lease.
1. TERMS AND CONDITIONS:
A. "Leased Premises" shall mean the entire building (consisting of 3
floors) shown as such on EXHIBIT A attached hereto and made a part hereof,
except for 7942 SF currently leased to Human Resource Company of Colorado
("HRCC") on the 3rd floor of the Building (see Exhibit A) which Landlord shall
make available to Tenant, at Landlord's expense, on 4/1/95, and rent shall not
commence until delivery of such space.
B. "Building" shall mean the office building commonly known as Quebec
Court I located at 5700 S. Quebec Street, Englewood, Colorado and the real
property including the Building parking area (see Exhibit B1) on which it is
located as described in EXHIBIT B attached hereto and made a part hereof.
C. "Lease Commencement Date" shall mean August 1, 1994 or as may be
adjusted pursuant to the terms of this Lease.
D. "Lease Term" shall mean the period beginning on the Lease
Commencement Date and ending on December 31, 2001, or as may be adjusted
pursuant to the terms of this Lease. Any reference in this Lease to Lease Term
or the words "during the term" or "the term" shall all be deemed to include any
renewal period authorized under this Lease.
E. "Rent" shall mean the following for the periods indicated:
The monthly "Rent" shall include Rent, Building Operating Costs,
together with other amounts payable by Tenant to Landlord under this Lease and
shall be:
<TABLE>
<CAPTION>
ANNUAL RENT
PERIOD MONTHLY RENT PER SQUARE FOOT SQUARE FEET
- ------ ------------ --------------- -----------
<S> <C> <C> <C>
*8/1/94-12/31/94 $61,029.00 $6.00 122,058
*1/1/95-3/31/95 $106,800.75 $10.50 122,058
4/1/95-12/31/95 $113,750.00 $10.50 130,000**
1/1/96-12/31/96 $124,583.33 $11.50 130,000
1/1/97-12/31/97 $135,416.67 $12.50 130,000
1/1/98-12/31/98 $146,250.00 $13.50 130,000
1/1/99-12/31/99 $157,083.33 $14.50 130,000
1/1/00-12/31/00 $167,916.67 $15.50 130,000
1/1/01-12/31/01 $167,916.67 $15.50 130,000
</TABLE>
*See Addendum
**Increased from 122,058 RSF to 130,000 RSF subject to delivery of ERCC space.
F. "Tenant's Total Square Footage" shall mean approximately 122,058
Rentable Square Feet ("RSF") which is calculated by adding together the
crosshatched areas shown on Exhibit A and Tenant's share of common areas of the
Building prior to delivery of the HRCC space to Tenant, and thereafter 130,000
Rentable Square Feet which area shall exclude the entire fourth level currently
occupied as a personal residence, "Total Building Square Footage" shall mean
130,000 rentable square feet ("RSF") which is calculated by adding together
rentable square footage of the premises leased by all tenants in the building
and the common areas of the Building and the "Tenant's Pro Rata Share" shall
mean ninety three and nine tenths percent (93.9%) prior to delivery of the
HRCC space to Tenant and thereafter one hundred percent (100.0%) (Tenant's
Total Square Footage divided by Total Building Square Footage). All measurements
subject to verification by either party's architect of rentable areas in the
Building shall be computed by measuring from the inside of "Permanent Outer
Building Walls", hereinafter deemed to exclude from such measurement the
thickness of any special surfacing materials such as paneling, furring strips,
and carpet, or from the inside surface of the glass line where present to the
inside of Permanent Outer Building Walls or the inside surface of the glass
line where present less all vertical penetrations; the parties agree to use
BOMA's ANSI Z65.1 1989 method of measurement. If such measurements are later
discovered to be in conflict with the square footages stated above, this Lease
shall be amended to provide for the actual square footages, and any covenants
herein based upon ratios relating to such square footages shall likewise be
modified.
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<PAGE>
<PAGE>
G. "Permitted Purpose" shall mean use of the Leased Premises for the
following general office purposes: general office use.
H. "The Broker of Record" shall mean CB Commercial Real Estate Group,
Inc., as a dual agent.
I. "Authorized Number of Parking Spaces" During the term of the Lease,
including any renewal or extension, Tenant shall have the right, at no cost to
Tenant, except as noted below to use 476 undesignated parking spaces in the
building parking area, and at the time Tenant requires an additional 50 spaces,
Tenant shall be permitted to use 50 in the adjacent Quebec Court II lot to the
extent there is a cost to build the additional spaces at Quebec Court II, said
cost shall be included in the Building Operating Costs. However, said cost shall
be excluded from $.50/RSF/YR cap described in paragraph 3.B.
2. USES
A. Except as provided in Paragraph 21 below in case of Tenant's default,
Tenant agrees to use the Leased Premises for the Permitted Purpose only, and for
no other purpose. Tenant covenants to comply with all building, zoning, fire and
other governmental laws, ordinances, regulations or rules applicable to the
Leased Premises. Tenant shall not do or permit anything to be done in or about
the Leased Premises, or bring or keep anything in the Leased Premises that may
(i) increase the fire and extended coverage insurance premium upon the Building;
(ii) injure the Building; or (iii) constitute waste or be a nuisance, public or
private, or menace to tenants of adjoining premises or anyone else.
B. Landlord represents that subject to the provisions of a work letter
to be executed between the parties, a sample is attached hereto and made a part
hereof as EXHIBIT H (the "Work Letter"), a Certificate of Occupancy for the
Leased Premises shall be issued as of the Lease Commencement Date; provided,
however, that in the event such Certificate of Occupancy is not issued as of the
Lease Commencement Date, Tenant's sole remedy for the breach of such
representation shall be the right to an abatement of the Rent, due hereunder, on
a pro rated per diem basis equal to one day of Rent for each day following the
scheduled Lease Commencement Date, for so long as such Certificate of Occupancy
shall remain unissued, and in such event the actual Lease Commencement Date
shall be deemed to be the date on which such Certificate of Occupancy is issued.
No abatement of Rent shall be due, however, if the cause of the delay in
issuance of the Certificate of Occupancy is due to the fault of the Tenant.
C. Tenant agrees that it has determined to Tenant's satisfaction that
the Leased Premises can be used for the Permitted Purpose. In the event the
Leased Premises cannot be used for the Permitted Purpose at any time during the
Lease Term, Landlord shall have the option to terminate this Lease or modify the
Permitted Purpose. If Landlord fails to exercise such option, Tenant shall have
the right to use the Leased Premises for any other remaining lawful purpose, for
so long as the Leased Premises are then capable of accommodating such use.
D. Tenant shall have a nonexclusive right with HRCC and the exclusive
right after HRCC vacates the 3rd floor to use the exterior common areas,
inclusive of parking areas, outside of the Building, and located on the real
estate legally described on EXHIBIT B, in accordance with Landlord's reasonable
rules and regulations, as described in Paragragh 17 below.
3. RENT
A. Tenant covenants and agrees to pay to Landlord during the term of
this Lease, at the place specified by Landlord, the Rent, without deduction or
setoff, due and payable in advance on the first day of each month; provided,
however, Tenant shall be entitled to offset against the Rent any damages finally
determined by an arbitration panel as hereinafter provided to have resulted from
Landlord's breach of its obligations hereunder. Rent not paid by the fifth (5th)
of the month shall be subject to a late charge of three percent (3%) of the
amount due provided that the Landlord gives Tenant written notice that the rent
is past due and payable and Tenant fails to make such payment to Landlord within
five (5) days after receipt of Landlord's notice, however, Landlord shall not be
required to give such notice more than once in any calendar year.
Notwithstanding anything to the contrary contained in this Section,
if, during the term of the Lease (i) Tenant has expended money to cure an
alleged default by Landlord, and (ii) filed an arbitration proceeding for
compensatory damages (excluding punitive damages) resulting from Tenant's
cure of Landlord's alleged breach. Tenant shall be entitled
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<PAGE>
to setoff against rent the amount for which such arbitration panel enters a
final judgment in favor of Tenant, and only with respect to any compensatory
damages (excluding punitive damages) awarded to Tenant. Solely for the purposes
of determining whether Tenant is entitled to reimbursement of monies expended to
cure an alleged default by Landlord, Landlord and Tenant acknowledge and agree
that Tenant shall be entitled to seek binding arbitration of its alleged damages
resulting from its expenditure of money to cure the alleged default. The
arbitration shall be conducted in accordance with the rules of the American
Arbitration Association. The arbitration shall be held in the State of Colorado.
The Federal Arbitration Act shall apply to the construction and interpretation
of this paragraph. Judgement upon any award rendered by the majority vote of an
arbitration panel of three may be entered into any court having jurisdiction.
If Tenant is ever required to pay taxes, utilities and/or janitorial expenses
due to the failure of Landlord to pay such items as Landlord is obligated to do
herein, Landlord and Tenant acknowledge and agree that Tenant shall have the
right to offset against future rent such amount paid for taxes, utilities and/or
janitorial expenses only if and when Tenant: (i) gives Landlord 30 days notice
to cure the nonpayment or notify Tenant why Landlord has not made such payment
(or such shorter period of the amounts are due in less than 30 days), (ii) gives
Landlord 30 days to reimburse Tenant for the later's payment thereof, (iii)
files an action with an arbitration panel as provided in the preceding
paragraph, and (iv) allows a maximum of six months to transpire from its
original notice to Landlord to await a final judgement from the arbitration
panel. If the arbitration panel does not render a final judgement within such
six-month period, Tenant shall then be able to offset against future rent any
amounts that it has properly paid for taxes, utilities or janitorial expenses.
The foregoing does not affect nor otherwise impair Landlord's right to refuse to
pay such expenses if Landlord is properly protesting the amount of such
charges, including without limitation, contesting the taxes assessed by the
applicable taxing authority. In such an event, Landlord shall indemnify, defend
and hold Tenant harmless from and against all loss, cost, damage and expense as
a result of its dispute. If Tenant proceeds to pay such costs despite the
pendency of such dispute, Tenant shall not have the right to bring an action
with the arbitration panel as provided herein until such time as the dispute is
resolved between the Landlord and the other party, and Tenant's ability to
offset such payment (or the actual amount owed to the third party by Landlord if
less than the amount of such payment) against future rent shall not ripen until
such arbitration panel enters a final judgement in favor of Tenant.
B. In addition to Rent, Tenant shall pay Tenant's Pro Rata Share of "Building
Operating Costs" in excess of $6.00 per rentable square foot. Building Operating
Costs shall mean all reasonable expenses, costs and disbursements competitively
priced, which Landlord shall pay or become obligated to pay because of or in
connection with the maintenance, repair and operation of the Building,
including, but not limited to, real estate taxes and assessments, use, sales, or
any other taxes (except income taxes) based on rents, personal property taxes on
personal property used in the operation of the Building; Landlord's insurance,
as described in Paragraph 6 below; utilities not separately metered to
individual tenants; costs of leasing or amortization of energy reduction
devices and systems, except those included in the initial building
specifications; maintenance; repairs, redecorating of common areas; costs of
roof renovation (which shall be amortized over its expected life); janitorial
service; operating supplies; property management; Building Services; snow
removal; landscaping; costs of leasing or amortizing plants, shrubs, trees, or
flowers, and normal maintenance thereof; costs of leasing or amortizing *wall
hangings, *fixtures, *paintings and *statues, rubbish removal; tools and
equipment used for the daily operation of the Building; air conditioning and
heating, elevator repair and maintenance, resurfacing and restriping of parking
areas; repair and replacement of car stops and signage; security; and wages,
payroll taxes, welfare and disability benefits reasonably incurred in the
operation of the Building. Building Operating Costs shall not include monies
spent for income tax, accounting, interest, depreciation, or expenditures of a
capital nature (except to the extent that such expenditures not to exceed
$.50/RSF/YR ($65,000.00), based upon current RSF) on a **cumulative basis during
the lease term, are required due to a change in law. If the expenditure results
from a change in law, the Building Operating Costs shall include only that part
of the expense attributable to each lease year based upon the following
amortization schedule, which shall not be less than $.50/RSF/YR in those years
in which there are enough expenses chargeable in such year:
<TABLE>
<CAPTION>
Amount of Expenditure*** Number of Years to Amortize
- ------------------------ ---------------------------
<S> <C>
$65,000.00 or less One (1)
</TABLE>
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<TABLE>
<S> <C>
$ 65,000.01 to $130,000.00 Two (2)
$130,000.01 to $195,000.00 Three (3)
$195,000.01 to $260,000.00 Four (4)
$260,000.01 to $325,000.00 Five (5)
$325,000.01 to $390,000.00 Six (6)
$390,000.01 to $455,000.00 Seven (7)
</TABLE>
*** Assuming 130,000 RSF, subject to change over the lease term.
For example, if in year two of the lease term, an expenditure due to a
change in law is made in the amount of $150,000.00, Landlord shall include
$65,000.00 in the Building Operating Costs in such second year; and $65,000.00
and $20,000.00 in each of the next two lease years, respectively. As an
additional example, if in year five of the lease term such an expenditure is
made in the amount of $500,000.00, Landlord shall include $100,000.00 in the
lease year in which such expenditure is made, and $100,000.00 in each of the
next four lease years (assuming Tenant exercises its renewal option).
Landlord and Tenant acknowledge and agree that notwithstanding anything to the
contrary contained in this Section B., Tenant's maximum aggregate liability for
such expenditures during the initial 7 years of the Lease Term shall be
$455,000.00 ("Tenant's Contribution"). Any unused or unamortized portion of
Tenant's Contribution shall carry forward into any renewal term of the Lease, if
applicable, and the maximum liability for such during the renewal term of the
Lease shall be $455,000.00 plus the unused or unamortized portion of the
Tenant's Contribution from the initial term of the Lease.
*In no event shall the cost applicable to such wall hangings, fixtures,
paintings and statues increase during the initial term or any renewal thereof.
**For instance, if in the first year of the lease term, Landlord is not
required to make any expenditures for a change in law, all .50/RSF/YR
($65,000.00) chargeable in such lease year shall be added to the $.50/RSF/YR
chargeable in the second year of the lease term. Thus, making such chargeable
expenditures equal to $1.00/RSF/YR ($130,000.00 assuming no change in RSF) in
such second year.
If Landlord or Tenant desire to make any expenditures that are reasonably
anticipated to reduce Building Operating Costs, the parties may enter into any
cost-sharing agreement with respect to such expenditure as they see fit at or
prior to either party's incurrence of such expenditures.
Real estate taxes also shall be deemed to include all of
Landlord's expenses, including, but not limited to, attorney's fees incurred by
Landlord in any effort to minimize such taxes, whether by contesting proposed
increases in assessments or by any other means or procedures appropriate in the
circumstances.
C. Within one-hundred-twenty (120) days after the beginning of each
calendar year, commencing on January 1 of the year following the year of the
Lease Commencement Date, Landlord shall give Tenant a statement of Landlord's
estimate of Building Operating Costs. Annually, after assessing past and
estimated future operating costs data, Landlord may adjust the monthly operating
cost payment provided for herein upward or downward to reflect more accurately
the anticipated monthly costs. All payments due at least thirty (30) days after
the revision notice shall be payable at the new rate and in twelve (12) equal
monthly installments.
As of the end of each calendar year, Landlord shall compute the
actual costs of operating the Building for the previous twelve (12) month period
(if the Building has been operating for less that 12 months, the cost of
operating the Building for a year shall be determined by dividing the actual
operating costs by the number of days of actual operation and multiplying by
365). Landlord shall deliver to Tenant notice of such cost and the amount due,
if any, from Tenant as soon as reasonably practical. Tenant shall reimburse
Landlord within thirty (30) days after notice of any deficiency between
estimated operating costs and actual costs. In the event of overpayment by
Tenant, Landlord shall apply the excess to the next successive installments of
Rent due hereunder, including Rent due under any extensions of the Lease, unless
there are no further Rent payments due from Tenant, in which case Landlord shall
pay such excess to Tenant within ten (10) days of such notice from Landlord.
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Landlord shall, upon Tenant's written request, make available to
Tenant or Tenant's Representative(s) a written accounting complete with
receipts, invoices, service contracts, cancelled checks and other backup
information reasonably requested by Tenant showing how Building Operating Costs
were calculated for the Building for any year. In the event Tenant objects to
the statement of Building Operating Costs for any year, Tenant and Landlord
agree to cooperate in good faith to resolve any such objection. The foregoing
notwithstanding, Tenant shall in no way be relieved of its obligation to pay
Tenant's Pro Rata Share of Building Operating Costs as calculated by Landlord
during the period in which it is cooperating with Landlord to resolve any
objections as provided herein.
4. UTILITIES:
Landlord, in its name, shall, provide to the Leased Premises the
following utility services: water, sewer, electricity, electrical metering and
gas. Utility charges whether separately metered or not shall be treated as
Building Operating Costs. Landlord does not warrant that any of the utility
services will be free from interruption caused by Unavoidable Delay, as defined
in Paragraph 23 below.
5. BUILDING SERVICES:
Landlord shall provide services to Tenant which are comparable to
services provided at other first class suburban office buildings in southeast
Denver. Landlord agrees to maintain all parking and exterior common areas,
which maintenance shall include lighting, gardening, cleaning, sweeping,
painting and window cleaning; and to provide for the Leased Premises and the
Building such other services, as reasonably requested by Tenant from time to
time on a reasonable billable basis including, but not limited to, air-cooling,
heating and interior janitorial services, which interior janitorial services are
listed on EXHIBIT C attached hereto and made a part hereof. Landlord shall
maintain and repair the exterior of the Building, its structural portions and
the roof. The services to be provided by Landlord according to this Paragraph 5
shall be deemed to be "Building Services". The cost of Building Services shall
be considered a Building Operating Cost.
Landlord shall not be liable in any event, nor shall Rent be abated,
because of interruption of Building Services. The foregoing notwithstanding, if
any interruption of Building Services causes the Leased Premises to be
untenantable for a period of at least five (5) consecutive business days, Rent
shall be abated proportionately.
6. INSURANCE, INDEMNITY:
The Landlord shall secure and maintain throughout the term of this Lease
the following insurance coverage which Landlord deems reasonable, (the cost of
which shall be a Building Operating Cost) in amounts and form within Landlord's
reasonable discretion:
(1) Fire insurance with extended coverage endorsements attached in
the amount of the full insurable value of the Building;
(2) Comprehensive public liability insurance (including bodily injury
and property damage insurance) for the Building; and
(3) Rental abatement insurance against abatement or loss of rent in
case of fire or other casualty.
Landlord may, but is not obligated to, purchase such other insurance
customarily purchased, from time to time, by first-class office building owners
and managers in the Denver, Colorado area and treat the cost thereof as a
Building Operating Cost.
B. Tenant shall, at its own expense, procure and maintain throughout the
term of this Lease:
(1) Comprehensive public liability insurance, without deductible,
insuring Tenant's activities with respect to the Leased Premises against loss,
damage or liability for personal injury or death, Landlord's damage to property
or commercial loss occurring on or about the Leased Premises, in amounts no less
than $1,000,000 combined single limit; and
(2) Workmen's compensation insurance in at least the statutory
amounts with respect to any work or other operation in or about the Leased
Premises.
Landlord and Landlord's mortgagee, if any, shall be named as
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additional insureds under such insurance and such insurance shall be
primary and noncontributing with any insurance carried by Landlord. The
liability insurance policy shall contain endorsements requiring thirty (30) days
notice to Landlord prior to any cancellation or any reduction in amount of
coverage. Tenant shall deliver to Landlord, as a condition precedent to taking
occupancy of the Leased Premises, a Certificate or Certificates evidencing such
insurance and including an appropriate waiver of subrogation clause, as
described in Paragraph 7 below. Tenant, as a material part of the consideration
be rendered to Landlord, hereby waive all claims against Landlord for injury to
persons or property sustained by Tenant, its agents, employees, invitees, so
long as such injuries are covered by Tenant's liability insurance.
C. Except to the extent proceeds are paid from Landlord's insurance,
Tenant shall indemnify and hold Landlord harmless from and against all demands,
suits, fines, liabilities, losses, damages, costs and expenses (including legal
expenses) which Landlord may incur or become liable for as a result of any
breach by Tenant, its agents, employees, officers, contractors, invitees or
licensees of the terms or covenants of this Lease.
7. WAIVER OF SUBROGATION:
Anything in this Lease to the contrary notwithstanding, Landlord and
Tenant hereby waive and release each other of and from any and all rights of
recovery, claim, action or cause of action, against each other, their agents,
officers and employees, for any casualty loss or damage that may occur to the
Premises, improvements to the building of which the Premises are a part, or
personal property (building contents) within the building and/or Premises, for
any reason regardless of cause or origin. Each party to this Lease agrees
immediately after execution of this Lease to give each insurance company, which
has issued to it policies of fire and extended coverage insurance, written
notice of the terms of the mutual waivers contained in this paragraph, and if
necessary, to have the insurance policies properly endorsed.
8. REPAIRS:
Except for Building Services provided by Landlord, Tenant agrees to
maintain in a clean, orderly and sanitary condition, and keep in good repair,
the interior of the Leased Premises, ordinary wear and tear and damage caused by
Landlord excepted. Such maintenance and repair shall be at the sole cost of
Tenant and shall include but not be limited to the maintenance and repair of
floor covering, ceilings and walls, front and rear doors, and all interior glass
on the Leased Premises. If Tenant fails to maintain or keep the Leased Premises
in good repair and such failure continues for five (5) days after written notice
from Landlord, Landlord may perform any such required maintenance and repairs
and the cost therein shall be additional Rent payable by Tenant within ten (10)
days of receipt of any invoice from Landlord.
9. TENANT'S PROPERTY
Furnishings, trade fixtures and moveable equipment, if any, paid for and
installed by Tenant, shall be the property of Tenant, including but not limited
to Tenant's phone system, computer systems and equipment. Any furnishings, trade
fixtures and moveable equipment paid for by Landlord, shall be considered the
property of Tenant, if Tenant has reimbursed Landlord for the cost of such
property. On expiration of this Lease, if there is then no Event of Default,
Tenant may remove any such property and shall remove any such property if
directed by Landlord. Tenant shall repair and/or reimburse Landlord for the cost
of repairing any damage resulting from removal of Tenant's property. If Tenant
fails to remove such property as required under this Lease, Landlord may do so
and Landlord shall not be liable for any loss or damage to the property of
Tenant which may occur during Landlord's removal thereof.
10. IMPROVEMENTS AND ALTERATIONS BY TENANT:
Tenant may make such additional improvements or alterations to the
Leased Premises which it may deem necessary or desirable, but only with
Landlord's prior written approval (which approval shall not be unreasonably
withheld). Any such improvements or alterations by Tenant shall be done, at
Tenant's expense, by a licensed contractor approved by Landlord in conformity
with plans and specifications reasonably approved by Landlord. All work
performed shall be done in a good and workmanlike manner and with materials
(which are specifically described in the specifications) of the quality and
appearance comparable to those in the Building, and shall become the property of
Landlord. Prior to the commencement of any work or delivery of any materials to
the Leased
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Premises, Tenant shall furnish Landlord, for its approval, copies of the
following:
(a) plans and specifications;
(b) names and addresses of contractors;
(c) copies of contracts;
(d) necessary permits; and
(e) such other items as may be reasonably requested by Landlord to
protect itself in connection with the work.
11. CASUALTY:
If the Leased Premises or the Building are destroyed or damaged by fire,
earthquake or other casualty to the extent that they are untenantable in whole
or in part, then Landlord shall, except as provided below, proceed with
reasonable diligence to rebuild and restore the Leased Premises, or such part
thereof as may be destroyed or damaged, and during the period of such rebuilding
and restoration, this Lease shall remain in full force and effect, and Rent
shall be abated in the same ratio as the square footage in the portion of the
Leased Premises rendered untenantable, if any, shall bear to the Total Square
Footage of the Leased Premises. If Landlord shall reasonably determine that such
destruction or damage cannot be rebuilt and restored within one hundred twenty
(120) days, it shall so notify Tenant within thirty (30) days after the
occurrence of such damage or destruction. In such event, either Landlord or
Tenant may, within twenty (20) days after such notice, terminate this Lease. If
neither party terminates this Lease during such twenty (20) day period, this
Lease shall remain in effect and Landlord shall diligently proceed to rebuild
and restore the Leased Premises, and Rent shall abate as set forth above.
Anything to the contrary notwithstanding, in the event the Leased Premises
are rendered untenantable due to the fault or neglect of Tenant, its agents,
employees, visitors or licensees, there shall be no abatement of Rent as
provided above, except to the extent such loss of Rent shall be payable from the
proceeds of the rental abatement insurance maintained by Landlord in accordance
with Paragraph 6 above.
12. ASSIGNMENT, LETTING AND SUBLETTING:
A. Tenant, its legal representatives and successors in interest, shall not
assign, let or sublet, or permit assigning, letting or subletting of this Lease,
the Leased Premises or any part thereof, respectively without first obtaining
the written consent of Landlord, which consent shall not be unreasonably
withheld. Any approval of Landlord, unless specifically stated therein, shall
not relieve Tenant from its obligations under this Lease.
B. In addition to any other reasonable basis, Landlord shall be deemed to
be reasonably withholding its consent to any such assignment, letting or
subletting, if such assignment, letting or subletting would result in the
assignment, leasing or subleasing of the Leased Premises to:
(2) a party whose business is of a character which does not, in
Landlord's opinion, comport with the character of the Building.
C. If Tenant sublets the Leased Premises, one-half of any rent or other
payment received by Tenant from a sublessee in excess of the Rent Tenant is
obligated to pay to Landlord hereunder shall be paid to the Landlord as
additional Rent.
D. If Tenant wants to assign, let or sublet greater than 50% of the Leased
Premises, Landlord has the right to cancel the Lease and take back the Premises.
Landlord is not required to cancel the Lease and any obligations under the Lease
prior to cancellation are still required to be performed or paid. Tenant shall
have the right, without Landlord's prior written consent to assign or sublease
all or any portion of the Premises to a subsidiary or affiliate of Tenant,
including but not limited to a parent of Tenant or affiliates or subsidiaries of
Tenant or parent. However, Tenant or its successors shall remain liable for the
lease obligations.
E. Tenant may mortgage or otherwise may encumber its leasehold interest,
provided that such encumbrance shall not be deemed to be a consent by Landlord
to the assignment of Tenant's rights or obligations hereunder. Tenant shall only
be required to seek Landlord's prior written
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consent, which consent shall not be unreasonably withheld, if Tenant is securing
its financing solely with its leasehold interest.
13. LIENS:
Tenant shall keep the Leased Premises and the Building free from any liens
arising out of any work performed, materials furnished, or obligation incurred
by Tenant. In the event a lien is filed against Tenant, the Leased Premises or
the Building on account of any work performed, materials furnished or
obligations incurred by Tenant, at the written request of Landlord, Tenant
shall post a bond, or other security reasonably satisfactory to Landlord, as
protection against any expenses, cost or liability incurred by Landlord as a
result of such lien. The bond shall be posted (or other security acceptable to
Landlord shall be provided) within ten (10) business days of receipt of such
written request by Landlord, or Landlord shall have the option to terminate this
Lease in accordance with Paragraph 21 below.
14. CONDEMNATION:
If the whole or any part of the Leased Premises, excluding parking areas,
shall be taken under power of eminent domain or like power, or sold under
imminent threat thereof to any public authority or private entity having such
power, this Lease shall terminate as to the part of the Leased Premises so taken
or sold, effective as of the date possession is required to be delivered to such
authority or entity. Rent for the remaining term shall be reduced in the
proportion that the Total Square Footage of the Leased Premises is reduced by
the taking. If a partial taking or sale of the Building or of the parking spaces
on the Leased Premises (i) substantially reduces the area of the Building or
reduces the parking spaces by more than five percent (5%) resulting in a
substantial inability of Tenant to use the Leased Premises for the Permitted
Purpose as determined by Tenant in its reasonable discretion, Tenant may
terminate this Lease by notice to the Landlord within thirty (30) days after the
Tenant receives a written notice of the portion to be taken or sold, to be
effective one-hundred-eighty (180) days thereafter, or when the portion is taken
or sold, whichever is sooner. All condemnation awards and similar payments shall
be paid and belong to Landlord, except any amounts awarded or paid specifically
for Tenants trade fixtures and relocation costs, provided such awards do not
reduce Landlord's award. Nothing contained herein shall diminish Tenant's right
to deal on its own behalf with the condemning authority.
Notwithstanding the foregoing, if there is alternate space on the Leased
Premises to construct additional parking spaces or if there is parking available
within a one thousand (1,000) feet distance from the Leased Premises which
Landlord is able to secure on behalf of Tenant, Tenant shall not be allowed to
terminate this lease if Landlord provides such alternative parking arrangements.
15. CONSTRUCTION CONDITIONS/CONDITION OF LEASED PREMISES:
A. Tenant, with Landlord's reasonable approval of the general contractor's
and/or subcontractor's qualifications shall have the right to select the space
planner, architect, engineers and general contractor and/or subcontractors whom
Landlord utilizes to construct the improvements (the "Tenant Improvements") to
the Leased Premises, pursuant to the Work Letter Agreement (hereinafter "Work
Letter Agreement") executed by Landlord and Tenant [or subsequent work letters
if Tenant exercises the option(s) to expand provided herein]. Tenant shall bear
the expense of constructing the improvements, except for Article 6 of Addendum
No. I which costs shall be at Landlord's sole cost and expense, as provided in
the Work Letter Agreement and Tenant may use or may direct the Landlord to use
the construction company of Tenant's choice for initial and future improvements.
Landlord shall have the right to use its own construction company for Article 6
of Addendum No. I, which costs shall be at Landlord's sole cost and expense.
B. Landlord shall bear the risk of loss to the Tenant Improvements for any
space of the Leased Premises until the Lease Commencement Date for that space
occurs. Tenant or Tenant's Representative(s) may inspect the Tenant Improvements
at reasonable times so long as such inspections do not interfere with
construction activities. Tenant, by working through Landlord regarding issues of
quality, shall have the right to exercise control over space planner, architect,
engineers and the construction and persons performing construction activities on
the Leased Premises. Acceptance by Tenant of the Certificate of Occupancy for
the Leased Premises shall indicate that Tenant accepts the Leased Premises with
the Tenant Improvements as being in the condition called for by this Lease,
except for those items set
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forth in the punch-list provided by Tenant following delivery of space to Tenant
by Landlord and except defects of Tenant Improvement's which Tenant shall give
notice to Landlord which Landlord will remedy in a timely fashion.
C. The parties have executed the Work Letter Agreement (attached as
Exhibit H).
16. OCCUPANCY, LEASE COMMENCEMENT DATE:
The Leased Premises shall be ready for occupancy on such dates that the
Tenant Improvements are substantially completed in accordance with Paragraph 15
above, subject only to items which will not materially affect the use of Leased
Premises for the Permitted Purpose. In the event of a delay in occupancy, this
Lease shall not become void or voidable (unless such delay continues for more
than one-hundred-eighty (180) days, and is not due to the fault of Tenant, in
which case either party may terminate this Lease). Prior to occupying the Leased
Premises, Tenant shall execute and deliver to Landlord a letter in the form
attached hereto and made a part hereof as EXHIBIT D, acknowledging the Lease
Commencement Date of the Leased Premises.
17. RULES AND REGULATIONS:
Tenant covenants that Tenant and its agents, employees, invitees, or
those claiming under Tenant will at all times observe, perform and abide by all
reasonable rules and regulations promulgated by Landlord, from time to time, as
long as such rules and regulations do not conflict with, or unreasonably modify,
any provision of this Lease. Landlord's rules and regulations in effect on the
date hereof are attached hereto and made a part hereof as EXHIBIT E.
18. PARKING:
After HRCC vacates the Building, Tenant and its employees and invitees
shall have the exclusive privilege to use the surface parking indicated on
Exhibit B-1, pursuant to the rules and regulations relating to parking adopted
by Landlord from time to time. Tenant and its employees and invitees shall have
the exclusive privilege to use the Authorized Number of Parking Spaces as set
forth in Paragraph 1.I. hereof, pursuant to the reasonable rules and regulations
relating to parking adopted by Landlord from time to time. Tenant agrees not to
overburden the surface parking facilities and agrees to cooperate with Landlord
and other tenants in the use of such facilities. Landlord reserves the right in
its reasonable discretion to determine whether parking facilities are becoming
overcrowded and, in such event, to take such steps necessary to correct any
condition including, but not limited to policing and towing.
19. PERMIT:
Tenant shall permit Landlord to enter the Leased Premises at reasonable
times for the purpose of inspecting, altering and repairing the Leased Premises
and ascertaining compliance by Tenant with the provisions of this Lease. During
the last twelve (12) months of the Lease term, Landlord may also show the Leased
Premises to prospective purchasers or renters during regular business hours and
upon reasonable notice, provided that Landlord shall not unreasonably interfere
with Tenant's business operations.
20. SIGNS:
All signs and symbols placed in the doors or windows or elsewhere about
the Leased Premises, or upon any other part of the Building, including building
directories, shall be subject to the reasonable approval of Landlord. Tenant, at
Tenant's sole cost shall have the right to place a sign(s) on the Building and
the grounds subject to Landlord's (so long as such complies with municipal codes
and regulations) reasonable approval and upon termination of the Lease, Tenant
shall restore the Building and the ground, to its prior condition.
Tenant shall be entitled to place signs within the interior of the
Leased Premises without having first obtained Landlord's approval. Upon
expiration of this Lease, all signs installed by Tenant shall be removed and any
damage resulting therefrom shall be promptly repaired, or such removal and
repair may be done by Landlord and the cost thereof charged to Tenant as Rent
hereunder.
21. TENANT'S DEFAULT:
It shall be an "Event of Default" if (i) Tenant shall fail to pay
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any monthly installment of Rent or any other charge or payment required of
Tenant hereunder within ten (10) business days of written notice; (ii) Tenant
shall violate or fail to perform any of the other material conditions, covenants
or agreements herein made by Tenant, and such violation or failure shall
continue for a period of twenty (20) business days after written notice thereof
to Tenant by Landlord, provided, however, that if Tenant commences to cure such
default within said 20 day period and cures within 90 days after written notice
thereof, then such default shall not be deemed an Event of Default; (iii) Tenant
shall make a general assignment for the benefit of its creditors or shall file a
petition for bankruptcy or other reorganization, liquidation, dissolution or
similar relief; (iv) a proceeding is filed against Tenant seeking any relief
mentioned in (iii) above which is not dismissed within sixty (60) days after
filing; (v) a trustee, receiver or liquidator shall be appointed for Tenant or a
substantial part of its property.
If an Event of Default occurs, then Landlord may either:
(i) give Tenant written notice of Landlord's intention to terminate this
Lease on the date of such given notice or any later date specified therein, and
on such specified date all of Tenant's and Landlord's rights and obligations
under this Lease, except as expressly reserved, shall cease, Landlord's written
notice shall operate as a notice to quit, and Landlord may proceed to recover
possession of the Leased Premises by any lawful means, including by reentry and
repossession; the obligation of Tenant to pay and the right of Landlord to
recover all Rent and other charges accrued up to the time of termination or
recovery of possession by Landlord, whichever is later, together with the costs
of collection, including reasonable attorneys' fees, subject to Paragraph 25,
shall survive termination of the Lease; or
(ii) without further notice, except as is required by law, reenter and
take possession of the Leased Premises, or any part thereof, and repossess the
same as Landlord's former estate, and expel Tenant and those claiming through or
under Tenant, and remove the effects of either or both without being deemed
guilty of any manner of trespass, without being deemed to have elected to
terminate this Lease, and without prejudice to any remedies for arrears of rent,
preceding breaches of covenants, or loss of profits; after reentering and
repossessing the Leased Premises without terminating this Lease, Landlord may,
from time to time, without terminating this Lease, relet the Leased Premises or
any part thereof, on behalf of Tenant for such term or terms and at such rent or
rents, and upon such other terms and conditions, as Landlord may deem advisable
in its sole reasonable discretion (including concessions, free rent and payment
of commissions) with the right to make alterations and repairs to the Leased
Premises.
In the event Landlord does not elect to terminate this Lease, but on the
contrary elects to take possession, then such repossession, shall not relieve
Tenant of its obligations and liability under this Lease, all of which shall
survive such repossession. In the event of such repossession, Tenant shall pay
to Landlord as Rent all Rent which would be payable hereunder if such
repossession had not occurred, less the net proceeds, if any, of any reletting
or the value of Landlord's use, if any, of the Leased Premises after deducting
all of Landlord's reasonable expenses in connection with such reletting,
including, but not limited to, all repossession costs, brokerage commissions,
legal expenses, expenses of employees, costs of alterations, expenses or
preparation for reletting, rental concessions and free rent. Tenant shall pay
such Rent to Landlord on the days on which the Rent would have been payable
hereunder if possession had not been retaken.
Any damage or loss sustained by Landlord following Landlord's election
to reenter and repossess the Leased Premises without terminating this Lease may
be recovered by Landlord, at Landlord's option, (i) at the time of the
reletting, (ii) in separate actions, from time to time, as said damage shall
have been made more easily ascertainable by successive relettings, or (iii) be
deferred until the expiration of the term of this Lease, in which event the
cause of action shall not be deemed to have accrued until the date of expiration
of said term. Although Landlord has no obligation to relet the Leased Premises
for Tenant's Account subject to Landlord's duty to mitigate its damages
following Landlord's election to reenter and repossess the Leased Premises
without terminating this Lease, if after so repossessing the Leased Premises
Landlord undertakes reasonable efforts for a period of ninety days to relet the
Leased Premises for Tenant's account and Landlord is unable to find a new
tenant for the Leased Premises and relet the Leased Premises on behalf of the
Tenant upon such terms and conditions as Landlord may deem advisable, in its
sole discretion, then Landlord may, at its option exercisable by written notice
and demand to Tenant, elect to accelerate all Rent due for the remainder of the
Term (determined as if there had been no Event of
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Default) and Tenant shall immediately pay Landlord the present value (discounted
at 10%) of the Rent due for the remainder of the Term, together with all
expenses and costs, including reasonable attorneys' fees, incurred by Landlord,
reduced by the reasonable rental value of the Leased premises for the remainder
of the term.
In the event this Lease is terminated pursuant to the provisions of this
Section, or terminated pursuant to a proceeding for possession under the
Colorado Forcible Entry and Unlawful Detainer Statutes, Tenant shall remain
liable to Landlord for damages in an amount equal to the Rent and other sums
which would have been owing by Tenant hereunder for the balance of the Term had
this Lease not been terminated plus all amounts incurred by Landlord in order to
obtain possession of the Premises and relet the same, including attorneys' fees,
reletting expenses, alterations and repair costs, brokerage commissions and all
other like amounts. Landlord shall be entitled to collect such damages from
Tenant monthly on the days on which the Rent and other amounts would have been
payable hereunder if this Lease had not been terminated, and Landlord shall be
entitled to receive the same from Tenant on each such day. Alternatively, at the
option of Landlord, in the event this Lease is terminated, Landlord shall be
entitled to recover forthwith against Tenant as damages for loss of the bargain
and not as a penalty, an amount equal to the amount of Rent reserved in this
Lease for the balance of the Term reduced to present value by a discount factor
of 10% and further reduced by the reasonable rental value of the leased premises
for the remainder of the term, plus all amounts incurred by Landlord in order to
obtain possession of the Premises and relet the same, including attorneys' fees,
reletting expenses, alterations and repair costs, brokerage commissions and all
other like amounts.
The provisions contained in this paragraph shall be in addition to and
shall not prevent the enforcement of any claim Landlord may have against Tenant
for anticipatory breach of the unexpired term of this Lease; provided, however,
that Landlord's right to accelerate rent shall not apply to an anticipatory
breach of the terms of this Lease. All rights and remedies of Landlord under
this Lease shall be cumulative and shall not be exclusive of any other rights
and remedies provided to Landlord under applicable law.
Notwithstanding anything to the contrary contained herein, an Event of
Default shall not occur if:
(i) Tenant makes a general assignment for the benefit of its creditors or
files a petition in bankruptcy or other reorganization, liquidation, dissolution
or similar relief;
(ii) a proceeding is filed against Tenant seeking any relief mentioned in
(i) above which is not dismissed within sixty (60) days after filing; or
(iii) a trustee, receiver or liquidator is appointed for Tenant or a
substantial part of its property,
so long as Intelligent Electronics, Inc., performs all of Tenant's
obligations under this Lease.
22. REMOVAL OF PROPERTY:
In an Event of Default, Landlord shall have the right, but not the
obligation, to remove from the Leased Premises all personal property, fixtures,
furnishings and other property located therein, and to store such property in
any place selected by Landlord, including, but not limited to, a public
warehouse, at the expense and risk of the owners thereof, with the right to sell
such stored property seven (7) days after notice to Tenant, after it has been
stored for a period of thirty (30) days or more. The proceeds of such sale shall
be applied first to the cost of such sale, second to the payment of the charges
for storage, if any, and third to the payment of other sums of money which may
then be due from Tenant to Landlord under any of the terms hereof, the balance,
if any, to be paid to Tenant.
23. QUIET ENJOYMENT, INABILITY TO PERFORM:
A. If, and so long as, Tenant pays Rent and keeps and performs each and
every term, covenant and condition herein contained on the part and on behalf of
Tenant to be kept and performed, Tenant shall quietly enjoy the Leased Premises
without hindrance or molestation by Landlord, subject to the terms, covenants
and conditions of this Lease and the Superior Instruments, as defined and
provided in Paragraph 35 below.
B. Landlord shall pay all taxes and assessments so as not to
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<PAGE>
jeopardize Tenant's use of the Leased Premises. The foregoing notwithstanding,
Landlord shall be entitled to contest any tax or assessment which it deems to be
improperly levied against the Building so long as Tenant's use of the Leased
Premises is not interfered with.
C. Except as provided in this Lease, this Lease and the obligations of
Tenant to pay Rent and perform all of the terms, covenants and conditions on the
part of Tenant to be performed shall be in no way affected, impaired or excused
because Landlord, due to Unavoidable Delay, is (a) unable to fulfill any of its
obligations under this Lease, or (b) unable to make or is delayed in making any
repairs, replacements, additions, alterations or decorations, or (c) unable to
supply or is delayed in supplying any equipment or fixtures. Landlord shall in
each instance exercise reasonable diligence to effect performance when and as
soon as possible.
"Unavoidable Delay" shall mean any and all delays beyond Landlord's
reasonable control, including without limitation, delay caused by Tenant,
governmental restrictions, governmental regulations or controls other than
Landlord's failure to comply with such requirements, undue delays by
governmental authorities, order of civil, military, or naval authority,
governmental preemption, strikes, labor disputes, lockouts, shortages of labor
or materials, inability to obtain materials or reasonable substitutes therefore,
acts of God, fire, earthquake, floods, explosions, actions of the elements,
extreme weather conditions, enemy action, civil commotion, riot or insurrection,
delays in obtaining governmental permits or approvals or any other cause beyond
Landlord's reasonable control.
24. HOLD OVER TENANCY:
If (without execution of a new lease or written extension) Tenant shall
hold over after the expiration of the term of this Lease, Tenant may, at
Landlord's election, be deemed to be occupying the Leased Premises as a tenant
from month to month, which tenancy may be terminated as provided by law. During
such tenancy, Tenant agrees to pay to Landlord 100% of Tenant's then current
Rent as adjusted in paragraph 3 of the lease, as set forth herein, unless
notified by Landlord to vacate the Premises upon termination, then the rate
shall be 150% of Tenant's then current rent as adjusted in paragraph 3 of the
lease, and to be bound by all of the terms, covenants and conditions as herein
specified, so far as applicable. The foregoing notwithstanding, in the event
Landlord and Tenant are negotiating in good faith over the extension of the
Lease Term for a period exceeding the renewal period, if any, contemplated in
Paragraph 39 below, Tenant shall pay Rent at the same rate as was due during the
then current renewal period, for a period not to exceed sixty (60) days
following the termination date of such renewal period. At the end of the sixty
(60) day period, Tenant agrees to pay to Landlord Tenant's [illegible in
original] of Building Operating costs and 150% of the then current Rent until
Tenant's occupancy is terminated.
25. ATTORNEYS' FEES:
In the event suit is brought for the recovery of any Rent due under this
Lease, or for the breach of any covenant or condition of this Lease, or for the
restitution of the Leased Premises to Landlord and/or eviction of Tenant during
said term, or after the expiration thereof, the party prevailing in any such
legal action shall be entitled to an award for all legal costs and expenses,
including, but not limited to, a reasonable sum for attorneys' fees.
26. AMENDMENT, WAIVER:
This Lease constitutes the entire agreement between the parties. This Lease
shall not be amended or modified except in writing by both parties, certified
and sealed by Tenant's acting corporate secretary. No covenant or term of this
Lease shall be waived except with the express written consent of the waiving
party whose forbearance or indulgence in any regard shall not constitute a
waiver of such covenant or term. Failure to exercise any right in one or more
instances shall not be construed as a waiver of the right to strict performance
or as an amendment to this Lease.
27. NOTICES:
All notices required by this Lease shall be in writing, sealed in an
envelope and delivered in person, or mailed by U.S. Registered or Certified
mail, return receipt requested, postage prepaid, to the address specified below:
A. If intended for Landlord:
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<PAGE>
Quebec Court Joint Venture No. 2
6312 S. Fiddler's Green Circle, #350N
Englewood, Colorado 80111
Attn: Property Manager
B. If intended for Tenant:
Intelligent Advanced Systems, Inc.
5700 S. Quebec Street
Englewood, Colorado 80111
Attn: Vice President of Finance
C. With copy to:
Intelligent Electronics
411 Englewood Boulevard
Exton, PA 19341
Attn: Corporate Counsel
or to such other addresses as either party designates by notice, as provided in
this paragraph, to the other party, from time to time. Notice shall be effective
as of the date actually received or the date the acceptance is refused by the
recipient.
28. BINDING EFFECT, GENDER:
Subject to the provisions in Paragraph 12, this Lease shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
It is understood and agreed that the terms "Landlord" and "Tenant" and verbs and
pronouns in the singular number are uniformly used throughout this Lease
regardless of gender, number or fact of incorporation of the parties hereto.
29. ADDENDA AND ATTACHMENTS:
The typewritten addenda, exhibits or supplemental provisions, if any,
attached or added hereto, are made a part of this Lease by reference and the
terms thereof shall control over any inconsistent provisions in the paragraphs
of this Lease.
30. LIMITATION OF LANDLORD'S LIABILITY/INDEMNIFICATION:
The obligations of Landlord under this Lease do not constitute personal
obligations of the individual partners, directors, officers, or shareholders of
Landlord, and Tenant shall look solely to the real estate that is the subject of
this Lease and to no other assets of the Landlord for satisfaction of any
liability in respect to this Lease and will not seek recourse against the
individual partners, directors, officers or shareholders of Landlord or any of
their personal assets for such satisfaction or for any deficiency judgement
should Tenant be unable to satisfy any liability owed to it.
Landlord shall not be liable to Tenant or to Tenant's employees, agents
or visitors, or to any other person or entity, whomsoever, for any injury to
person or damage to or loss of property on or about the Leased Premises or the
Building caused by the negligence or misconduct of Tenant, its employees,
subtenants, licensees or concessionaires, or of any other person entering the
Building under the express or implied invitation of Tenant, or arising out of
the use of the Premises by Tenant and the conduct of its business therein, or
arising out of any breach or default by Tenant in the performance of its
obligations hereunder or resulting from any other cause except Landlord's
negligence, and Tenant hereby agrees to indemnify Landlord and hold it harmless
from any loss, expenses or claims arising out of such damage or injury.
31. LANDLORD'S RESERVED RIGHTS:
Without notice and without liability to Tenant, Landlord shall have the
right to:
(1) Change (i) the name of the Building, and (ii) the street address of
the Building if required to do so by an appropriate authority;
(2) Install and maintain reasonable signs on the exterior of the
Building;
(3) Make reasonable rules and regulations as, in the judgment of
Landlord, may from time to time, be needed for the safety of the tenants, the
care and cleanlineness of the Building, and the preservation of good order
therein. Tenant shall be notified in writing when each such rule and regulation
is promulgated;
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<PAGE>
<PAGE>
(4) Grant utility easements or other easements to such parties, or
replat, subdivide or make such other changes in the legal status of the land
underlying the Building, as Landlord shall deem necessary, provided such grant
or changes do not substantially or materially interfere with Tenant's use of
the Leased Premises as intended under this Lease; and
(5) Sell the Building and assign this Lease to the purchaser (and upon
such assignment be released from all of its obligations under this Lease which
accrue after such assignment). Tenant agrees to attorn to such purchaser, or any
other successor or assign of Landlord through foreclosure or deed in lieu of
foreclosure or otherwise and to recognize such person as Landlord under this
Lease, as provided more fully in Paragraph 35 below.
32. OFFSET STATEMENT:
Within twenty (20) days after request therefore by either party or its
agents, successors or assigns, the other party shall deliver, in recordable
form, a certificate to any proposed mortgagee or purchaser, or to the requesting
party or parties identified by the requesting party, together with a true and
correct copy of this Lease, certifying, if applicable (i) that this Lease is in
full force and effect, without modification, (ii) the amount, if any, of prepaid
rent and security deposit paid by Tenant to Landlord, (iii) that the other party
as of the date of the certificate, has performed all of its obligations due to
be performed under this Lease and that there are no defenses, counterclaims,
deductions or offsets outstanding, or other excuses for the other's performance
under this Lease, or stating those claimed by Tenant, and (iv) any other fact
reasonably requested by either parties' or such proposed mortgagee or purchaser,
which does not modify or conflict with either parties' rights under this Lease.
The other party's failure to deliver said statement in time shall be conclusive
upon the requesting party: (a) to the best knowledge of the other party, that
this Lease is in full force and effect, without modification except as may be
represented by Landlord, (b) that there are no uncured defaults in Landlord's
performance and Tenant has no right of offset, except as set forth in Section
3.A hereof, counterclaim defenses or deduction against Rent or Landlord
hereunder; and (c) that no more than one period's rent has been paid in advance.
33. ACCORD AND SATISFACTION:
No receipt and retention by Landlord of any payment tendered by Tenant
in connection with this Lease will give rise to, or support, or constitute an
accord and satisfaction, notwithstanding any accompanying statement, instruction
or other assertion to the contrary (whether by notation on a check or in a
transmittal letter or otherwise), unless Landlord previously agrees to an accord
and satisfaction in a separate writing duly executed by the appropriate persons.
Landlord may receive and retain absolutely and for itself, any and all payments
so tendered, notwithstanding any accompanying instructions by Tenant to the
contrary.
34. SEVERABILITY:
The parties intend this Lease to be legally valid and enforceable in
accordance with all of its terms to the fullest extent permitted by law. If any
term hereof shall be finally held to be invalid or unenforceable, the parties
agree that such term shall be stricken from this Lease, the same as if it never
had been contained herein. Such invalidity or unenforceability shall not extend
to or otherwise affect any other term of this Lease, and the unaffected terms
hereof shall remain in full force and effect to the fullest extent permitted
by law, the same as if such stricken term never had been contained herein. The
above notwithstanding, if any provision of this Lease shall be finally held to
be invalid or unenforceable, and such term substantially and adversely affects
the amount of Rent to be received by Landlord, or the nature of its obligations
to Tenant, or otherwise affects the economic bargain agreed to by Landlord in
this Lease, Landlord shall have the additional option of terminating this
Lease. Such right shall be exercised, if at all, by delivering notice to
Tenant within thirty (30) days after any final judgment declaring a provision
of this Lease invalid or unenforceable, stating a date of termination no sooner
than ninety (90) days from such notice.
35. SUBORDINATION:
The rights of Tenant hereunder are, and shall be, at the election of
any mortgagee, subject and subordinate to the lien of any deeds of trust,
mortgages, the encumbrance of any leasehold financing, or the lien resulting
from any other method of financing or refinancing, now or hereafter in force
against the Building of which the Leased Premises are a part, and to all
advances made, or hereafter to be made upon the
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<PAGE>
security thereof (hereafter referred to as the "Superior Instruments"). The
foregoing notwithstanding, for any liens or Superior Instruments filed of record
after the execution of this Lease, the rights of Tenant under this Lease shall
not be subject or subordinated to such liens or Superior Instruments unless the
holders thereof execute an agreement in form and substance similar to the
agreement attached hereto as EXHIBIT F (the "Subordination, Nondisturbance and
Attornment Agreement"). If requested, Tenant agrees to execute whatever
reasonable documentation may be required to further effectuate the provisions of
this paragraph.
There are no superior instruments in existence as of Lease execution.
Tenant agrees to attorn to any purchaser of the Building, or any other
successor or assign of Landlord through foreclosure or deed in lieu of
foreclosure, in return for and upon delivery to Tenant by such purchaser or
mortgagee, as the case may be, of an agreement substantially in the form of the
Subordination, Nondisturbance and Attornment Agreement.
36. TIME:
Time is of the essence hereof.
37. APPLICABLE LAW:
This Lease shall be construed according to the laws of the State of
Colorado and venue shall be in Arapahoe County, Colorado.
38. BROKER'S INDEMNIFICATION:
As part of the consideration for the entering into this Lease, Tenant
and Landlord represent and warrant to each other that no broker or agent
negotiated or was instrumental in the negotiation or consummation of this Lease
except the Broker of Record, and Tenant and Landlord agrees to indemnify each
other against any loss, expenses, cost or liability incurred by the other as a
result of a claim by any broker or finder claiming through either party.
39. RENEWAL OPTIONS:
Landlord hereby grants Tenant one (1) option to extend the term of the
Lease for a seven (7) year period. Except as provided herein, each option is
granted on the same terms and conditions provided for in the Lease, except for
the Rent, and Lease Term. Tenant shall accept the Leased Premises in its then
"as-is" condition except for improvements mentioned below and accept further
that no concessions or other privileges granted to Tenant as provided in the
Lease or any addendum thereof, shall be granted to Tenant during the extension
period. The Rent for the extension period shall be as follows:
<TABLE>
<CAPTION>
MONTHLY ANNUAL RENT
PERIOD RENT PER SQUARE FOOT
------ --- ---------------
<S> <C> <C>
Option 1/1/02-12/31/08 95% of FMRV 95% of FMRV
</TABLE>
Such option to extend may be exercised only (i) upon written notice by
Tenant, certified and sealed by Tenant's acting corporate secretary on or before
six (6) months prior to the end of the Lease Term; and (ii) if Tenant is not in
default under the Lease, both at the time the option is exercised and at the
time the extension period begins.
The extension shall be at the Fair Market Rental Value (FMRV), and
upon all other terms and provisions of this Lease, except no concessions or
other privileges as provided in the Lease or any addendum thereto, shall apply
to the extension period. FMRV shall be the Rent calculated at the then
prevailing rate for similar space in comparable buildings located in the market
area in which the Building is located, taking into account that the then
prevailing rate shall be the prevailing rate charged by Landlord for renewal
terms and not the prevailing rate charged by Landlord for the initial term of a
lease, with Landlord to provide a fair market improvement allowance for a
renewal.
Said FMRV shall be declared by the Landlord in writing to the Tenant
seven (7) months prior to the termination of the Lease. Tenant shall have thirty
(30) days after Tenant notifies Landlord in writing of its intent to exercise
its option to renew the Lease Term in which to dispute, in writing, Landlord's
finding of FMRV, and failing such timely notice of dispute, Landlord's declared
FMRV shall be deemed to be accepted by both parties. If within ten (10) working
days of Tenant's registering its dispute of Landlord's declaration the parties
have not agreed upon FMRV, it shall be established by arbitration under the
rules of the American Arbitration Association then in effect. The parties hereto
agree
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<PAGE>
to prevail upon the American Arbitration Association to select qualified real
estate brokers, appraisers or building managers to comprise the arbitration
panel, and agree further that the FMRV established by the arbitration panel
shall be binding. In the event the results of the arbitration are not known by
the commencement of the option period, Tenant shall pay a rental equal to the
Rent, as adjusted in accordance with Paragraph 3 of the Lease, payable in the
month immediately preceding the termination of the Lease until such time as the
FMRV has been established by the arbitration panel. Any adjustments necessitated
by the determination of the arbitration panel shall be made forthwith, and the
appropriate difference in payment, or refund, shall be paid within ten (10) days
of the determination by the arbitration panel.
40. SECURITY DEPOSIT: "Intentionally Deleted"
41. MOVING CARRIERS:
Tenant agrees that prior to selecting a carrier to move Tenant's
property on or off the Leased Premises, Tenant shall (i) ascertain that such
carrier is registered with the Interstate Commerce Commission and (ii) obtain
the consent of Landlord to use such carrier, which consent shall not be
unreasonably withheld. A valid reason for withholding consent shall include, but
not be limited to, Landlord's previous experience with the carrier.
42. GUARANTEE:
Tenant agrees that at the time of execution of the Lease, Intelligent
Electronics, Inc., shall provide a Guarantee of Lease which is acceptable to
Landlord in the form provided in EXHIBIT G attached hereto and made a part
hereof.
43. SUBSTITUTE PREMISES: "Intentionally Deleted"
44. OTHER:
This Lease is executed as of the date first above written.
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<PAGE>
TENANT: Intelligent Advanced Systems, Inc.
a Delaware corporation
By: /s/ Gregory A. Pratt
----------------------------------
Gregory A. Pratt, President
(Printed Name & Title)
- --------------------------------------------------------------------------------
ACKNOWLEDGMENT
--------------
STATE OF PENNSYLVANIA )
)ss.
COUNTY OF CHESTER )
The foregoing instrument was acknowledged before me on this 14th day of
June, 1994, by Gregory A. Pratt as President of Intelligent Advanced Systems,
Inc.
Witness my hand and official seal.
x /s/ Paula C. Worn
-----------------------------------------
NOTARY PUBLIC
-----------------------------------------
Notarial Seal
(Printed Name of Notary) Paula C. Worn, Notary Public
Uwchian Twp. Chester County
(S E A L) My Commission Expires Jan. 8 1996
-----------------------------------------
Member, Pennsylvania Association
of Notaries
(Notary's Address)
MY COMMISSION EXPIRES: __________________
- --------------------------------------------------------------------------------
LANDLORD: QUEBEC COURT JOINT VENTURE NO. 2,
a Colorado joint venture
BY: COLTEL I, INC., a Delaware corporation
Joint Venturer
By: /s/ Jerry L. Davidson
---------------------------------------
Jerry Davidson, Senior V.P., Eastdil
Advisors, Inc., Managing Agent
- --------------------------------------------------------------------------------
ACKNOWLEDGMENT
--------------
STATE OF COLORADO )
)ss.
COUNTY OF [Illegible on original] )
The foregoing instrument was acknowledged before me on this 22 day of June,
1994, by Jerry Davidson as Senior Vice President, Eastdil Advisors, Inc.,
Managing Agent.
Witness my hand and official seal.
x /s/ Pauline A. Wooster
-------------------------------------------
NOTARY PUBLIC
Pauline A. Wooster
-------------------------------------------
(Printed Name of Notary)
(S E A L)
6200 S. Syracuse Way Annex
-------------------------------------------
Engiewood, CO 80111
-------------------------------------------
(Notary's Address)
MY COMMISSION EXPIRES:
MY COMMISSION EXPIRES: March 1, 1997
---------------------
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<PAGE>
ADDENDUM NO. I
To Lease dated May 12, 1994 between Intelligent Advanced Systems, Inc., a
Delaware corporation as Tenant, and QUEBEC COURT JOINT VENTURE, NO. 2 as
Landlord.
1. Relocation and Improvement Allowance:
Landlord agrees to provide Tenant with a relocation and improvement
allowance ("Allowance") of $1,298,000 of which Tenant shall have the right to
expend as it sees fit for any and all costs associated with moving, analysis,
design, purchase, construction and installation of materials, furniture,
fixtures and equipment that Tenant desires to make in the Building including any
relocation and ancillary costs associated with the occupancy. Beginning June 1,
1994, on the first business day of June, 1994 and on the first business day of
each succeeding month thereafter, out of the funds and allowances to be provided
by Landlord under the terms of this Lease, upon presentation of any invoice
approved by Tenant or its authorized representative and upon receipt by Landlord
of appropriate invoice related lien waivers from the general contractor and/or
subcontractors, Landlord shall pay such invoices. If Tenant elects to have the
Landlord build out the space according to the final space plan approved by the
parties, Tenant shall notify Landlord of any funds expended out of the Allowance
with the remainder of such funds available for construction. In addition, in the
event any excess tenant improvements are requested by Tenant, John Madden
Company, per a separate Letter Agreement, agrees to provide up to $500,000 in
excess Tenant Improvement Allowance. Landlord shall have no liability for any
amount of excess Tenant Improvement Allowance to be provided by John Madden
Company per the separate Letter Agreement. This Lease shall not be contingent
upon such excess Tenant Improvement Allowance, and the failure of the John
Madden Company to provide such excess Tenant Improvement Allowance shall not be
deemed to be a default of the Lease.
2. Rent:
Except as otherwise provided for in Paragraph 2B of the Lease, Tenant's
Rent beginning 8/1/94 shall be based upon the square footage occupied by Tenant
and shall exclude Suite 320 occupied by Human Resource Company of Colorado of
approximately 7,942 rentable square feet.
3. Early Possession:
Tenant may have the right to early possession with the ability to occupy
the space any time after lease execution for purposes of evaluation, design
construction and operation of business. Early occupancy shall be under the terms
of the lease except rent, which shall be at [Illegible] per year which shall not
commence prior to August 1, 1994.
4. Greenwood Athletic Club:
Landlord shall provide Intelligent Advanced Systems, Inc. with a $10,000.00
credit for membership at the Club.
5. Existing Lease:
Tenant and Landlord agree that the Lease between Quebec Joint Venture No. 2
and Intelligent Advanced Systems, Inc., dated August 10, 1993 and amended by the
First Amendment to Office Lease dated November 19, 1993 shall become null and
void upon full execution of this Lease and said space shall become a part of
this Lease.
6. Improvements to Building:
Notwithstanding anything to the contrary contained in Exhibit H, Landlord
agrees to make initial upgrades and improvements to the Building, at Landlord's
sole cost and expense up to $135,000.00 (which costs shall not be added into
Building Operating Costs), which upgrades and improvements shall be
substantially in compliance with recommended upgrades and modifications in
Paragraphs 4 through 6 of the attached Exhibit J with reasonable approval of
design, materials and workmanship to be by Mark Clark of Michael J. Hutchinson &
Associates, 1737 Central Street, Denver CO 80211. Landlord shall bear all
responsibility and all costs as part of the $135,000.00 referenced above for
ensuring that all Building Systems, materials and components referenced in
Exhibit H, Paragraph 2.03 shall comply with code and regulations of the
governing public authority. In addition, Landlord shall contribute up to a
$30,000.00 allowance for the upgrade of the entrance, lobby and common areas of
the building, which costs shall not be added to Building Operating Expenses and
Landlord shall at Landlord's sole cost and
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<PAGE>
expense, upgrade/retrofit the existing lighting system with new electronic
ballasts and T8 lamps, which costs shall not be added to Building Operating
Expenses such that the level of quality and energy savings shall comply with
building code. Such retrofit/upgrade shall be subject to reasonable review and
approval of Tenant's electrical engineer, Mark Clark of Michael J. Hutchinson &
Associates, and all costs associated with such upgrade work shall be at no cost
to Tenant and shall not be included as a part of the $135,000 expenditure
limitation referenced above not added to Building Operating Expense.
7. Electrical Engineering:
Mark Clark of Michael J. Hutchinson & Associates shall perform all
electrical engineering and design associated with all work outlined in Exhibit
J, plus all Tenant Improvement Work, at Tenant's discretion. In addition,
Michael J. Hutchinson & Associates shall have the right to review, refer and
approve the electrical subcontractor performing the scope of work outlined in
Exhibit J, and other improvements for Tenant, regarding such subcontractor's
qualifications, pricing (including overtime wages) materials to be installed and
work procedures and equipment used as well as having the right to approve the
Contractor's supervision and control of the electrical subcontractor regarding
the work to be performed.
8. Space Planning Allowance:
Landlord shall provide to Tenant a space planning allowance of $.10/RSF
payable as specified upon written request by Tenant.
9. Compliance with Laws:
See Exhibit K attached hereto and made a part hereof.
10. Joint Venture:
The ownership of the building is a joint venture between the John Madden
Company and a TREET (Telephone Real Estate Equity Trust) for the AT&T Pension
Fund.
11. Landlord's Consent:
Whenever Landlord's consent is required during the lease term, it should
not be unreasonable withheld, delayed or conditioned by Landlord.
12. Satellite Device:
Tenant shall have the right to place a satellite dish upon the roof
subject to [Illegible on original] approval of Landlord and approval by
municipal authority, [Illegible on original] to Satellite Letter Agreement #1 to
be executed by both parties.
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<PAGE>
AGREEMENT FOR ASSIGNMENT OF LEASE
This Agreement, dated as of September 12, 1997, is executed on behalf of
CARRAMERICA, INC., a ________________ corporation ("CARRAMERICA"), INGRAM MICRO
INC., a Delaware corporation ("INGRAM"), and TIME WARNER COMMUNICATIONS
HOLDINGS, INC., a Delaware corporation ("TIME WARNER").
Statement of Background and Purpose
A. CarrAmerica, as landlord. and Ingram, as tenant, are parties to the
Lease dated June 3, 1994, originally executed by Quebec Court Joint Venture No.
2 as landlord and Intelligent Advanced Systems, Inc. as tenant. (That Lease, as
it may have been assigned, amended and supplemented from time to time before the
date of this Agreement is called the "LEASE.") A true and complete copy of the
Lease is attached as Exhibit A for reference.
The Lease pertains to the office building commonly known as Quebec Court
I, located at 5700 S. Quebec Street, Englewood, Colorado (the "BUILDING"),
together with any rights and interests related to the Building as more
particularly described in the Lease (together, the "PREMISES").
B. Ingram intends to assign and transfer to Time Warner, and except as
noted in Paragraph l, Time Warner intends to assume, all of the right, title,
interest and obligations of Ingram under the Lease. Following that assignment,
Ingram intends to sublease the first floor of the Premises from Time Warner
under terms of the Sublease attached hereto and made part hereof as Exhibit B,
and in advance of that assignment, Ingram intends to permit Time Warner to enter
on the Premises under a temporary license, as provided below.
C. CarrAmerica is agreeable to the assignment of the Lease by Ingram,
the assumption of the Lease by Time Warner and except as noted in Paragraph l,
the release of Ingram from further liability under the Lease, as well as the
short term sublease by Time Warner to Ingram and the temporary license to be
granted to Time Warner before the assignment, all subject to the conditions set
forth in this Agreement.
Agreement
In consideration of the recitals above and the mutual covenants made in
this Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which the parties acknowledge, by executing and delivering this
Agreement, the parties confirm their agreement as follows:
<PAGE>
<PAGE>
1. Assignment.
(a) Assignment by Ingram. Effective 12:00 a.m. on October 1, 1997 (the
"ASSIGNMENT DATE"), Ingram will assign, transfer, sell and convey to Time Warner
all right, title and interest of Ingram in the Lease and the Premises.
(b) Assumption by Time Warner. Time Warner accepts such assignment and
assumes the obligations of Ingram arising under the Lease on or after the
Assignment Date except the obligation to pay Minimum Rent and all other costs
under the Lease through March 31, 1998, except as set forth in the Sublease.
Time Warner agrees to perform and discharge all of Ingram's rights, obligations
and duties under the Lease, and to comply with all the covenants and conditions
of the Lease, in all events first accruing from and after the Assignment Date.
(c) Consent to Assignment and Assumption; Release. CarrAmerica, as the
current and sole owner of the Premises and holder of all the landlord's right,
title and interest in the Lease, consents to the foregoing assignment and
assumption of the Lease under the terms and conditions contained in this
Agreement. Further, CarrAmerica releases Ingram from all obligations and
liabilities of the tenant arising under the Lease on or after the Assignment
Date except for the obligation described in Paragraph 1 (b).
(d) Adjustments After Assignment. The assignment and assumption under
this Agreement will not operate to extinguish the obligation of CarrAmerica and
Ingram to reconcile any difference between estimated amounts paid by Ingram for
Building Operating Costs (as defined in the Lease) or other charges under the
Lease for any period before April 1, 1998 and the actual amounts due from Ingram
for the same period, as provided in Section 3C of the Lease. If, after the
Assignment Date, such reconciliation is required, CarrAmerica and Ingram will
deal directly to finalize and make payment for an appropriate adjustment for the
period in question before the Assignment Date.
2. Sublease.
(a) Agreement for Sublease. Effective the Assignment Date, Time Warner
will sublease the first floor of the Premises to Ingram in accordance with the
Building Sublease attached as Exhibit B (the "SUBLEASE").
(b) Consent of CarrAmerica. CarrAmerica consents to the Sublease.
Further, CarrAmerica and Ingram agree that throughout the term of the Sublease,
each waives and releases each other from any and all rights of recovery, claim,
action or cause of action against each other, their agents, officers and
employees, for any casualty loss or damage that may occur to the Premises, the
improvements to the Building or personal property within the Building or on the
Premises, for any reason, regardless of cause or origin. CarrAmerica and Ingram
each agrees immediately after execution of this Agreement to give each insurance
company which has issued to it policies of fire
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and extended coverage insurance, written notice of the terms of the mutual
waivers contained in this paragraph, and if necessary, to have the insurance
policies properly endorsed.
3. License for Early Entry. Ingram grants to Time Warner a license (the
"LICENSE") to enter the Building from time to time during the normal business
hours observed by Ingram at the Premises throughout the period beginning upon
full execution of this Agreement and extending until the Assignment Date (the
"LICENSE PERIOD"), on the following terms and conditions:
(a) Purpose. The employees, consultants and authorized agents of Time
Warner will be entitled to enter the Building during the License Period to carry
out the planning and design of the tenant finish improvements contemplated by
Time Warner for the Premises after assignment of the Lease.
(b) Notice. Time Warner will provide Ingram with notice, in writing or
by telephone to Dave Nealey (telephone no. 714/261-7737 ext. 229), as the
authorized representative of Ingram, at least one business day in advance of the
entry by Time Warner. The notice will include a designation of the Building
areas Time Warner intends to enter, the names of the persons Time Warner
anticipates will be entering the Premises, and if the entry will extend more
than one day, a reasonable estimate of the time required for the entry. Ingram
will accommodate reasonable exceptions to the notice requirement and changes to
the schedule and visitor list, subject to the provisions of this Paragraph 3
below.
(c) Limitations on License. Time Warner will use reasonably diligent
efforts to avoid interfering with the operations of Ingram in the Premises
during the License Period. Ingram reserves the right to require Time Warner to
observe special procedures (including for example, the requirement that Time
Warner personnel be accompanied by Ingram personnel in secured areas) to comply
with Ingram company policy, insurance conditions, and Building rules and
regulations or other Lease requirements.
(d) Indemnity by Time Warner. Throughout the License Period, Time Warner
will indemnify, defend and hold harmless Ingram, its directors, shareholders,
partners and employees, from and against any and all losses, claims, suits,
damages, judgments, penalties and liability, including without limitation,
reasonable attorneys' fees and court costs, attributable to (i) the injury,
death, disability or illness of any person, or damage to any property occurring
in, on or about the Premises and arising from Time Warner's entry on the
Premises, (ii) any breach or default in the performance of any of Time Warner's
obligations under this Paragraph 3, or (iii) any breach of the Lease caused by
the employees, agents, independent contractors, licensees or invitees of Time
Warner, or (iv) any act or negligence of Time Warner or its employees, agents,
independent contractors, licensees or invitees.
4. Condition to Agreement. This Agreement is conditioned upon CarrAmerica
and Time Warner executing no later than September 17, 1997, on the terms and
conditions for an
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amendment of the Lease on mutually agreeable terms and conditions, to become
effective April 1, 1998.
5. Notices. Except as provided in Paragraph 3(b), any notice given under
this Agreement must be in writing and provided to the address of the party to be
notified, as follows:
CarrAmerica
-----------------------
-----------------------
-----------------------
-----------------------
Ingram
Ingram Micro Inc.
1600 East St. Andrew Place
Santa Ana, California 92705
Attention: Mr. Merlin Eelkema
Time Warner
Time Warner Communications Holdings, Inc.
160 Inverness Drive West
Englewood, CO 80112
Attention: Mr. David Rayner
A party may give notice by mail, courier, telecopy or other means, and
the notice will be effective upon confirmed delivery.
6. Attorneys' Fees. In the event of any legal proceeding arising out of
this Agreement, the prevailing party will be entitled to an award of its
reasonable attorneys' fees and costs.
7. Binding Effect and Governing Law. This Agreement will bind and
benefit CarrAmerica, Ingram and Time Warner and their respective successors and
assigns, and will be construed in accordance with the laws of the State of
Colorado.
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<PAGE>
8. Counterparts. This Agreement may be executed in counterpart copies.
9. Furniture and Equipment. Time Warner reserves the right to purchase
any or all items listed on the letter dated September 10, 1997 from Mr. Paul
LaPlante, attached hereto and made a part hereof as Exhibit C, with all raised
floorings, wiring and cabling in the computer room and all network wiring and
cabling throughout the Building to become the property of Time Warner at no
charge, and all executive furniture on third floor of the Building and all
conference room furniture currently in the Building to become the property of
Time Warner at no charge to TimeWarner.
CARRAMERICA, INC.
By:
--------------------------------
Title:
-------------------------
INGRAM MICRO INC.
By: [SIGNATURE]
-------------------------------
Title: Vice President
---------------------------
TIME WARNER COMMUNICATIONS
HOLDINGS, INC.
By: /s/ Steve McPhie
-------------------------------
Title: President
---------------------------
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<PAGE>
EXHIBIT B
BUILDING SUBLEASE
This Sublease, dated as of September 12, 1997, is executed by TIME WARNER
COMMUNICATIONS HOLDINGS, INC., a Delaware corporation, as LANDLORD and INGRAM
MICRO INC., a Delaware corporation, as TENANT.
1. BASIC DEFINED TERMS. In addition to the terms defined elsewhere in this
Sublease, the parties have utilized the following defined terms:
1.1 PRIME LEASE: The Lease dated June 3, 1994, between CarrAmerica, Inc.
as lessor and Landlord as lessee, originally executed by Quebec
Court Joint Venture No. 2 as landlord and Intelligent Advanced
Systems, Inc. as tenant, as such lease may have been assigned,
amended and supplemented from time to time before the date of this
Sublease.
1.2 PREMISES: The first floor of the office building commonly known as
Quebec Court I, located at 5700 S. Quebec Street, Englewood,
Colorado (the "BUILDING"), together with any rights and interests
related to the Building as more particularly described in the Prime
Lease.
2. GRANT. Landlord subleases the Premises to Tenant, and Tenant
subleases the Premises from Landlord, for the term, at the rental, and on all
the conditions set forth in this Sublease. This Sublease is subject to the
terms, conditions and limitations of the Prime Lease.
3. TERM AND SURRENDER.
3.1 TERM. The term of this Sublease (the "TERM") will begin October 1,
1997 (the "COMMENCEMENT DATE") and expire March 31, 1998, subject to earlier
termination as provided below. The right of Tenant to occupy the Premises will
begin on the Commencement Date and end October 15, 1997. Despite the end of
Tenant's occupancy of the Premises, Tenant will remain obligated to perform its
obligations under this Sublease, all of which are part of the consideration for
this Sublease.
(a) Tenant's Property and Obligations. Unless Landlord and Tenant
agree in writing otherwise, upon surrender of the Premises, Tenant will remove
all alterations, improvements and additions belonging to Tenant and located on
the Premises. The Premises surrendered by Tenant will be broom clean and in good
condition, ordinary wear and tear and damage by and casualty or condemnation
excepted.
(b) Landlord's Obligations pertaining to Tenant Finish Work. Upon
Tenant's surrender of the Premises as required above, Landlord may proceed to
complete the planning, design and construction of the tenant finish work in the
surrendered Premises as necessary
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to prepare those Premises for occupancy and use by Landlord's employees and to
obtain a certificate of occupancy with respect to Landlord's tenant finish work.
In carrying out that work, Landlord will use reasonably diligent efforts to
avoid interfering with any operations of Tenant in the balance of the Premises
throughout the Term. Any personal property, fixtures and equipment maintained by
Landlord or its agents or employees on the Premises during the Terrn will be
maintained at Landlord's risk.
4. RENT.
4.1 TENANT'S OBLIGATIONS. Throughout the Term, and except as provided in
Paragraph 4.2, Tenant agrees to pay directly to the lessor under the Prime Lease
(the "PRIME LANDLORD"), without notice or demand, minimum rent in monthly
installments, payable at the same rate as the Rent defined and specified in
Section 1E of the Prime Lease, and subject to the same rights and obligations
(including, for example, the rights of offset and the obligations for late
charges) as those reserved or imposed on Landlord as lessee under Section 3A of
the Prime Lease ("MINIMUM RENT"). Throughout the Term Tenant will also pay the
Prime Landlord the additional charges levied under the Lease for Tenant's Pro
Rata Share of Building Operating Costs, as defined in Section 6B of the Lease.
These obligations will survive the end of Tenant's possession of the Premises.
Tenant's obligation for the Minimum Rent and additional charges (together,
the "SUBLEASE RENT") are subject to reduction and termination before the
expiration of the Term, as provided in this Paragraph below. Any Sublease Rent
installment for any period of less than one month will be a prorated portion of
the regular monthly installment, based on the number of days in the partial
month for which rent is due.
4.2 LANDLORD'S OBLIGATION. Upon (i) the issuance of a certificate of
occupancy by the local governmental agency having jurisdiction with respect to
any portion of the Premises and (ii) the commencement by Landlord of its regular
business operations in such portion of the Premises (such portion of the
Premises being called, in any case, a "PHASE"), Landlord will pay directly to
the Tenant basic rent for the Phase at the annual rate of $13.50 per rentable
square foot, measured according to the standards utilized by the Prime Landlord
under the Lease, together with a proportionate allocation of the Tenant's Pro
Rata Share of Building Operating Costs (as defined in the Lease) attributable to
the Phase, based on the rentable square foot area of the Phase as compared to
the rentable square foot area of the Leased Premises defined in and covered by
the Prime Lease; however, Landlord will pay those amounts directly to the Prime
Landlord beginning on the date on which Landlord has commenced its regular
business operations in all of the Building.
4.3 PARTIAL TERMINATION OF SUBLEASE. With the commencement of Landlord's
obligation to pay rent for any Phase as provided in Paragraph 4.2 above, this
Sublease with respect to the Phase will terminate for all purposes, and Tenant
will be released from all further liability under this Sublease with respect to
the Phase in question, arising on or after the termination date.
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No additional writing will be required to effect the partial termination for any
Phase under this Paragraph 4.3. However, upon the request of either party, both
Landlord and Tenant will join in executing a certificate confirming on a given
date the extent of the Premises remaining subject to this Sublease.
5. USE. Tenant will use the Premises, if at all, only for the uses
permitted under the Prime Lease. Tenant will not do or permit to be done in or
about the Premises, nor bring or maintain in or on the Premises, anything or any
condition which is prohibited by the terms of the Prime Lease.
6. UTILITIES AND BUILDING SERVICES. Landlord will enforce its rights, if
any, under the covenants made by the Prime Landlord to provide utility service
and Building Services (defined in Section 5 of the Prime Lease). In the event of
any interruption in the utility service to the Premises or in any Building
Services, Tenant will be entitled to an abatement of the Sublease Rent to the
extent and as long as Landlord is entitled to any abatement of the rent payable
under the Prime Lease.
7. REPAIR AND MAINTENANCE.
7.1 TENANT'S OBLIGATIONS. Except for Building Services provided by the
Prime Landlord, Tenant, at its cost, will cause to be performed such maintenance
in any part of the Premises not surrendered to Landlord under the provisions of
Paragraph 3 above, as reasonably necessary to maintain such portions of the
Premises in clean and orderly condition and in good repair, ordinary wear and
tear and damage caused by the Prime Landlord or Landlord excepted.
7.2 LANDLORD'S OBLIGATIONS. Landlord will enforce its rights, if any,
under the covenants made by the Prime Landlord to maintain and repair the
Premises.
8. ASSIGNMENT AND SUBLETTING. Tenant will not assign or encumber this Lease
or any interest in it and will not sublet the Premises, without first complying
with the Prime Lease and obtaining Landlord's written consent, not to be
unreasonably withheld.
9. INDEMNITY.
9.1 TENANT'S INDEMNITY. Tenant will indemnify, defend and hold Landlord
harmless against and from any and all claims, demands, suits, actions and
judgments, and all costs and expenses related to the same (including without
limitation reasonable attorneys' fees, court costs and other expenses of
litigation), and all actual damages and liabilities attributable to (i) the
injury, death, disability or illness of any person, or damage to any property
occurring in, on or about the Premises before they are surrendered to Landlord,
or arising from Tenant's conduct of its business or from any activity, work or
other things done or permitted by Tenant in or about the Premises not
surrendered to Landlord; or (ii) any breach or default in the performance of any
of Tenant's
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<PAGE>
obligations under this Sublease; or (iii) any action or negligence on the part
of Tenant or its employees, agents. independent contractors, licensees or
invitees that constitutes a violation of the Prime Lease; or (iv) any act or
negligence of Tenant, except with respect to those claims waived pursuant to
Paragraph 10.2 below.
9.2 LANDLORD'S INDEMNITY. Landlord will indemnify, defend and hold
Tenant harmless against and from any and all claims, demands, suits, actions and
judgments, and all costs and expenses related to the same (including without
limitation reasonable attorney' fees, court costs and other expenses of
litigation), and all actual damages and liabilities attributable to (i) the
injury, death, disability or illness of any person, or damage to any property
occurring in, on or about the Premises after they are surrendered to Landlord,
or arising from Landlord's tenant finish work or other activity in any
surrendered portion of the Premises; or (ii) any breach or default in the
performance of any of Landlord's obligations under this Sublease; or (iii) any
action or negligence on the part of Landlord or its employees, agents,
independent contractors, licensees or invitees that constitutes a violation of
the Prime Lease; or (iv) any act or negligence of Landlord, except with respect
to those claims waived pursuant to Paragraph 10.2 below.
10. INSURANCE.
10.1 TENANT'S COVERAGE. Throughout the Term, Tenant will carry insurance
in the form and with the coverage and endorsements required of the tenant under
Section 6B of the Prime Lease. Tenant will name Landlord and the Prime Landlord
as an additional insured on any liability policy carried by Tenant, and Landlord
will name Tenant as an additional insured on any liability policy carried by
Landlord.
10.2 WAIVER OF CLAIMS. Landlord and Tenant waive and release each other
from any and all rights of recovery, claim, action or cause of action against
each other, their agents, officers and employees, for any casualty loss or
damage that may occur to the Premises, improvements to the Building, or personal
property within the Building or on the Premises, for any reason regardless of
cause or origin. Each party agrees immediately after execution of this Sublease
to give each insurance company which has issued to it policies of fire and
extended coverage insurance, written notice of the terms of the mutual waivers
contained in this paragraph, and if necessary, to have the insurance policies
properly endorsed.
11. HOLDING OVER. If Tenant holds over after the expiration of Tenant's
right of possession without written agreement providing otherwise, Tenant will
be deemed to be a tenant from month to month,. at a monthly Minimum Rent,
payable in advance directly to Landlord instead of the Prime Landlord, equal to
150% of monthly Minimum Rent payable during the Term. During any hold over
period, Tenant will be bound by all the other terms, covenants and agreements of
this Sublease as the same may apply to a month-to-month tenancy. Nothing
contained in this Sublease will be construed to give Tenant the right to hold
over at any time, and Landlord may exercise any and all remedies at law or in
equity to recover possession of the Premises, as well as any damages
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<PAGE>
incurred by Landlord, due to Tenant's failure to vacate the Premises and deliver
possession to Landlord as required under this Sublease.
12. DEFAULT BY TENANT.
12.1 EVENTS OF DEFAULT. Each of the following will constitute an "EVENT
OF DEFAULT" under this Sublease:
(a) Failure to Pay Rent or Other Amounts. If Tenant fails to pay
Sublease Rent or any other amount payable by Tenant when due under the terms of
this Sublease.
(b) Violation of Sublease Terms or Prime Lease. If Tenant fails to
comply with any provision of this Sublease applicable to Tenant or commits any
action or permits any condition which may be deemed a violation of the Prime
Lease, and such breach is not covered by the provisions of Section 12.1(a) above
and continues for a period of 10 days after notice by Landlord to Tenant; or, if
such failure to comply cannot reasonably be cured within such 10-day period, if
Tenant does not commence in good faith to cure such breach within such 10-day
period or does not diligently complete such cure within a reasonable period
after such notice from Landlord.
12.2 LANDLORD'S REMEDIES. Upon the occurrence of any Event of Default,
Landlord will have the right, at Landlord's election, then or at any later time,
to exercise any one or more of the following remedies:
(a) Cure by Landlord. Landlord may, at Landlord's option, make any
payment or take any action as Landlord may deem necessary or desirable to cure
Tenant's default. Tenant covenants and agrees to pay to Landlord, within 10 days
after demand, all reasonable advances, costs and expenses of Landlord in
connection with the making or any such payment or the taking of any such action,
including reasonable attorney's fees, together with interest at the annual rate
of 12% from the date of payment of any such advance, cost and expense by
Landlord.
(b) Termination of Sublease and Damages. Landlord may terminate this
Sublease, effective at such time as specified by written notice to Tenant, and
recover possession of the Premises from Tenant. Tenant will remain liable to
Landlord for all amounts owing as of the date of termination, plus damages in an
amount equal to the amount which would have been owing by Tenant under this
Sublease for the balance of the Term had this Sublease not been terminated.
13. DEFAULT BY LANDLORD.
13.1 NOTICE AND CURE. Landlord will not be in default unless Landlord
fails to perform obligations required of Landlord within 10 days after written
notice by Tenant to Landlord specifying how Landlord has failed to perform such
obligations; provided, however, that if the nature
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of Landlord's obligations is such that an extended time is required for
performance, then Landlord will not be in default if Landlord commences
performance within such 10 day period and then diligently prosecutes the same to
completion.
13.2 REMEDIES. In the event of a default by Landlord, Tenant will have
the right, at its option, to make any payment or take any action as Tenant may
deem reasonably necessary or desirable to cure Landlord's default. Landlord
covenants and agrees to pay, within 10 days after demand, all advances, costs
and expenses of Tenant in connection with Tenant's making such payment or taking
such action, with interest at the annual rate of 12% from the date of payment of
any such advance, cost or expense by Tenant. Tenant will also have such other
remedies available with respect to offset of rent due under the Prime Lease and
available at law or in equity, including without limitation, the right to
damages or injunctive relief. Those remedies will be cumulative.
14. DAMAGE AND DESTRUCTION. If the Premises are damaged or destroyed by
fire or other casualty, and if the Premises are restored before the expiration
of the Term pursuant to the terms of the Lease, then this Sublease will continue
in full force and effect. Tenant will not be responsible for restoration of the
Premises or any property other than Tenant's personal property and trade
fixtures. Sublease Rent payable by Tenant will be abated to the extent and as
long as the rent payable by Landlord under the Lease applicable to the Premises
is abated. If the Lease is terminated following a casualty event, this Sublease
will terminate at the same time.
15. CONDEMNATION. If the whole or substantially the whole of the Premises
is taken by eminent domain as described in Section 14 of the Lease, then either
Landlord or Tenant may terminate this Sublease by written notice to the other.
If less than the whole or substantially the whole of the Premises is taken, and
if, after that partial taking, the Lease remains in effect, then this Sublease
will also remain in effect, and Sublease Rent will be reduced to account for the
loss of any of the Premises under the same terms and conditions as set forth in
the Lease. Tenant will not have any claim to any condemnation award relating to
the Premises.
16. GENERAL PROVISIONS.
16.1 BINDING EFFECT. The covenants and conditions contained in this
Sublease will inure to the benefit of and bind the successors and permitted
assigns of the parties.
16.2 EXECUTION; OTHER AGREEMENTS. This Sublease will not be effective or
binding on any party until fully executed by both parties. Further, this
Sublease is conditioned upon the execution by the Agreement for Assignment of
Lease dated the date of this Sublease, among CarrAmerica, Inc., Landlord and
Tenant (the "ASSIGNMENT"), and the satisfaction of the conditions stated in the
Assignment.
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16.3 PARTIAL INVALIDITY. Any provision of this Sublease which proves to
be invalid, void or illegal will not affect, impair or invalidate any other
provision of this Sublease, and such other provisions will remain in full force
and effect.
16.4 CHOICE OF LAW. This Sublease will be governed by and construed in
accordance with the laws of the State of Colorado.
16.5 ATTORNEYS' FEES. In the event any action or proceeding is brought
by either party against the other under this Sublease, the prevailing party,
whether by judgment or out of court settlement, will be entitled to recover its
court costs and reasonable attorneys' fees in such action or proceeding,
including costs of appeal, if any, plus other expenses of litigation.
16.6 NOTICES. Any notices given under this Sublease will be given and
effective as provided in the Assignment.
16.7 TIME. In the event that a deadline for performance by either party
under this Sublease falls on a Saturday, Sunday or holiday generally recognized
by banking institutions in Colorado, performance will be deemed timely if
completed on the next business day.
LANDLORD:
Time Warner Communications Holdings, Inc., a
Delaware corporation
By: /s/ Steve McPhie
-----------------------------------------
Title: President
--------------------------------------
TENANT:
Ingram Micro Inc., a Delaware corporation
By: Signature Illegible
-----------------------------------------
Title: Vice-President
--------------------------------------
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FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE is made as of October 15, 1997, by
CARRAMERICA REALTY, L.P., a Delaware limited partnership ("Landlord"), and TIME
WARNER COMMUNICATIONS HOLDINGS INC.. a Delaware corporation ("Tenant").
RECITALS
Quebec Court Joint Venture No. 2, as landlord, and Intelligent
Advanced Systems, Inc., as tenant, entered into a Lease dated
June 3, 1994 (the "Lease") for the premises commonly known as
Quebec Court I, 5700 South Quebec Street, Englewood, Colorado.
Landlord (as successor to Quebec Court Joint Venture No. 2 under
the Lease), Ingram Micro Inc. (as successor to Intelligent
Advanced Systems, Inc. under the Lease), and Tenant have entered
into an Agreement for Assignment of Lease of this date pursuant
to which Ingram Micro Inc. has assigned its interest in the Lease
to Tenant effective October 1, 1997.
Landlord and Tenant wish to extend the Lease Term (as that term
is defined in the Lease) and to amend the Lease in other respects
effective October 1, 1997. Accordingly, they agree:
1. Amendment of Paragraph 1.
a. Paragraph 1.A is amended to read:
A. "Leased Premises" shall mean the building (consisting of 3
floors) shown as such on Exhibit A attached hereto and made a part
hereof.
b. Paragraph 1.D is amended to read:
D. "Lease Term" shall mean the period beginning on the Lease
Commencement Date and ending on March 31, 2005.
c. Paragraph 1.E is amended by the addition of this text at the
end:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Period Monthly Annual Rent Per Square Feet
Rent Square Foot
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1/1/02-12/31/02 $184,166.67 $17.00 130,000
1/1/03- 3/31/05 $195,000 $18.00 130,000
- --------------------------------------------------------------------------------
</TABLE>
d. Paragraph 1.F is amended to read:
F. "Tenant's Total Square Footage" shall mean 130,000 Rentable
Square Feet (RSF). "Tenant's Pro Rata Share" shall mean one hundred
per cent 100%.
e. Paragraph 1.H is amended to read:
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H. "The Broker of Record" shall mean Trammell Crow Denver, Inc.,
as Tenant's agent, with respect to this First Amendment. There is
no broker or agent working on behalf of Landlord for any purpose at
this time.
f. Paragraph 1.I is amended to read:
I. During the term of the Lease, including any renewal or
extension, Tenant shall have the exclusive right, at no cost to
Tenant, except as otherwise noted herein, to use the entire parking
area of the Building, except those spaces designated for the use of
Condo Unit A ("Condo Unit A" being the fourth level of the building,
which is not subject to the Lease), subject to the rights of
Landlord, as noted below, to relocate all or any portion of Tenant's
parking during any period of construction of a parking garage on
that portion of the Building parking area indicated by crosshatching
on Exhibit M attached hereto.
2. Deletion of Paragraph 2.D. Paragraph 2.D is deleted.
3. Amendment of Paragraph 3A. Paragraph 3.A is amended by the
deletion of the third paragraph of Paragraph 3.A, commencing with, "If the
Tenant is ever required to pay taxes."
4. Amendment of Paragraph 3.B. Paragraph 3.B is amended to read:
B. In addition to Rent, Tenant shall pay Tenant's Pro Rata Share
of Building Operating Costs" in excess of $6.00 per rentable square
foot. Building Operating Costs shall mean all reasonable expenses,
costs and disbursements, which Landlord shall pay or accrue because
of, or in connection with, the management (but management fees will
not exceed 4% of annual Rent), maintenance, repair, insurance and
operation of the Building, with books and records kept in accordance
with GAAP, including, but not limited to: real estate taxes,
assessments and special assessments, payment of which shall be
spread over the longest period permitted by the taxing authority;
use, sales, or any other taxes (except income taxes) based on rents;
personal property taxes on personal property used in the operation
of the Building; Landlord's insurance, as described in Paragraph 6
below; utilities not separately metered to individual tenants; costs
of any capital improvements which are primarily intended to reduce
Building Operating Costs or improve safety, and those made to keep
the Building in compliance with governmental requirements applicable
from time to time (collectively, "Included Capital Items");
maintenance and repairs of Common Areas; costs of roof renovation
(which shall be amortized over its expected life); janitorial
service; operating supplies; property management; Building Services;
snow removal; landscaping; costs of leasing or amortizing plants,
shrubs, trees, or flowers utilized in the Common Areas and normal
maintenance thereof; rubbish removal; tools and equipment used for
the daily operation of the Building; air conditioning and heating,
elevator repair and maintenance, repair, resurfacing and restriping
of parking areas; repair and replacement of car stops and signage;
security; and wages, payroll taxes, welfare and disability benefits
reasonably incurred in the operation of the Building.
Building Operating Costs, which shall include roof renovation,
resurfacing of parking areas, Included Capital Expenses, life safety
systems requested by Tenant, and no other capital improvements,
shall be amortized by Landlord, together with an amount equal to
interest at ten percent (10%) per annum, over the estimated useful
life of such item and
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such amortized costs are to be included in Building Operating
Costs for that portion of the useful life of such item which falls
within the term of the Lease. If capital improvements which are
primarily intended to reduce Building Operating Costs are undertaken
by Landlord without the agreement or consent of Tenant, such capital
improvements shall be included in Building Operating Costs only to
the extent of any demonstrated savings in Building Operating Costs.
Notwithstanding anything to the contrary contained in the Lease,
exclusions to costs incurred in the operation of the Building are:
1. Interest, principal, or other payments on account of any
indebtedness that is secured by any encumbrance on any part of
the Property, rental or other payments under any ground lease, or
payments in the nature of returns on or of equity of any kind.
2. Costs of selling, syndicating, financing, mortgaging, or
hypothecating any part of or interest in the Property.
3. Franchise or income taxes imposed on Landlord.
4. Depreciation, reserves of any kind, including replacement
reserves and reserves for bad debts or lost rent.
5. Landlord's rental and other occupancy costs.
6. Wages and salaries (including employee benefits) of executive
or other personnel above the grade of Director of Operations.
7. Landlord's overhead costs, including salaries, benefits and
associated payroll taxes, equipment, supplies, accounting and
legal fees and other administrative costs associated with
Landlord's business other than those directly related to
operation and maintenance of the Building.
8. Costs of employee training and development, seminars,
conventions, club memberships and dues, meals (unless required by
a collective bargaining agreement) and entertainment of any kind,
food, coffee, sodas and bottled water.
9. Fees or other costs for professional services provided by
lawyers, space planners, architects, engineers, and other similar
professional consultants, real estate commissions, and marketing
and advertising expenses incurred with regard to leasing the
Building or portions thereof.
10. Costs of defending or prosecuting litigation with any party,
including tenants,
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mortgagees, or others, unless a favorable judgment would reduce
or avoid an increase in Building Operating Costs, or unless the
litigation is to enforce compliance with Building Rules or other
standards or requirements for the general benefit of tenants in
the Building, or unless Landlord has proceeded in a manner in
which a prudent Landlord in similar circumstances would have
proceeded in connection with such litigation.
11. Costs incurred as a result of Landlord's violation of any
lease, contract, law, or ordinance, including fines and
penalties, unless Landlord has proceeded in a manner in which a
prudent landlord in similar circumstances would have proceeded.
12. Late charges, interest or penalties of any kind for late or
other improper payment of any public or private obligation,
including ad valorem taxes.
13. Costs for which Landlord receives reimbursement from any
sources, including costs covered by proceeds of insurance,
condemnation awards, or court judgments, amounts specifically
billed to or payable by individual tenants, costs covered by any
manufacturer's, contractor's or other warranty, or any other cost
for which Landlord is entitled to reimbursement.
14. Costs related to any building or land not included in the
Leased Premises, including any allocation of costs incurred on a
shared basis, such as centralized accounting, unless the
allocation is made on a reasonable and consistent basis that
fairly reflects the share of such costs reasonably attributable
to the Building.
15. The part of any cost or other sum paid to any affiliate of
Landlord or to any other party that may materially exceed the
fair market price or cost generally payable for comparable goods
or services in the area.
16. The cost of any electric current reimbursed directly to
Landlord by any tenant through metering or any other means.
17. The cost of correcting defects in new capital improvements in
the Building, parking garage (if constructed) or other part of
the Demised Premises for one year after the completion of
construction of such capital improvements.
18. Capital improvements (other than Included Capital Items or
other items which may be capital improvements, such as roof
renovations and parking lot resurfacing, which are permitted
under Paragraph 3B) and tenant improvements costs.
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19. The cost of new art work.
5. Amendment of Paragraph 5. A new paragraph is added to the end of
Paragraph 5 to read:
Tenant may from time to time require that any services and goods
whose cost is included in Building Operating Costs be provided by a
reputable, capable supplier or vendor designated by Tenant for
Landlord's approval which shall not be unreasonably withheld,
conditioned or delayed. Landlord will not add overhead charges to
the costs of goods or services provided to Tenant unless the
provision of such good or service is made at Tenant's request and
the overhead charge is disclosed to Tenant before the cost is
incurred.
6. Amendment of Paragraph 6.
a. Paragraph 6.A(2) is hereby amended to read:
(2) Comprehensive public liability insurance (including bodily
injury and property damage insurance) for the Building with a
combined single limit for property damage and bodily injury of
$2,000,000 per occurrence; and
b. Paragraph 6.B(1) is hereby amended as follows: The phrase
"Landlord's damage to property" is deleted from line 4 thereof;
c. Paragraph 6.B(2) is hereby amended as follows
(I) by the deletion of 'Workmen's" and the substitution of
"Workers" in its place in the first line thereof; and
(Ii) by the addition, at the end of the last sentence of the
paragraph which begins, "Landlord's and Landlord's mortgagee,"
of the following phrase: "except in the case of Landlord's
gross or sole negligence."
7. Amendment of Paragraph 10. These provisions are added at the end
of Paragraph 10:
At its expense, Tenant may make alterations or improvements to
the Building and the systems only with Landlord's prior consent,
which consent shall not be unreasonably withheld, delayed or
conditioned. Landlord will be deemed to be acting reasonably in
withholding its consent for any improvements or alterations which
impact base structural components or systems of the Building, are
visible from the exterior of the Building, or are visible on the
roof of the Building, unless screened.
Tenant will have the right to select and contract with its own
designers, architects, contractors and vendors subject to Landlord's
approval which Landlord will not unreasonably withhold, delay or
condition.
Tenant shall reimburse Landlord for actual costs incurred for
review of the plans and all other items submitted by Tenant for
Landlord's review.
All work shall be performed in a good and workmanlike manner,
meeting the standard for construction and quality of materials in
the
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Building, and shall comply with all insurance requirements and all
applicable governmental laws, ordinances and regulations.
Tenant shall perform all work in compliance with Landlord's
"Policies, Rules and Procedures for Construction Projects", a
current copy of which is attached as Exhibit N. as such policies are
in effect at the time the improvements and alterations are
performed.
Tenant shall permit Landlord to inspect all work. Landlord may
charge an inspection fee to reimburse its costs of inspection.
Landlord's inspection of the work and review and approval of the
plans shall not make Landlord liable to Tenant or to any third party
for any defect or failure of such plans or work.
Upon final completion of the improvements or alterations, Tenant
shall furnish Landlord with contractor's affidavits and full and
final lien waivers, as-built plans and specifications, and receipted
bills covering all labor and materials, and all other close-out
documentation required in Landlord's "Policies, Rules and Procedures
for Construction Projects."
8. Amendment of Paragraph 12D. Paragraph 12D is amended by the
substitution of "two full floors" for greater than 50%" in line one.
9. Deletion of Paragraph 15. Paragraph 15 is deleted.
10. Deletion of Paragraph 16. Paragraph 16 is deleted.
11. Amendment of Paragraph 18. The phrase "After HRCC vacates the
Building," is deleted.
12. Amendment of Paragraph 20. A new sentence is added at the end of
the first paragraph of Paragraph 20 to read:
All signs and symbols placed by Tenant on or about the exterior of
the Leased Premises, including, without limitation, monument signs
and directional signage, shall be substantially in accordance with
Landlord's standards for corporate signage, examples of which are
set forth on Exhibit O attached hereto.
A new sentence is added at the end of Paragraph 20 to read:
At no cost to Landlord, Landlord will cooperate with Tenant's
efforts to obtain variances from applicable ordinances in order to
install additional signage. Landlord shall be reimbursed by Tenant
for any out of pocket expenses incurred by Landlord in connection
with Tenant's efforts to obtain such variances.
13. Amendment to Paragraph 21. The last paragraph beginning,
"Notwithstanding anything to the contrary" and ending "under this Lease" is
deleted.
14. Amendment to Paragraph 22. A new sentence is added at the end of
Paragraph 22 to read:
The property subject to Paragraph 22 includes without limitation
the property set forth on Exhibit L to the Lease.
15. Amendment of Paragraph 26. The second sentence is amended to
read:
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This Lease shall not be amended or modified except in writing by
both parties.
16. Amendment of Paragraph 27. Paragraphs A, B and C are amended to
read:
A. If intended for Landlord:
CarrAmerica Realty Corp.
5800 South Quebec Street
Suite 100
Greenwood Village, CO 80111
Attention: Market Office
With a copy to:
CarrAmerica Realty Corp.
1700 Pennsylvania Avenue
Suite 700
Washington, D.C. 20036
Attention: Lease Administration
B. If intended for Tenant:
Time Warner Communications Holdings Inc.
5700 South Quebec Street
Greenwood Village, CO 80111
Attention: Vice President, Finance
C. With a copy to:
Time Warner Communications Holdings Inc.
5700 South Quebec Street
Greenwood Village, CO 80111
Attention: Legal Department
17. Amendment of Paragraph 31.
a. Paragraph 31(1)(ii) is amended to read:
(ii) the street address of the Building if required to do so
by an appropriate governmental authority.
b. Paragraph 31(2) is amended to read:
(2) Tenant shall have the right, at Tenant's sole cost and
expense to (a) place identification signage on the fascia of the
Building; and (b) have exclusive use of the existing monument
sign (except as indicated below), so long as Tenant (i) leases
75% of the Building; (ii) is not in default under the Lease;
(iii) has obtained Landlord's consent which will not be
unreasonably withheld; and (iv) acts in compliance with
municipal codes and ordinances. Landlord shall have the right,
at its sole cost and expense, to replace the existing monument
sign, and shall have the right to be identified on the monument
sign, in lettering which shall in no event be larger in size
than lettering identifying Tenant. Tenant's signage must be
substantially in conformance with Landlord's standards for
corporate signage, examples of which are set forth on Exhibit O.
18. Amendment of Paragraph 42. Paragraph 42 is amended to read:
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42. Guaranty. Tenant agrees that at the time of the execution of
this First Amendment to Lease, Time Warner Entertainment
Company, L.P. shall provide a Guaranty of Office Lease and
Promise to Pay and Perform to Landlord in the form provided in
Exhibit G attached hereto and made a part hereof.
19. Addition of Paragraph 45. A new Paragraph 45: is added to read:
"45. Parking Garage. Landlord shall have the right in its sole
discretion and at its sole cost and expense, to construct a parking
garage on all or any portion of the site approximately as designated
on Exhibit M so long as, upon commencement of construction, Landlord
diligently pursues completion of the parking garage and
Landlord avoids unreasonable inconvenience to Tenant by meeting the
following conditions:
(i) Landlord shall provide interim parking to Tenant at no cost
to Tenant in the adjacent "Quebec Court ll" parking lot or on
other nearby lots as Landlord shall reasonably determine, which
could include, at Landlord's discretion, a parking location
sewed by shuttle service to the Building at Landlord's sole cost
and expense;
(ii) Upon completion of construction, Tenant is permitted to use
at no cost that number of spaces in the parking garage such that
Tenant's total number of spaces, when totaling its parking
garage spaces and any surface parking spaces remaining available
to Tenant subsequent to the construction of the parking garage,
shall be no fewer than 476; Landlord, however, reserving the
right to designate spaces in the parking garage for Tenant's use
and for use by third parties, and to change such designations in
its reasonable judgment, except as set forth below. As for
Tenant's spaces within the parking garage, if and when
completed, Landlord agrees to designate and reserve to Tenant 25
full size spaces for executive parking on the first floor of the
parking garage nearest to the east entrance to the Building in
the area most convenient to the Leased Premises, which
designation shall not be changed by Landlord. At Landlord's cost
all of Tenant's spaces will be marked "Reserved for Time Warner"
(or otherwise as Tenant may request). Landlord shall use its
best efforts to congregate Tenant's spaces. Of those additional
parking spaces to be made available to Tenant in the parking
garage, spaces on the top floor of the garage shall be allocated
proportionally between the Quebec Court l and Quebec Court ll
buildings in accordance with the leasable square footage of the
buildings, even if such allocation means that Tenant has a
greater number of spaces on the top floor than on any other
floor. All other spaces to be designated for Tenant may be on
other floors of the parking garage as Landlord may reasonably
determine;
(iii) No expenses in connection with the construction of the
garage shall be Building Operating Expenses;
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(iv) The parking garage is built in conformity with all
applicable statutes, laws and ordinances; and
(v) Tenant's permitted use of the number of spaces assigned to
it in the parking garage shall be free of charge except for
Tenant's proportionate share of costs associated with the
parking garage, which proportionate share will be a fraction
whose numerator is the number of spaces in the garage that
Landlord is required to designate for Tenant and does, and whose
denominator is the total number of parking spaces in the parking
garage. Such costs shall be Building Operating Costs and shall
be net of any public parking fees collected by Landlord for use
of the garage, if any. Use of parking spaces in addition to
those permitted to Tenant under the Lease may be subject to a
charge by Landlord, in its sole discretion.
20. Amendment to Addendum No. 1. Paragraphs 1 through 8, inclusive,
and 10 are deleted.
21. Deletion of Exhibits D, H, I and J. Exhibits D, H, I and J are
deleted and to preserve the continuity of the lettering are considered
deliberately deleted.
22. Amendment to Exhibit G. Exhibit G is hereby amended by the
deletion thereof in its entirety and the substitution therefore of Exhibit G
attached to this First Amendment.
23. Addition of Exhibits L, M, N and O. Exhibits L, M, N and O are
added to read in the forms attached to this First Amendment.
24. Improvement Allowance. Landlord shall give Tenant an allowance
for Tenant's expenses incurred in the design, permitting, demolition and
construction of its leasehold improvements in the Premises up to a maximum of
three hundred ninety thousand dollars ($390,000.00) (the "Basic Allowance"). In
addition, Landlord shall provide an additional allowance of up to six hundred
fifty thousand dollars ($650,000.00) for the same purpose, which, if and to the
extent used, shall be amortized over the term of the Lease at an annual
percentage rate of ten percent (10%) and which shall be payable as Rent in
monthly installments by Tenant at the same time and in the same manner as Rent
(the "Additional Allowance" and, together with the Basic Allowance, the
"Construction Allowance"). Landlord shall pay the Construction Allowance within
thirty (30) days after Tenant's presentation of (I) original receipted invoices
marked "paid" in connection with all actual construction work performed by
Tenant in the Premises, (ii) unconditional lien waivers from the general
contractor and all subcontractors, (iii) an affidavit of the general contractor
indicating that, (A) construction has been completed, (B) construction was
completed in accordance with Landlord-approved plans and specifications, (C)
all subcontractors, laborers and material suppliers have been paid in full, (D)
a copy of the certificate of occupancy for the Leased Premises and (E) a
statement by Tenant that it has accepted the Premises. Tenant shall request
payment of the Construction Allowance and shall present all evidence required to
obtain such payment from Landlord no later than July 1, 1998. Within 30 days
after such date, Landlord and Tenant shall determine what portion of the
Construction Allowance is Additional Allowance and shall execute and deliver to
each other a statement setting forth the amount which shall constitute the
monthly Additional Allowance repayment.
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Tenant may use its own architects, general contractors and
subcontractors subject to Landlord's reasonable approval; however, such
architects, general contractors and subcontractors must comply with Landlord's
reasonable rules and regulations regarding construction of the Building. All
improvements and alterations undertaken in the Premises shall be performed in
accordance with paragraph 10 of the Lease, as amended herein.
25. Defined Terms. Defined terms used in this First Amendment and
not defined in it have the meanings given to them in the Lease.
26. Confirmation. Landlord and Tenant confirm the Lease as amended
by this First Amendment, acknowledge that it is in full force and effect and not
modified, and represent that there is no default under the Lease nor are there
any circumstances which after the giving of notice or passage of time, or both,
would constitute a default under the Lease.
27. Corporate Action. Landlord and Tenant warrant that all necessary
corporate actions have been duly taken to permit each party to enter into this
First Amendment to Lease and that each undersigned officer has been duly
authorized and instructed to execute this First Amendment to Lease.
28. Effective Date. The effective date of this Amendment is October
1, 1997.
Landlord and Tenant have executed this Amendment as of its date.
LANDLORD: CARRAMERICA REALTY, L.P., a Delaware
limited partnership
By: CARRAMERICA REALTY GP
HOLDINGS, INC., a Delaware corporation, its
General Partner
By: Philip L. Hawkins
_________________________________
Name: Philip L. Hawkins
Title: MANAGING DIRECTOR
Date of Signature: 10/17/97
TENANT: TIME WARNER COMMUNICATIONS
HOLDINGS INC., a Delaware corporation
By: Steve McPhie
_________________________________
Name: Steve McPhie
Title: President
Date of Signature: 10/15/97
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MASTER TERMS AND CONDITIONS
CAPACITY LICENSE AGREEMENT
DATED AS OF __________, 199_
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These MASTER TERMS AND CONDITIONS (the "Terms") dated as of _______, 1998
shall govern each CAPACITY LICENSE AGREEMENT (each, an "Agreement") entered into
between an affiliated local cable system operator of Time Warner Cable, a
division of Time Warner Entertainment Company, L.P., which affiliate is acting
as licensor of fiberoptic cable capacity ("Licensor"), and an affiliate of Time
Warner Telecom LLC, which affiliate is acting as Licensee of fiberoptic cable
capacity ("Licensee"); each of which such Agreements shall expressly incorporate
the terms and conditions hereof by reference.
RECITALS
WHEREAS, Licensor owns fiberoptic facilities (the "System") within the
geographic area described in the Agreement (the "Service Area"); and
WHEREAS, Licensee desires to provide certain telecommunications services as
specified herein (the "Telecommunications Services") within the Service Area;
and
WHEREAS, subject to the terms and conditions set forth below, Licensor
desires to license the use of certain fiber capacity over the System to
Licensee, and Licensee desires to license the use of such capacity, to enable it
to provide such Telecommunications Services in the Service Area;
NOW THEREFORE, in consideration of the foregoing, and of the promises and
covenants contained in this Agreement, the parties agree as follows:
1. License of Initial Capacity.
(a) Subject to the terms and conditions of the Agreement, Licensor hereby
licenses to Licensee the exclusive use of all capacity (the "Initial Capacity")
of the fiberoptic facilities described on Schedule 1 attached to the Agreement
(the "Initial Facilities"). Licensee acknowledges that it has accepted all the
Initial Capacity as meeting the Acceptance Criteria set forth herein.
(b) The description of the Initial Facilities set forth on Schedule 1
defines fiber counts and either fiber segment routes or "logical rings".
Licensor agrees to deliver copies to Licensee of specific network information
regarding the Initial Facilities from its own maps or schematic documentation
files upon Licensee's request.
2. Licenses of Additional Capacity.
(a) Requests.
(i) At any time during the term of this Agreement, Licensee may
request Licensor to construct fiber optic facilities and/or license to
Licensee the capacity ("Additional Capacity"and together with the Initial
Capacity, the "Capacity") of any of Licensor's fiber optic facilities
("Additional Facilities" and together with the Initial Facilities,
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the "Facilities"), whether then existing or to be constructed. Licensor will
not, however, be obligated to fulfill any such request.
(b) Request Submission. Each Request shall contain such information, such
as the routes, the location of splice points, network architecture and diversity
requirements, and the proposed commencement date, as Licensor may reasonably
request to assist it in determining whether it will construct and/or license the
capacity of Additional Facilities. If Licensor agrees to fulfill any Request, it
shall deliver to Licensee a Cost Estimate Schedule, in the form of Exhibit A,
setting forth its good faith estimate of the Allocated Cost (as defined on Annex
A) of constructing such Additional Facilities.
(c) Request Procedures. Upon Licensor's agreement to license to Licensee
Additional Capacity and Licensee's acceptance of Licensor's estimate of the
Allocated Cost thereof (which acceptance shall be evidenced by Licensee's
execution of the Cost Estimate Schedule and its return of same to such Licensor,
not later than twenty-one (21) days after the date specified on such Cost
Estimate Schedule; Licensee's failure to timely return any such Cost Estimate
Schedule shall render its Request null and void), Licensor shall seek to obtain
any required permits or similar authorizations and thereupon commence
construction of such Facilities for Licensee. Upon agreement by Licensor and
Licensee as to the license of Additional Capacity, and Licensee's acceptance of
Additional Capacity pursuant to Section 2(d) below, the parties shall execute a
Final Cost Schedule setting forth the final information regarding such
Additional Capacity as is required by the form of Exhibit B. On the effective
date or dates set forth in such Final Cost Schedule (or if not specified
therein, the date on which the Additional Capacity is accepted by Licensee in
accordance with Section 2(d) below or, if earlier, the date Licensee commences
use of such Additional Capacity), such facilities shall be deemed to be
Additional Facilities and the capacity thereof Additional Capacity, for purposes
of this Agreement. Licensee's payments for any Additional Capacity shall be
calculated as set forth in Annex A attached hereto, and the amount of such
payments shall be set forth on the Final Cost Schedule relating thereto.
(d) Acceptance Criteria. Upon its determination that any Additional
Capacity is ready for acceptance by Licensee, Licensor shall notify Licensee
(not less than two business days in advance of the proposed test) that it will
conduct a test (the "Acceptance Test") of the Additional Capacity, which
Acceptance Test will be conducted in accordance with the procedures set forth on
Annex B hereto. Annex B may be amended from time to time by mutual agreement of
the parties, provided that any amendments therein shall apply only to Additional
Capacity that is agreed to be licensed after implementation of such amendments.
The parties acknowledge that the test provided on Annex B is based on current
fiber optic telecommunications industry standards for technical and performance
specifications, and that any amendments thereto will be designed to reflect
changes in such standards from time to time (the "Specifications"). Licensee
shall have the right to be present during, and to participate in, the Acceptance
Test. Upon completion of the Acceptance Test, Licensor shall provide Licensee
with a test completion certificate in the form of Annex C appropriately
completed. Licensee shall then have ten days to reject the Additional Capacity
but only if test results do not meet Specifications. If Licensee fails to notify
Licensor of its rejection of the Additional Capacity within such period,
Licensee shall be deemed to have accepted the Additional Capacity as of
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the last day of such ten day period. Licensee shall have the right, by giving
written notice to Licensor within such ten day period, to conduct its own test
of the Additional Capacity within such period, and Licensor and Licensee shall
cooperate with each other to conduct such tests in a manner that does not
unreasonably interfere with Licensor's operations. Such tests shall be conducted
at a time that is mutually convenient to Licensor and Licensee, and Licensor
shall have the right to be present during and to participate in such test.
Licensee shall have five days after completion of the re-test to reject the
Additional Capacity, but only if test results do not meet the Specifications. If
Licensee accepts the Additional Capacity or is deemed to have accepted the
Additional Capacity, Licensor and Licensee shall execute and deliver a Final
Cost Schedule with respect to such Additional Capacity. If Licensee rejects the
Additional Capacity, it shall immediately itemize its reasons for the rejection
in writing, and Licensor and Licensee shall make commercially reasonable efforts
to make the Additional Capacity acceptable (including, if reasonable, partial
acceptance). Following any such cure by Licensor to Licensee's reasonable
satisfaction, Licensee shall promptly accept such Additional Capacity.
3. License Subject to Authorizations. Notwithstanding anything herein to
the contrary, all rights granted to Licensee and obligations of Licensor
hereunder are expressly subject to each of Licensor's authorizations to operate
the System, including without limitation governmental or municipal approval,
franchise or authorization, and to each right-of-way agreement, pole attachment
agreement, conduit agreement, lease, license, consent or other agreement
relating to the Capacity.
4. Term. This Agreement shall commence on the date hereof and shall
terminate, with respect to any Capacity, on the earliest of (a) the date that
the legal ability of the Licensor (or its successor or assign) to operate the
Facilities on which such Capacity is provided in the Service Area either
terminates or is materially impaired, (b) the date this Agreement terminates
with respect to such Capacity pursuant to Sections 18, 19, 25 or 26 hereof or
(c) the thirtieth anniversary of the effective date of this Agreement.
5. Payments.
(a) Calculation and Timing of Payments.
(i) Initial Capacity. Notwithstanding anything in this Agreement to
the contrary, the parties acknowledge and agree that Licensor (or its
parent entity) has made a capital contribution to Licensee in the amount
attributable to the payments which would have been due from Licensee
pursuant to this Agreement for the construction costs of the Initial
Capacity. Accordingly, Licensee shall not be obligated to make any payments
to Licensor in respect of the Initial Capacity pursuant to this Section
5(a)(i) or otherwise for the costs of construction of the Initial Capacity.
All other payments provided for in this Agreement with respect to the
Initial Capacity continue to be due and payable as provided for herein.
(ii) Additional Capacity. For any Additional Capacity, Licensee shall
pay Licensor two payments. The first payment with respect to any such
Additional Capacity shall be equal to one-half of the Cost Estimate and
shall be paid upon Licensor's and Licensee's execution of the Cost Estimate
Schedule pursuant to Section 2(c) with respect to such Additional Capacity.
The second payment equal to the remaining balance shall be made within
forty-five
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(45) days after Licensor and Licensee have executed a Final Cost Schedule in
respect of such Additional Capacity pursuant to Section 2(c). After the second
payment has been made in respect of any such Additional Capacity, Licensee shall
not be obligated to make any additional payments to Licensor, except as may be
otherwise specified in Annex D or elsewhere in this Agreement, in respect of
such Additional Capacity, notwithstanding that this Agreement may continue in
full force and effect thereafter.
(iii) Calculation of Payments. The Parties agree that all
payments set forth on any Cost Estimate Schedule or Final Cost
Schedule shall be calculated in accordance with the procedures set
forth in Annex A attached hereto.
(b) Inspection of Records. The amount of the payments set forth on the
Final Cost Schedule relating to any Additional Capacity shall be based on the
good faith calculations of the Licensor of the actual costs of constructing such
Additional Capacity. Licensor agrees that it will, for a period of one year
after the acceptance by Licensee of any Additional Capacity, maintain reasonably
comprehensive records relating to such costs. Licensor will permit Licensee at
any time during such period upon reasonable written notice and during normal
business hours to examine all of such records, to make copies and extracts
therefrom and to discuss such records and other matters relating to such
Additional Capacity with the respective officers, employees and independent
public accountants and other agents of such Licensor. If any discrepancy is
found in such records which leads Licensee to believe in good faith that the
actual cost of constructing the Additional Capacity was less than Licensor's
calculation of such cost as reflected on any Final Cost Schedule, Licensor and
Licensee shall negotiate in good faith to determine whether an overpayment has
been made by Licensee, and if so, then Licensor shall promptly pay to Licensee
an amount equal to the entire amount of such overpayment. Any records of such
Licensor audited by Licensee shall constitute proprietary information under
Section 20 of this Agreement, irrespective of the lack of restrictive notices or
other express communications to the effect that the information in such records
is proprietary.
6. Taxes and Expenses. Licensee shall pay (a) any sales tax, property tax,
transfer tax, use tax, gross receipts tax, excise tax, business and occupation
tax, or other similar Federal, state and local taxes or charges (excluding taxes
imposed on Licensor's net income) imposed by any governmental authority upon
Licensor or its facilities or Licensee in connection with any payments due from
Licensee to Licensor hereunder, or as a result of Licensee's activities under
this Agreement, or imposed upon or with respect to the Capacity or the
Facilities, (b) any additional franchise fees imposed upon or collected from
Licensor or Licensee by any franchising authority as a result of Licensee's
activities under this Agreement (which payment shall be grossed up to make
Licensor whole for any additional such fees owed with respect to Licensee's
payment), and (c) without duplication of the payments required pursuant to
Section 12 and Annex D attached hereto, for its share on an allocated basis of
pole attachment fees, conduit fees and other out-of-pocket rights-of-way
expenses incurred by Licensor in connection with the Facilities, as follows.
Where Facilities are the only facilities utilizing pole attachment rights,
conduit rights or other rights-of-way, Licensee shall bear all the fees relating
thereto. Where there are no Facilities included in Licensor's facilities
utilizing pole attachments rights, conduit rights or other rights-of-way,
Licensor shall bear all the fees relating thereto. Where Facilities and other
facilities of Licensor utilize pole attachment rights, conduits or other rights
of way, Licensor and Licensee shall each bear 50% of the out-of-pocket fees
relating thereto. Further, if and to the
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extent that Licensor is required to pay incremental pole, conduit or other
right-of-way out-of-pocket fees solely due to the nature of Licensee's use of
the Capacity or Facilities, Licensee shall reimburse Licensor for all such
incremental fees. (If at any time Licensor is required to pay such incremental
fees due to a use of the Facilities or other facilities that is made by both
Licensor and Licensee or any third party exercising rights grants by or through
Licensor, the incremental fees shall be allocated to Licensee according to the
relative proportion of the number of fibers subject to such use). Licensee shall
also pay, or reimburse Licensor for, all fines, penalties, late fees or similar
payments or interest charged on late payments to the extent incurred due to
Licensee's failure to pay amounts owed by it hereunder promptly.
7. Use of Capacity. (a) Licensee shall not use the Capacity in violation of
this Agreement, any law, rule, regulation or order of any governmental authority
having jurisdiction, or any franchise, license, agreement or certificate
relating to the System or Licensor's franchises, unless the validity thereof is
being contested in good faith and by appropriate proceedings (but only so long
as such proceedings and Licensee's use of the Capacity do not, in Licensor's
reasonable opinion, involve any risk of the sale, forfeiture, or loss of the
System, any Authorizations (as defined in Section 16(a)(i)), or any part thereof
or any interest therein). Licensee shall not do or permit anything to be done
with respect to the Capacity that would invalidate or conflict with any
insurance policies maintained by Licensor or Licensee covering the Capacity or
the Facilities.
(b) Licensee shall have exclusive control over the Telecommunications
Services it provides over the Capacity, including, without limitation, customer
premise and nodal electronics, sales and marketing, electronics maintenance and
monitoring, and billing and collection.
(c) Licensee shall not use the Capacity, directly or indirectly (through
a subsidiary or affiliate of Licensee or any other person or otherwise), for its
own account or that of another, to engage in the business of providing,
offering, promoting, or branding any Residential Services or to engage in the
business of producing, packaging, distributing, marketing, hosting or otherwise
providing, offering, promoting or branding Content Services.
(d) (i) "Residential Services" shall mean wireline telecommunications
services or other services (including, without limitation, data services) of any
nature provided directly or indirectly to third party end-users at address
locations other than business locations. "Business locations" shall mean (A)
address locations that are used solely for business purposes, including, without
limitation, public spaces within business locations and governmental offices;
and (B) hotels, hospitals, jails and the business offices of residential
facilities within educational institutions and within nursing and assisted
living complexes.
(ii) "Content Services" means entertainment, information or other
content services, whether fixed or interactive, or any services
incidental thereto; provided, however, that Content Services shall not
include acting solely as a carrier of video, audio or data of
unaffiliated third parties by providing transport services, so long as
Licensee has no other direct or indirect pecuniary interest in the
transmitted information or content.
8. Non-Exclusivity. Nothing in this Agreement shall be construed to require
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Licensor to be Licensee's exclusive provider of, or contractor with respect to,
fiberoptic facilities or equipment in the Service Area or to limit in any way
Licensee's right in its own name to apply for and obtain municipal franchises,
authorizations and permits, to construct, maintain and own fiberoptic
facilities, and to apply for and obtain pole attachment agreements, conduit
licenses or other rights-of-way agreements from other rights-of-way providers.
Further, nothing in this Agreement shall imply or require that Licensee be
Licensor's exclusive licensee or lessee of network facilities or capacity.
9. Use of Licensee Capacity by Licensor. (a) If Licensee obtains operating
authority, rights-of-way, building entrance facilities, pole attachment
agreements or conduit rights in the Service Area, constructs and owns fiber
optic facilities in the Service Area and determines, in its sole discretion,
that it has capacity in such facilities, it will, upon request of Licensor,
negotiate in good faith with Licensor for (i) the license of capacity to
Licensor for the provision of cable television and any other services, such
license to the extent possible to include all the applicable terms and
provisions (including, without limitation, Annexes A and D) of this Agreement as
if Licensee were Licensor and Licensor were Licensee hereunder or (ii) the
provision to Licensor of the kinds of additional facilities services specified
in Section 10 hereof.
(b) In furtherance and not in limitation of the foregoing, with regard to
building entrance or riser facilities constructed by Licensee after the date
hereof (but prior to the fifth anniversary of the date of this Agreement),
Licensee shall:
(i) Notify Licensor of buildings in which it obtains rights of
entry or access;
(ii) Use reasonable efforts to assist Licensor in obtaining
similar rights of entry or access; and
(iii) Upon Licensor's request, construct (with the "Allocated
Cost" of such construction, as defined in Annex A, to be paid by
Licensor) up to four fibers for Licensor's ownership (or, if Licensor
cannot obtain the necessary rights of entry or access, Licensee shall
license to Licensor the capacity of such fibers, as described above in
Section 9(a)(i)).
10. Other Services. To the extent Licensor is unable or unwilling to
provide requested Additional Capacity to Licensee pursuant to Section 2 above,
Licensor will, upon request of Licensee, provide Licensee with the following
alternative services, subject to agreement in advance in writing upon
compensation Licensor is to receive with respect thereto, and subject to and in
accordance with any applicable legal, contractual, regulatory or technical
limitations:
(a) permit Licensee (subject to Section 13) to overlash Licensor owned
facilities (which shall become Additional Facilities hereunder) on poles on
which Licensor's facilities are located;
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(b) make available to Licensee any spare capacity, determined in Licensor's
sole discretion, in conduits, ducts, inner ducts, building entry facilities or
building riser facilities owned or leased by such Licensor; and
(c) use reasonable efforts to obtain, in Licensor's name, pole attachment
agreements or conduit licenses and to sublet or assign such agreements or
licenses to Licensee to permit Licensee to construct facilities.
11 Splicing Services. (a) Unless otherwise agreed between the parties or as
provided below, Licensor will perform fiber splicing services on any Facilities
on which Capacity is licensed hereunder. Any splice request shall be in writing
and shall contain information as to the general location of the desired splice
point, number of fibers to be spliced and desired completion date. Splicing
shall occur only at splice points designated or approved in writing by Licensor.
(b) Where the Facilities to be spliced are in a separate sheath from any
other Licensor fibers ("separate sheath Facilities"), Licensor shall use
commercially reasonable efforts to mark within six months of the date of this
Agreement the separate sheath Facilities' splice containers for ease of
identification. After such marking is completed, Licensee shall have 24-hour,
365 days access to each splice point for separate sheath Facilities for the
purpose of splicing and maintaining splices of such Facilities.
(c) Licensor and Licensee shall agree upon a set of request and
notification procedures, and response times and procedures (to be subject to
revision every two years), for splicing and splice maintenance (including in
emergency circumstances) where the Facilities are in a sheath shared with other
Licensor fibers ("shared sheath Facilities"). Licensee shall request, and
Licensor shall provide, splicing and maintenance services in accordance with
these procedures; provided that if Licensor fails with regard to any specific
project to provide splicing or splice maintenance service in accordance with
such procedures, Licensee shall thereupon be entitled (as its sole remedy, in
addition to Section 23) to 24-hour, 365 day access to the splice points for
shared sheath Facilities for the purpose of splicing and maintaining splices of
such Facilities with regard to such specific project only.
The compensation to Licensor for any splicing work (other than splicing as
part of construction of Additional Facilities hereunder, which shall be as set
forth in Annex A) shall be as set forth in Annex D. All splicing or maintenance
undertaken by Licensee hereunder shall be solely in accordance with Section 13.
12. Performance and Maintenance. Licensor shall use its commercially
reasonable efforts to maintain the Facilities so that at all times each portion
of such Facilities performs in accordance with the Specifications in effect as
of the date the Capacity of such Facilities was added to this Agreement. In
consideration of the performance of such maintenance, Licensee shall pay
maintenance fees to Licensor in the amounts and at the times set forth in Annex
D. Inspection and maintenance will be provided by the Licensor or its
subcontractors unless prior arrangements have been made between Licensor and
Licensee.
13. Licensee Requirements. Notwithstanding any other provision hereof, for
any project of Licensee agreed to by Licensor that requires access to or
easements over Licensor's
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headends, facilities, network, conduit, hubsites, splice cans or other property,
Licensee shall in each instance comply with all of the following:
(a) Licensee shall only employ and permit access by a contractor that has
been specifically approved in writing by Licensor for work within the Service
Area; provided that Licensor shall not unreasonably withhold or delay approval
of any proposed contractor.
(b) Licensee shall not rearrange any Licensor facilities (including
Facilities) without Licensor's prior written consent.
(c) Licensee shall give Licensor such prior written notice of its activity
as is set forth in the Agreement and Licensor shall be entitled to be present,
at Licensee's expense, and to supervise Licensee and its agents with respect to
its activities regarding the Facilities.
(d) Licensee (or its agents or permittees) shall provide Licensor with a
diagram of the exact configuration of any splice or other work completed.
Licensor shall have no liability of any nature whatsoever hereunder for
maintenance or other work that is improperly performed due to failure of
Licensee to provide Licensor with such diagram and information.
Assuming no Facilities splice point is involved, Licensee shall
not be required to abide by the restrictions of this Section 13 with
regard to its actions on customer premises locations.
14. Title. All right, title and interest in the System and the Facilities
provided by Licensor hereunder shall at all times remain exclusively with
Licensor. All right, title and interest in all facilities and associated
equipment provided by Licensee shall at all times remain exclusively with
Licensee. No such Licensee facilities and equipment shall be placed in any
public rights-of-way unless Licensee has obtained an independent right to do so
from the appropriate public authority. Except as expressly provided elsewhere in
this Agreement, Licensor shall retain full operating control and shall continue
to hold and be solely responsible for all operating authority with regard to the
System. Licensee shall hold and be responsible for all operating authority for
its facilities (other than the Facilities or Capacity) and for the provision of
any services by it, including its use of the Capacity.
15. Liens and Encumbrances. Neither party, directly or indirectly, shall
create, impose or suffer to be imposed any lien on (a) any property interest of
the other, (b) the rights or title relating thereto, or any interest therein, or
(c) this Agreement. Each party will promptly, at its own expense, take such
action as may be necessary to duly discharge any such lien.
16. Representations and Warranties.
(a) Licensor hereby represents, warrants and covenants to Licensee as
follows:
(i) Licensor has made available to Licensee true and correct
copies of each governmental or municipal approval, franchise and
authorization, right-of-way agreement, pole attachment agreement,
conduit agreement and lease, license, consent or other agreement
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<PAGE>
relating to the Facilities and/or the Capacity thereof (all of which are
hereinafter collectively called the "Authorizations") obtained by it which
relate to Licensor's ability to license the Capacity and perform Licensor's
obligations under this Agreement.
(ii) Licensor is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, is duly authorized to do business in the jurisdiction in
which the Capacity is made available and has full organizational power
and authority to execute, deliver and perform the terms of this
Agreement.
(b) Licensee hereby represents, warrants and covenants to Licensor as
follows:
(i) Licensee has made available to Licensor true and correct
copies of each Authorization obtained by it which relate to Licensee's
ability to use the Capacity and perform Licensee's obligations under
this Agreement.
(ii) Licensee is duly organized and validly existing under the
laws of its jurisdiction of organization, is authorized to do business
in the jurisdiction in which the Capacity is made available and has
full organizational power and authority to execute, deliver and
perform the terms of this Agreement.
17. Compliance with Law. Each party shall perform its respective rights and
obligations hereunder in material compliance with the Authorizations obtained by
it and all applicable laws, rules and regulations imposed by any governmental
authority.
18. Relocation of the Facilities. Licensee recognizes that, from time to
time, Licensor may elect or be required to relocate the Facilities. Where such
relocation is solely for the convenience of Licensor, Licensor shall be solely
responsible for all costs incurred to relocate the Facilities. (Relocations
requested by governmental authorities shall not be deemed for the convenience of
Licensor.) In all other cases (including street widening or improvement
projects), Licensee shall pay (a) 50% of the direct, out-of-pocket costs of the
relocation, if the project involves both Facilities and other facilities of
Licensor, or (b) 100% of the direct, out-of-pocket costs of the relocation, if
the project involves only Facilities; but in either case, only to the extent
such costs cannot be recovered from any third party. Licensee will, however,
have the option of terminating this Agreement with respect to such Capacity and
paying Licensor any as yet unpaid amounts pursuant to Section 5 and any other
amounts which are then due and payable under this Agreement (the "Payoff
Amount"). Licensor will use commercially reasonable efforts to effect any
relocation in a manner that will not cause any material interruption to
Licensee's use of the Capacity. Licensor shall use commercially reasonable
efforts to give Licensee at least six months prior notice of any relocation or
of any governmental proceedings which could reasonably be expected to result in
a relocation, or such lesser amount of notice that Licensor receives from such
governmental authority, and Licensee shall have the right to participate in any
such proceedings.
19. Condemnation and Casualty.
(a) Condemnation. If all or any portion of the Facilities are taken for any
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public or quasi-public purpose by any lawful power or authority by the exercise
of the right of condemnation or eminent domain, Licensee shall be entitled to
terminate the license of the Capacity provided hereunder on such Facilities. In
such event, both parties shall be entitled to participate in any condemnation
proceedings to seek to obtain compensation by either joint or separate awards
for the economic value of their respective interests in the Capacity or the
Facilities and will equitably share any awards as their economic interests
appear.
(b) Casualty. If all or any portion of the Facilities are made inoperable
and beyond feasible repair due to a casualty or other force majeure event (as
that term is defined in Section 27 below), Licensee shall be entitled to
terminate this Agreement with regard to the Capacity affected by such casualty
or other event. In such event, both parties shall be entitled to seek to recover
the economic value of their respective interests in the Capacity or the
Facilities (i) under any insurance policy carried by either party or their
affiliates or any third party, or (ii) in either joint or separate actions, from
any third party which may be legally responsible for causing such casualty. The
parties will equitably share any recoveries as their economic interests appear.
20. Proprietary Information. Each party acknowledges that, in the course of
the performance of this Agreement, it may have access to privileged and
proprietary information claimed to be unique, secret and confidential, and which
constitutes the exclusive property or trade secrets of the other, and the
parties acknowledge that they are in a confidential relationship with each
other. This information may be presented in documents marked with a restrictive
notice or during oral discussions, at which time representatives of the
disclosing party will specify that the information is proprietary. Information
that a party receives from the disclosing party that, while not so marked, would
be reasonably understood by the recipient as confidential or proprietary (such
as customer information) shall also be considered proprietary information
hereunder. Such information shall specifically include, but is not limited to,
this Agreement and all exhibits, annexes, attachments, schedules and addenda
hereto.
Each party agrees to maintain the confidentiality of the proprietary
information and to use the same degree of care as it uses with regard to its own
proprietary information to prevent the disclosure, publication or unauthorized
use of the proprietary information. Neither party may duplicate or copy
proprietary information of the other party other than to the extent necessary
for legitimate business uses in connection with this Agreement. A party shall be
excused from these nondisclosure provisions if (a) the proprietary information
has been or is subsequently made public other than through a breach of this
Agreement or (b) the proprietary information is independently developed by such
party or (c) the other party gives its consent to the disclosure of the
proprietary information or (d) the disclosure is required by law, regulation or
governmental or judicial authority (provided that the compelled party gives
prompt notice of such required disclosure to the original disclosing party to
enable it to obtain a protective order or other relief). Notwithstanding
anything to the contrary in this Agreement, this provision shall survive the
termination or expiration of this Agreement.
21. Indemnification.
(a) Indemnification by. Licensee Licensee will indemnify and hold harmless
Licensor, its affiliates, and all officers, directors, employees, stockholders,
partners and agents of Licensor and its affiliates from and against any and all
claims, demands, costs, damages, losses,
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7liabilities, expenses of any nature (including reasonable attorneys',
accountants', and experts' fees and disbursements), judgments, fines,
settlements and other amounts (collectively, "Damages") arising from any and all
claims, demands, actions, suits or proceedings, civil, criminal, administrative
or investigative (collectively "Claims") relating to or arising out of:
(i) the installation, maintenance or operation of Licensee's
connections to the Facilities or the conduct or management of
Licensee's business with regard to the Facilities or the connections
thereto or the Capacity thereof, except to the extent such Damages are
caused or contributed to by Licensor or its agents;
(ii) any breach by Licensee of any material obligation or
covenants under this Agreement;
(iii) any failure of any representation or warranty made by
Licensee herein to be true in any material respect as of the date made
or deemed made;
(iv) any Claim by any customer of Licensee relating to the
provision by Licensee of services to such customer, over the Capacity
or otherwise; and
(v) any Claim of any third party (other than as described in
Section 21 (b)(iv) below) resulting from the gross negligence or
wilful misconduct of Licensee.
The foregoing indemnification obligations shall not be
construed to broaden the representations and warranties of
Licensee regarding Authorizations as set forth in Section
16(b)(i).
(b) Indemnification by Licensor. Licensor will indemnify and hold
harmless Licensee, its affiliates and all officers, directors, employees,
stockholders, partners and agents of Licensee and its affiliates from and
against any and all Damages arising from any and all Claims relating to or
arising out of:
(i) The installation, maintenance or operation by Licensor
of the Facilities or the Capacity thereof or the conduct or
management of Licensor's business, except to the extent such
Damages are caused or contributed to by Licensee or its agents;
(ii) Any breach on the part of Licensor of any material
obligation or covenant under this Agreement;
(iii) Any failure of any representation or warranty made by
Licensor herein to be true in any material respect as of the date
made or deemed made; and
(iv) Any Claim by any customer of Licensor relating to
Licensor's provision of services over any facilities of which the
Facilities are a part; and
(v) Any Claim of any third party (other than as described in
Section 21 (a)(iv) above) resulting from the gross negligence or
wilful misconduct of Licensor.
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The foregoing indemnification obligations shall not be construed to broaden
the representations and warranties of Licensor regarding Authorizations as set
forth in Section 16(a)(i).
(c) Procedure. No claims for indemnification shall be made by either party
against the other unless the aggregate amount of such claim exceeds the amount
of $5,000. A person seeking indemnification hereunder shall promptly notify the
indemnifying party in writing of any Claim for which indemnification is sought,
provided that any failure to so notify the indemnifying party will not relieve
the indemnifying party from any liability or obligation which it may have to any
indemnified person except to the extent of any material prejudice to the
indemnifying party resulting from such failure.
If the facts giving rise to such indemnification involve any actual or
threatened claim or demand by or against a third party, the indemnifying party
shall be entitled to control the defense, prosecution and settlement of such
claim or demand in the name of the indemnified person, if the indemnifying party
notifies the indemnified person in writing of its intention to do so within
twenty (20) days of the receipt of such notice by the indemnified person.
The indemnified person shall have the right, however, to participate in
such proceeding through counsel of its own choosing, which participation shall
be at its sole expense. Whether or not the indemnifying party chooses to defend
or prosecute such claim, each indemnified person which is not the indemnifying
party, shall, to the extent requested by the indemnifying party and at the
indemnifying party's expense, cooperate in the prosecution or defense of such
claim and shall furnish such records, information and testimony and attend such
conferences, discovery proceedings, hearings, trials and appeals as may
reasonably be requested in connection therewith. The indemnifying party shall
not settle any claim or assertion, unless the indemnified party consents in
writing to such settlement, which consent shall not be unreasonably withheld and
which consent shall not be withheld in connection with any such settlement for
money damages to be paid by the indemnifying party only, which does not admit
the fault of the indemnified party and which does not impose injunctive or other
equitable relief on the indemnified party.
22. Provision of Insurance Coverage. Each Party shall, at its own expense,
secure and maintain in force, throughout the term of this Agreement, the
following insurance coverage and limits of liability with carriers authorized to
conduct business in all states in which any Facilities are located, that have an
A.M. Best rating of B+ or better:
(a) Comprehensive General Liability.
(i) Coverages to include: Products and Completed Operations
Liability, Hazards of Premises/Operations (including XCU),
Blanket Contractual Liability, Independent Contractors Liability,
Fire Legal Liability, Personal Injury (including death), and
Broad Form Property Damage.
(ii) Limits of Liability: $2,000,000 per occurrence,
combined single limit for bodily injury and property damage.
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(iii) With respect to any Facilities or Capacity, Licensor
and Licensee each will name the other as additional insured.
(b) Comprehensive Auto Liabilitv.
(i) Coverage to include: Owned/Leased vehicles, Non-owned
vehicles, Hired Vehicles.
(ii) Limits of Liability: $2,000,000 per accident, combined
single limit for bodily injury and property damage.
(iii) With respect to any Facilities or Capacity, Licensor
and Licensee will name the other as additional insured.
(c) Workers' Compensation - statutory coverage and limits.
(d) Property Insurance.
(i) Coverage: All Risk to property and includes Business
Interruption.
(ii) Limits to be sufficient to cover full replacement cost
of Leased Facilities.
(iii) With respect to any Facilities or Capacity, Licensor
and Licensee will name the other as Loss Payee.
(e) Certificate of Insurance. With respect to any Facilities or Capacity,
Licensor and Licensee each shall provide to the other a Certificate of Insurance
evidencing all coverages outlined in this Section 22. All such insurance
obtained by either Licensor or Licensee, as the case may be, shall require that
the other be notified, in writing, at least thirty days prior to the
cancellation or adverse modification of any such required insurance policy. Any
such notification shall be required to be sent by registered certified mail or
certified courier service.
23. Interruption of Service. Notwithstanding any other provision of
this Agreement, in the event of any interruption of use by Licensee of any
portion of the Capacity through no fault of Licensee, which interruption is the
responsibility of Licensor or its agents and is not a force majeure event, as
that term is defined in Section 27, Licensor's sole obligation shall be to
provide a credit to Licensee against Licensee's obligation to pay maintenance
fees pursuant to Section 12, which credit shall be calculated on a per
occurrence basis at the lesser of (a) an amount equal to the actual damage
suffered by Licensee, and (b) the amount set forth in the following chart:
<TABLE>
<CAPTION>
Length of Outage: Credit:
- ----------------- -------
<S> <C>
2 hours or less: no credit
over 2 hours to 8 hours: $20,000
over 8 hours: $50,000;
</TABLE>
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provided, however, that in no event shall the amount required to be credited by
Licensor under this Section 23 in any calendar year exceed the amount payable by
Licensee to Licensor for maintenance fees pursuant to Section 12 in such year.
The remedy provided in this Section 23 shall be Licensee's sole and exclusive
remedy for outages or interruptions of service, unless such outages or
interruptions of service were caused by Licensor's willful misconduct or gross
negligence and except for the termination provisions in Sections 18, 19 and 25.
24. Events of Default. Each of the following events shall constitute an
event of default (whether any such event shall be voluntary or involuntary or
occur by operation of law or pursuant to any judgment, decree, order, rule or
regulation of any court or administrative or governmental body):
(a) the failure of Licensee to make any license payment pursuant to Section
5 hereof within fifteen days of the due date thereof; or any failure of Licensee
to make any maintenance payment pursuant to Section 12 hereof or any other
payment due hereunder within fifteen days after Licensee's receipt of notice
from Licensor of Licensee's failure to make such payment when due;
(b) the failure of either party to perform or observe any material covenant
or agreement (including without limitation, any failure of Licensee to comply
with the use restrictions under Section 7) to be performed or observed by it
hereunder, and such failure shall continue unremedied for a period of thirty
days after written notice is given to the defaulting party by the non-defaulting
party; or
(c) a court or governmental authority of competent jurisdiction shall enter
an order appointing, without consent by the party, a custodian, receiver,
trustee, intervener, or other officer with similar powers with respect to it or
with respect to any substantial part of its property, or constituting an order
for relief or approving a petition in bankruptcy or insolvency law of any
jurisdiction, or ordering the dissolution, winding up, or liquidation of either
party, or if any such petition shall be filed against either party and shall not
be dismissed within sixty days thereafter, or an order shall have been issued
granting either party a suspension of payments under applicable law and any such
order is not dismissed within sixty days thereafter.
25. Remedies. Upon the occurrence and during the continuance of any event
of default, the non-defaulting party may, at its option, declare this Agreement
to be in default and may, in addition to any other remedies provided herein,
terminate this Agreement. Except as expressly provided herein, no remedy is
intended to be exclusive, but each shall be cumulative and in addition to and
may be exercised concurrently with any other remedy available to Licensor or
Licensee at law or in equity. If Licensor terminates this Agreement due to a
Licensee default, Licensee shall pay the Payoff Amount promptly to Licensor. IN
NO EVENT SHALL EITHER PARTY BE LIABLE FOR INDIRECT, SPECIAL, CONSEQUENTIAL,
EXEMPLARY OR PUNITIVE DAMAGES, WHETHER BASED IN CONTRACT, TORT, OR OTHERWISE.
FURTHER, NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, A PARTY'S
CUMULATIVE LIABILITY (AND THE OTHER PARTY'S REMEDY) FOR BREACH OF THIS AGREEMENT
(OTHER THAN FAILURE TO PAY CASH AMOUNTS DUE AND PAYABLE IN ACCORDANCE WITH THE
TERMS OF THIS AGREEMENT) SHALL NOT EXCEED AN AMOUNT SPECIFIED IN THE
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AGREEMENT.
26. Additional Termination Rights.
(a) Licensee. Upon the payment by Licensee of the Payoff Amount due with
respect to such Capacity, and upon one hundred eighty (180) days written notice
to Licensor, Licensee may, without further obligation to Licensor, terminate its
license of any reasonably defined portion of the Capacity without cause.
Licensee shall thereupon remove or cause all of its plant and facilities
connected to the related Facilities to be removed at its expense or may, if
Licensor agrees, abandon such plant and facilities in place. If Licensee
abandons any of such plant and facilities, Licensor may, within eighteen (18)
months of its receipt of such notice, remove the abandoned plant and facilities
and bill Licensee for the costs incurred by it which are reasonably allocable to
the removal of such plant and facilities, which bill shall be payable within
thirty (30) days of receipt.
(b) Licensor. If any governmental agency or third party institutes
proceedings to impose any public utility or common carrier status or obligations
on Licensor or the use of Licensor's capacity or facilities as a result of its
performance of this Agreement, or if any action is brought by any third party
challenging the continued validity or seeking to adversely modify, suspend or
revoke Licensor's operating authority for all or any part of its services or
System as a result of its or Licensee's performance of this Agreement, or if, as
a result of any change in applicable law or regulation (or in judicial or other
official interpretations thereof), Licensor reasonably deems that such a
proceeding is likely and has a significant possibility of success on the merits,
Licensor may, without further liability to Licensee, upon one hundred eighty
(180) days written notice, terminate this Agreement as a whole without cause;
provided, however that Licensor shall not terminate this Agreement or any
Capacity provided by it during the pendency of such proceedings or actions if
Licensee agrees to indemnify and hold harmless Licensor (pursuant to an
indemnification agreement in form and substance reasonably satisfactory to
Licensor) against all liability, claims, fines or damages (including reasonable
attorneys' fees) incurred by Licensor as a result of Licensee's continued
operations and use of the Capacity unless (x) Licensor is required to do so by a
valid and final order of a court of competent jurisdiction, or (y) in Licensor's
opinion, continued performance or activity by Licensee under the terms of this
Agreement would have a present or future material adverse effect on the local
cable or other operations of Licensor, its financial condition or operating
condition or is reasonably likely to result in the imposition of public utility
or common carrier status on Licensor or an adverse modification, suspension or
revocation of such Licensor's operating authority for its services or its System
or the forfeiture of any portion of the System. Licensor shall control the
defense, prosecution and settlement of such claim or demand but shall allow
Licensee the opportunity to participate in such defense through counsel of its
own choosing, which participation will be at the sole expense of Licensee. If
the proceedings or actions would in any event affect only a portion of the
Capacity, Licensor will instead terminate only the license of the Capacity that
is affected thereby. Upon the effective date of such a termination, Licensee
shall terminate its use of the Capacity, remove its plant and equipment (or
abandon the same as provided in Section 26(a) above), and cease operations over
such Capacity.
27. Force Majeure Events. Neither party shall be liable to the other for
any failure of performance under this Agreement due to causes beyond its
control, including but not limited to:
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acts of God, fire, flood or other catastrophes; any law, order, regulation,
direction, action or request of the United States government, or of any other
government, including state and local governments having or claiming
jurisdiction over such party, or of any department, agency, commission, bureau,
corporation or other instrumentality of any one or more of these federal, state
or local governments, or of any civil or military authority; national
emergencies; unavailability of materials or rights-of-way; insurrections; riots;
wars; or strikes, lock-outs, or work stoppages (collectively, "force majeure
events"). If a force majeure event continues for more than 60 days in effect,
the party who has not been receiving performance shall be entitled to terminate
any the License of specific Capacity affected by such force majeure event, upon
written notice to the other party.
28. Orderly Termination: Return of Facilities. Upon termination of this
Agreement in whole or with respect to any specific Capacity (other than
expiration of the term thereof under Section 4(c)), Licensor and Licensee agree
to cooperate in good faith to effect an orderly transition of any
Telecommunications Services provided over such Capacity. Without limitation,
Licensor hereby agrees that notwithstanding such termination it will, to the
extent permitted by applicable law and regulation and governmental authority,
(i) continue to make available to Licensee any portions of the Capacity at the
rates specified herein which Licensee reasonably requires to fulfill its
obligations under existing customer agreements for a period up to three months
after such termination in the case of a termination for Licensee's default, or
twelve (12) months after such termination in all other cases, and (ii) upon
termination under Section 4(c), negotiate agreements with Licensee that are
reasonable in the independent judgment of Licensor and Licensee, pursuant to
which such Licensor may provide fiber optic facilities to Licensee in order for
Licensee to provide telecommunications services in the Service Area. Unless any
alternate arrangements are otherwise agreed, upon termination and expiration of
the applicable transition period, Licensee shall at its expense remove or cause
to be removed all of its plant and facilities connected to the Facilities, or
may, if Licensor agrees, abandon such plant and facilities in place in
accordance with Section 26(a).
29. Network Architecture and Diversity. The parties shall consult and
cooperate with each other with regard to all technical matters relating to
network architecture, diversity and related matters. Each party will designate a
technical engineering representative and each agrees to inform the other party
of all its construction plans as in effect from time to time.
30. Additional Obligations of Licensee. In addition to the obligations of
Licensee set forth elsewhere in this Agreement, Licensee shall:
(a) have full and complete control, responsibility and liability for the
signals distributed over the Capacity by Licensee or for its benefit;
(b) have full and complete control, responsibility and liability for the
purchase, installation, construction and maintenance of the terminals and
peripheral equipment connected to the Capacity utilized by Licensee, provided
that such equipment shall not be located in public rights of way without
Licensee having obtained all necessary rights to utilize such rights of way;
(c) employ its own employees, agents and/or independent contractors in the
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handling, storage, retrieval, processing, transmitting, and/or receiving of any
electronic signals distributed over the Capacity;
(d) provide all commercial or other power supplies for the operation of the
Capacity (or, if agreed by Licensor and Licensee, Licensee shall instead bear
its Allocated Cost share of Licensor's costs for power supplies), terminals and
peripheral equipment or facilities used with or connected to any System and
located on Licensee's, or its customers', premises; and
(e) have full and complete control, responsibility and liability for
maintaining any operating authority from any Federal, state or local
governmental body or agency that relates to the activities of Licensee under
this Agreement, including Lessee's utilization of Capacity.
31. Interest.All payments due from either party to the other under the
terms of this Agreement which are not paid when due shall bear interest from the
due date until paid at an interest rate equal to the then-current Time Warner
intercompany rate, if both Licensee and Licensor are then Time Warner
affiliates, or if not, the lesser of 1 1/2% per month or the maximum lawful rate
permitted by law.
32. Assignment. Other than as set forth herein, the rights, privileges and
obligations of either party hereunder may not be subleased, sublicensed,
assigned or delegated or otherwise transferred or extended to another party, in
whole or in any part, and any such attempted sublease, sublicense, assignment,
delegation or transfer or extension shall be null and void. Licensor or Licensee
may, however, assign or transfer this Agreement, in whole or in part, to any
affiliate controlling, controlled by or under common control with their
respective parent companies, without approval of the other, upon 30 days notice,
provided such affiliate continues to be under the common control of Licensor's
or Licensee's parent company (as the case may be). Further, Licensor may assign,
delegate or otherwise transfer its rights and obligations under this Agreement,
or any portion thereof, without Licensee's consent, in connection with a sale,
assignment or other transfer of all or substantially all of the System (or any
individual cable system within the System), and its business, assets or equity
interests in connection therewith; provided that such transferee agrees in
writing to assume all of the obligations of Licensor hereunder with regard to
such System (or portion thereof); and provided further that upon such assumption
Licensor shall be released from any obligation with regard to the subsequent
performance of obligations hereunder regarding Capacity or Facilities included
in the transferred System (or portion thereof).
33. Miscellaneous.
(a) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same instrument; and in pleading or proving any provision of this
Agreement, it shall not be necessary to produce more than one complete set of
such counterparts.
(b) Captions: Gender. Article and section headings contained in this
Agreement are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement. Whenever used herein the singular
number shall include the plural, the plural shall include the singular, and the
use of any gender shall include all genders.
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(c) Governing Law and Binding Effect. This Agreement shall be governed by
and construed and enforced in accordance with the law (other than the law
governing conflicts of law questions) and decisions of the State of New York
applicable to contracts made and to be performed entirely therein. This
Agreement shall bind and inure to the benefit of each of the parties and their
successors and permitted assigns.
(d) Waivers and Amendments. This Agreement may not be amended nor shall any
waiver, change, modification, consent or discharge be effected, except by an
instrument in writing adopted, in the case of an amendment, by each party and,
in the case of a waiver, consent or discharge, executed by the party against
whom enforcement of such instrument is sought. Any consent by either party to,
or waiver of, a breach by the other party shall not constitute a waiver or
consent to any subsequent or different breach. If either party shall fail to
enforce a breach of this Agreement by the other party, such failure to enforce
shall not be considered a consent to or a waiver of said breach or any
subsequent breach for any purpose whatsoever.
(e) Relationship Not a Partnership or an Agency. Nothing contained in this
Agreement shall be deemed to constitute a partnership, joint venture or agency
agreement between parties.
(f) DISCLAIMERS. THERE ARE NO AGREEMENTS, WARRANTIES OR REPRESENTATIONS,
EXPRESS OR IMPLIED EITHER IN FACT OR BY OPERATION OF LAW, STATUTORY OR
OTHERWISE, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE OR USE, EXCEPT THOSE EXPRESSLY SET FORTH HEREIN.
(g) Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule or law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
either party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the greatest extent
possible.
(h) Further Assurances. Each party agrees to execute all such further
instruments and documents and to take all such further actions as the other
party may reasonably request in order to effectuate the terms and purposes of
this Agreement.
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EXHIBIT 12
TIME WARNER TELECOM LLC
RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED
------------------------------------------------------- --------------------
1993 1994 1995 1996 1997 3/31/97 3/31/98
------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS:
Net loss................... $(9,392) $(37,178) $(51,105) $(86,116) $(70,656) $(19,651) $(21,788)
Interest expense........... 12 3 25 55 1,544 -- 2,011
Portion of rents
representative of an
interest factor.......... 25 444 1,050 1,374 1,793 416 218
Undistributed losses of
less than 50% owned
companies................ -- -- 30 40 27 10 --
------- -------- -------- -------- -------- -------- --------
Total earnings.................. (9,355) (36,731) (50,000) (84,647) (67,292) (19,225) (19,559)
------- -------- -------- -------- -------- -------- --------
FIXED CHARGES:
Interest expense........... 12 3 25 55 1,544 -- 2,011
Portion of rents
representative of an
interest factor.......... 25 444 1,050 1,374 1,793 416 218
------- -------- -------- -------- -------- -------- --------
Total fixed charges... 37 447 1,075 1,429 3,337 416 2,229
------- -------- -------- -------- -------- -------- --------
Deficiency in the
coverage of fixed
charges by earnings
before fixed
charges............. $(9,392) $(37,178) $(51,075) $(86,076) $(70,629) $(19,641) $(21,788)
------- -------- -------- -------- -------- -------- --------
------- -------- -------- -------- -------- -------- --------
</TABLE>
<PAGE>
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions 'Experts' and
'Selected Combined Financial and Other Operating Data' and to the use of our
reports dated March 13, 1998 (except Notes 1, 4, 5, 6 and 8, as to which the
date is June 22, 1998) and June 22, 1998, in Amendment No. 1 to the
Registration Statement (Form S-1) and related Prospectus of Time Warner
Telecom LLC and Time Warner Telecom Inc. for the registration of $400 million
% Senior Notes Due 2008.
Ernst & Young LLP
New York, New York
June 23, 1998
The foregoing consent is in the form that will be signed upon the
Reorganization of the Company as discussed in Note 4 to the combined financial
statements.
Ernst & Young LLP
New York, New York
June 23, 1998
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EXHIBIT 24.3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints David J. Rayner and Larissa L. Herda as his true and lawful
attorney-in-fact and agent, with full powers of substitution and resubstitution,
for him and in his name, place and steed, in any and all capacities, to sign a
Registration Statement of Time Warner Telecom Inc., a Delaware corporation (the
"Company"), on Form S-1 or other appropriate form and any and all amendments to
such Registration Statement (including post-effective amendments), to be filed
with the Securities and Exchange Commission in connection with the registration
under the provisions of the Securities Act of 1933, as amended, of (a) debt
securities of the Company and/or (b) shares of Class A common stock of the
Company with power where appropriate to affix thereto the corporate seal of the
Company and to attest said seal, and to file such Registration Statement, and
any and all amendments and post-effective amendments to such Registration
Statement, with all exhibits thereto, and any and all documents in connection
therewith, with the Securities and Exchange Commission, hereby granting unto
said attorney-in-fact and agent full power and authority to do and perform any
and all acts and things requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his name as of the
22nd day of June 1998.
/s/ Peter R. Haje
----------------------
Peter R. Haje
<PAGE>
