<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 6, 1998
REGISTRATION NO. 333-53553
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
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 84-1465464
(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)
------------------------
<TABLE>
<CAPTION>
COPIES TO:
<S> <C> <C>
WILLIAM P. ROGERS, JR. PETER R. HAJE FAITH D. GROSSNICKLE
CRAVATH, SWAINE & MOORE EXECUTIVE VICE PRESIDENT, SECRETARY SHEARMAN & STERLING
WORLDWIDE PLAZA AND 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. [ ]
------------------------
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 JULY 6, 1998
$400,000,000
[LOGO]
TIME WARNER TELECOM LLC
TIME WARNER TELECOM INC.
% SENIOR NOTES DUE 2008
------------------------
Interest payable January 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 $400.0 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 $517.5 MILLION OF
INDEBTEDNESS, $117.5 MILLION OF WHICH WOULD HAVE BEEN EXPRESSLY
SUBORDINATED IN RIGHT OF PAYMENT 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 $57.3 MILLION
OF LIABILITIES, NONE OF WHICH IS INDEBTEDNESS. THE
OBLIGORS WILL BE JOINTLY AND SEVERALLY LIABLE,
FULLY AND UNCONDITIONALLY, WITH RESPECT
TO THE NOTES.
------------------------
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 Obligors have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
'Underwriters.'
(3) Before deducting estimated expenses of $1,500,000, 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>
NETWORK MAP
[GRAPHIC]
[TIME WARNER TELECOM LOGO]
------------------------
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................................ 66
Description of the Notes......................... 67
Description of Interests......................... 92
Description of Capital Stock..................... 94
Certain United States Federal Tax Consequences to
Holders of Notes............................... 96
Underwriters..................................... 98
Legal Matters.................................... 98
Experts.......................................... 99
Additional Information........................... 99
Glossary......................................... 100
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 19 metropolitan areas. Management plans to have networks in
operation or under construction in several
5
<PAGE>
<PAGE>
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
the holders of such class, 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 100.0% 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 Company and TWT will be jointly and
severally liable, fully and unconditionally, with respect to the Notes.
Accordingly, a claimant in respect of the Notes will be entitled to proceed
against the Company in respect of the Notes without first proceeding against
TWT.
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. 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.' There can be no assurances that the Members will unanimously agree
to the Reconstitution or that an Initial Public Offering will be effected.
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 January 15 and
July 15 of each year, commencing on January 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 $517.5 million of
indebtedness, approximately $117.5 million of which would have been
expressly subordinated in right of payment 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. At March 31,
1998, on the same pro forma basis, the subsidiaries of the Company other
than TWT would have had $57.3 million of liabilities, none of which is
indebtedness. Neither the Company's subsidiaries nor any other entity
has guaranteed the Notes. The Obligors will be jointly and severally
liable, fully and unconditionally, with respect to the Notes. 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
</TABLE>
7
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<PAGE>
<TABLE>
<S> <C>
guarantees by restricted subsidiaries; (vi) limitation on transactions
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.'
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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, net
(6)(7).............................. (43,058) (12,391)
Pro forma net loss (6)................ (112,176) (32,168)
Pro forma deficiency in coverage of
fixed charges by earnings before
fixed charges (3)(6)................ (113,829) (32,588)
</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 6,239
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)
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<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
----------------------------
AS ADJUSTED
FOR THE
REORGANIZATION
AND THE
ACTUAL OFFERING (9)
-------- --------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................... $ -- $388,000
Property, plant and equipment, net...................................................... 428,319 428,319
Total assets............................................................................ 453,475 853,475
Long-term debt (10)..................................................................... 117,547 517,547
Total members' equity................................................................... 278,602 278,602
</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. Specifically, such pro forma data only take into
account the pro forma interest expense associated with the Offering as of
such dates. See footnote 7 below. 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 $400.0 million
principal amount of the Notes, assuming an interest rate of 10.5% on the
Notes, as if such transaction had occurred at the beginning of 1997,
assuming approximately 4% of the interest on the Notes would have been
capitalized under FASB Statement No. 34 'Capitalization of Interest Costs.'
In addition, pro forma interest expense includes $1.2 million and $300,000
for the year ended December 31, 1997 and the three months ended March 31,
1998, respectively, relating to the amortization of an estimated $12.0
million of debt issuance costs over a ten-year period. A change of .125% in
the interest rate would change pro forma interest expense by $480,000 for
the year ended December 31, 1997 and $120,000 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 Reorganization and the issuance of $400.0
million principal amount of the Notes, net of $12.0 million of estimated
debt issuance costs. 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. The Company and TWT will be jointly and severally liable,
fully and unconditionally, with respect to the Notes. 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
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provide it with working capital and enhanced financial flexibility, the Notes
will be effectively subordinated to 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 $57.3 million of liabilities, none of which is 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 $68.0 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 additional 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.
Such indebtedness to the Parent Companies is expected to be approximately $155.0
million 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 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 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
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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 $517.5 million of consolidated total
debt, including $117.5 million of debt to the Parent Companies, and $278.6
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. Such indebtedness to the Parent Companies is expected to be
approximately $155.0 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 $32.6 million and
$113.8 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
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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
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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 and
state 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 Communications, Inc. ('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, 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 directly or indirectly (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 business of producing, packaging, distributing,
marketing, hosting, offering, promoting, branding or otherwise providing
entertainment, information or any other content services,
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whether fixed or interactive, or any services incidental thereto (but excluding
acting solely as a carrier of video, audio or data of unaffiliated third parties
by providing transport services, so long as the Company has no other direct or
indirect pecuniary interest in the transmitted information or content)
(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.' Violations of the
limitations on business activities of the Company contained in the LLC
Agreement, the Certificate of Incorporation or the Capacity License may, subject
to the cure period provided in the Capacity License, result in a termination of
the Capacity License. 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, Blount and Whinery and Ms.
Rich. See
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'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, 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. In such event, if the maturity of the Notes were accelerated, the
maturity of the subordinated indebtedness to the Parent Companies may be
similarly accelerated. See 'Description of the Notes -- Certain
Covenants -- Change of Control' and ' -- Events of Default' and 'Certain
Relationships and Related Transactions -- Intercompany Subordinated Debt.'
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 $388.0 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) $68.0 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 service
areas 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 and TWT will be jointly and
severally liable, fully and unconditionally, with respect to 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:
[ORGANIZATIONAL CHART]
- ------------
(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.'
23
<PAGE>
<PAGE>
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)......................................................... $ -- $388,000
-------- ----------------
-------- ----------------
Long-term debt:
Senior Notes Due 2008........................................................... $ -- $400,000
Subordinated loans payable to the Parent Companies (2).......................... 117,547 117,547
-------- ----------------
Total long-term debt.................................................. 117,547 517,547
-------- ----------------
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........................................................ 555,807 555,807
Accumulated deficit prior to Reorganization (4)............................ -- (277,205)
-------- ----------------
Total Class B Interests............................................... 555,807 278,602
Accumulated deficit (4)......................................................... (277,205) --
-------- ----------------
Total members' equity........................................................... 278,602 278,602
-------- ----------------
Total capitalization.................................................. $396,149 $796,149
-------- ----------------
-------- ----------------
</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. The Indenture provides that
such subordinated indebtedness may be repaid prior to maturity with the net
proceeds of any offering of common stock or equivalent interests of the
Company. Such indebtedness is expected to be approximately $155.0 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,
net (6)(7).................. (43,058) (12,391)
Pro forma net loss (6)........ (112,176) (32,168)
Pro forma deficiency in
coverage of fixed charges by
earnings before fixed
charges (3)(6).............. (113,829) (32,588)
</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 6,239
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.
Specifically, such pro forma data only take into account the pro forma
interest expense associated with the Offering as of such dates. See footnote
7 below. 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 $400.0 million
principal amount of the Notes, assuming an interest rate of 10.5% on the
Notes, as if such transaction had occurred at the beginning of 1997,
assuming approximately 4% of the interest on the Notes would have been
capitalized under FASB Statement No. 34 'Capitalization of Interest Costs.'
In addition, pro forma interest expense includes $1.2 million and $300,000
for the year ended December 31, 1997 and the three months ended March 31,
1998, respectively, relating to the amortization of an estimated $12.0
million of debt issuance costs over a ten-year period. A change of .125% in
the interest rate would change pro forma interest expense by $480,000 for
the year ended December 31, 1997 and $120,000 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 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 service areas 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. Indebtedness to the Parent Companies is expected to
be approximately $155.0 million at June 30, 1998. 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 $388.0 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
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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 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 June 30,
1998, TW Cable's Road Runner subscribers totaled over 50,000. 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 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
agreements may be replaced by arrangements which will reflect the
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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 24, 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
John T. Blount...................... 39 Senior Vice President, Sales
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. Blount has served as Senior Vice President, Sales of the Company since
June 24, 1998. Prior to that, Mr. Blount served as the Company's Regional Vice
President for the Midwest and Southwest regions from January 1997 and
Milwaukee's Vice President and General Manager from January 1996 to January
1997, having served as its General Manager from February 1995. Prior to joining
the Company, Mr. Blount held various sales positions at US WEST starting in
1988, including Director of Sales for US WEST !nterprise in Minneapolis from May
1994 to February 1995 and Sales and Service Manager for South Dakota from
January 1992 to May 1994.
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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.
Mr. Bressler has served as a Representative of the Company since June 1998
and as a director of TWT since February 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 a director of TWT since February 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 a director of TWT since February 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. 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 will not be entitled to any fee, remuneration, compensation
or expense reimbursement in connection with their service 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 (expected 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. There can be
no assurance that the Reconstitution will be effected.
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.'
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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 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 (expected 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 will also be 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 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.
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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(5) .................................... $300,000 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
John T. Blount ......................................... $170,000 -- $ -- $ 1,643
Senior Vice President, Sales
- ------------
Stephen A. McPhie(5) ................................... $234,000 -- $ -- $ --
Former President and Chief Executive 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 (except for Mr. McPhie, see note 5) will
receive these annual salaries pursuant to their employment agreements with
the Company. These 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
that may be granted in connection with an Initial Public Offering, see
' -- Effect of the Reconstitution.' Mr. McPhie holds 12,450 restricted
shares of common stock of MediaOne awarded in February 1997 by U S WEST,
11,200 of which will vest on February 6, 1999 and 1,250 of which will vest
on February 21, 1999. No dividends are paid on such shares of MediaOne
common stock. The value of these restricted shares based on the closing
price of MediaOne common stock on the New York Stock Exchange Composite
Listing on May 29, 1998 was $461,428. None of the other named executive
officers was awarded restricted stock of MediaOne, Time Warner Inc. or the
Company during 1998 or holds any such shares.
(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.'
(footnotes continued on next page)
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(footnotes continued from previous page)
(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.
(5) Ms. Herda became President and Chief Executive Officer of the Company on
June 22, 1998 upon the resignation of Mr. McPhie who accepted a position
with MediaOne. Prior to June 22, 1998, Ms. Herda served as the Senior Vice
President, Sales.
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 Company
believes that such options will be an important part of the compensation of the
Company's key employees. 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 not be less than the
fair market value 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), which is
described 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 Blount will be awarded options
with respect to Class A Interests having participation percentages of ,
, , and , respectively. These awards will become
exercisable in installments over 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. 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 of the compensation of the Company's key employees.
There can be no assurance that the Reconstitution will be effected.
Corporate 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 approximately % of the Class A
Common Stock expected to be outstanding (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.
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Administration and Eligibility
The Board of Directors is expected 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. A maximum number of shares that may
be awarded to any one person will be established. 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.
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 the 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
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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 (except for Mr. McPhie) of the Company. These agreements have been
filed as exhibits to the Registration Statement of which this Prospectus forms a
part.
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 $170,000 for Mr. Blount.
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 elect either (a) to
receive a lump-sum payment equal to the present value of 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 or (b) to remain
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an employee of the Company for up to 18 months and, without performing any
services, receive the base salary and annual bonus otherwise payable, with a
lump-sum payment, if necessary for any remaining payment, at the end of such 18
months. 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
John T. Blount.... -- -- -- -- -- --
Stephen A.
McPhie.......... -- -- -- -- -- --
</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 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
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of shares of TW common stock, or MediaOne common stock in the case of Messrs.
Blount and McPhie, 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, or MediaOne common stock in the case of Messrs.
Blount and McPhie, 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.
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
John T. Blount........................ -- -- 521 -- $ 12,067 $ --
Stephen A. McPhie(1).................. -- -- 23,049 14,201 $ 411,090 $253,889
</TABLE>
- ------------
* Based on a closing price of $77.8125 per share of TW common stock, and
$37.0625 per share of MediaOne common stock with respect to stock options
held by Messrs. Blount and McPhie, on May 29, 1998 as reported on the New
York Stock Exchange Composite Listing.
(1) These options to purchase MediaOne common stock become exercisable in
installments of one-third on the first three anniversaries of the date of
grant and include a reload feature that gives the holder the right to
receive a further option, at the then current market price, for a number of
shares equal to the number of shares of stock surrendered in payment of the
exercise price of the original option.
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
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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 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
$262,674 for Mr. Jones, $220,567 for Mr. Powers and $123,918 for Mr. Rayner with
10.4, 11.4 and 14.9 years of credited service, respectively. In addition, in
connection with the Reorganization, it is expected that Mr. Blount will receive
a lump-sum distribution of pension benefits under the MediaOne Group Qualified
and Non-qualified Pension Plans. As of May 1, 1998, this payment is estimated to
equal $96,532, based on average compensation of $159,357 and 10.3 years of
service.
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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 Company may not directly or indirectly
(i) engage in the business of providing, offering, promoting or branding,
directly or indirectly, any Residential Services or (ii) engage in the business
of producing, packaging, distributing, marketing, hosting, offering, promoting,
branding or otherwise providing Content Services, in each case, without the
affirmative vote of all the Members.
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 or 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,
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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 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 Reconstitution will be effected or 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
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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 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 Stock 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. Violations of the
limitations on business activities of the Company contained in the LLC
Agreement, the Certificate of Incorporation or the Capacity License may, subject
to the cure period provided in the Capacity License, result in a termination of
the Capacity License. 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
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TW Cable based upon the Company's historical and projected usage, depending on
the amount and type of administrative services to be provided.
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
initial 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 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 only if the
maturity of the Notes is similarly accelerated. Indebtedness to the Parent
Companies is expected to be approximately $155.0 million at June 30, 1998. Such
indebtedness provides that if any event of default, or event that with notice or
the passage of time would be an event of default, shall have occurred and be
continuing (or if such an event of default or event would occur upon any payment
in respect of such subordinated indebtedness) with respect to any Senior Debt
(as defined therein) (as such event of default is defined in the documents
governing such Senior Debt), no payment shall be made by the Company with
respect to amounts owing under such subordinated indebtedness. Furthermore, upon
any distribution of assets of, or payments by, the Company of any kind or
character (whether in cash, property or securities) to creditors upon any
dissolution or winding-up or total or partial liquidation or reorganization of
the Company (whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings), all amounts due or to
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become due upon all Senior Debt (including, without limitation, interest
accruing after the filing of a petition under any bankruptcy law at the rate
provided for in the documents governing such Senior Debt, whether or not
allowable as a claim under such bankruptcy law) shall first be paid in full in
cash, or duly provided for, before any payment or distribution is made on
account of any amount owing under such subordinated indebtedness and before the
Company shall, directly or indirectly, prepay, repay, redeem, purchase, exchange
or acquire such subordinated indebtedness. Upon any such dissolution,
winding-up, liquidation or reorganization, any payment or distribution of assets
of, or payments by, the Company of any kind or character (whether in cash,
property or securities) in respect of such subordinated indebtedness to which a
Parent Company would be entitled except for the provisions of such subordinated
indebtedness, shall be paid by the Company or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment or
distribution, or by a Parent Company if received by it, directly to the holders
of Senior Debt (pro rata to such holders on the basis of the respective amounts
of Senior Debt then held by such holders) for application to the payment of
Senior Debt remaining unpaid until all such Senior Debt has been paid in full in
cash after giving effect to any concurrent payment, distribution or provision
therefor to or for the holders of such Senior Debt. The Indenture provides that
such subordinated indebtedness may be repaid prior to maturity 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., FibrCom 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. In addition, such persons held
options which, on , 1998, were exercisable within 60 days to
purchase shares of TW common stock.
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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 $400.0 million aggregate principal amount, and will mature
on July 15, 2008. The Obligors will be jointly and severally liable, fully and
unconditionally, with respect to the Notes. Accordingly, a claimant in respect
of the Notes will be entitled to proceed against the Company in respect of the
Notes without first proceeding against TWT. Because TWT has no operations or
assets and was formed solely for the purpose of serving as a co-obligor of the
Notes, TWT will not issue separate financial statements or otherwise provide
annual or interim reports to the Holders, however information with respect to
TWT will be reflected in the Company's financial statements and in annual and
interim reports issued by the Company.
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 January 1 or July 1
immediately preceding the interest payment date) on January 15 and July 15 of
each year, commencing July 15, 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 The Chase Manhattan Bank,
Corporate Trust Securities Window, Room 234, 55 Water Street, New York, NY
10041; 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 July 15, 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 July 15, of the years set forth below:
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<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- -------------------------------------------------------- ----------------
<S> <C>
2003.................................................... %
2004....................................................
2005....................................................
2006 and thereafter..................................... 100.000%
</TABLE>
In addition, at any time prior to July 15, 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 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 March 31, 1998, the Company
and its subsidiaries would have had $517.5 million of indebtedness outstanding,
approximately $117.5 million of which would have been expressly subordinated in
right of payment to the Notes. As of March 31, 1998, on the same pro forma
basis, the subsidiaries of the Company other than TWT would have had $57.3
million of liabilities, none of which is indebtedness. Neither the Company's
subsidiaries nor any other entity has guaranteed the Notes.
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.
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'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 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.
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'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 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; provided that independent directors shall be included in
calculating whether the foregoing majority requirement is satisfied if the
Directors nominated by the Existing Stockholders do not constitute a majority of
the committee that selects the Board of Directors' nominees for 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.
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'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 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
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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).
'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
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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 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.
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'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 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
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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 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)
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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 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,
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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.
'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.
'Tax Amount' means, with respect to any period, without duplication, the
increase in the cumulative United States Federal, state and local tax liability
of holders of equity interests in the Company (or if such holder is a
pass-through entity for United States income tax purposes, holders of its equity
interests) in respect of their interests in the Company for such period plus any
additional amounts payable to such holders to cover taxes arising from the
ownership of such equity interests, but excluding any increase in tax liability
or additional amounts payable in respect of a gain realized by a holder of an
equity interest in the Company upon the sale or disposition by such holder of an
equity interest, including without limitation, any redemption thereof by the
Company, in the Company.
'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
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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 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
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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 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
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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 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
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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 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)
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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; (ix) for so long as the Company is
treated as a pass-through entity for United States Federal income tax purposes,
distributions to equity holders of the Company in an amount not to exceed the
Tax Amount for such period; and (x) 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 (x) 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 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
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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 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.
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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 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
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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
from those in effect on the Closing Date, in any way that is materially adverse
to the Holders of the Notes, provided, however, that no amendment or
modification may, without the consent of each Holder of the Notes, (i) shorten
the maturity of the Parent Company Debt, (ii) change the subordination
provisions thereof in a manner that is adverse to the rights of the Holders in
any material respect or (iii) change the provisions that require payment of
interest in kind to require payment in cash or cash equivalents. 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) 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
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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.
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
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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 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
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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 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
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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 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
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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.
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.
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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 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.
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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 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
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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 the holders 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.
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'). There can be no assurance that the
Reconstitution will be effected.
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 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 Certificate of Incorporation, the Company will not be
permitted to directly or indirectly (i) engage in the business of providing,
offering, promoting or branding any Residential Services or (ii) engage in the
business of producing, packaging, distributing, marketing, hosting, offering,
promoting or branding or otherwise providing 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 will be 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 will
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 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 HOLDERS OF NOTES
EFFECT OF THE RECONSTITUTION ON HOLDERS OF THE NOTES
Under applicable Treasury regulations, the Reconstitution will not
constitute a taxable event for holders of the Notes.
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES 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.
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
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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.
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.
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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.
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.
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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.
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.
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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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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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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. ('TWT'), a wholly owned
subsidiary of the Company that was organized in January 1998, have not
been presented as TWT has no significant assets, liabilities (including
contingent liabilities) or commitments, and has no operating activities.
Accordingly, management has determined that such financial statements
would not be material to investors.
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)
<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 July 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 the holders 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 July 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 the holders 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............................................................... 300,000
Blue Sky Fees and Expenses................................................................ 12,000
Legal Fees and Expenses................................................................... 400,000
Accounting Fees and Expenses.............................................................. 250,000
Trustees' Fees............................................................................ 20,000
Rating Agency Fees........................................................................ 235,000
Miscellaneous............................................................................. 146,500
----------
Total................................................................................ $1,500,000
----------
----------
</TABLE>
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 1998 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**
10.10 -- Employment Agreement between the Company and John T. Blount*
10.11 -- Form of Trade Name License between the Company, TWT and Time Warner Inc.
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**
24.4 -- Power of Attorney of Spencer B. Hays, representative of the Company
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. 2 to this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, on July 2, 1998.
TIME WARNER TELECOM LLC
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 July 2, 1998
........................................................ Officer
LARISSA L. HERDA
(ii) Principal Financial and Accounting Officer
/S/ DAVID J. RAYNER Senior Vice President and July 2, 1998
........................................................ Chief Financial Officer
DAVID J. RAYNER
(iii) Directors
* Representative July 2, 1998
........................................................
RICHARD J. BRESSLER
* Representative July 2, 1998
........................................................
PETER R. HAJE
* Representative July 2, 1998
........................................................
SPENCER B. HAYS
* By: /s/ DAVID J. RAYNER
........................................................
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. 2 to this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, on July 2, 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 July 2, 1998
........................................................ Officer
LARISSA L. HERDA
(ii) Principal Financial and Accounting Officer
/S/ DAVID J. RAYNER Senior Vice President and July 2, 1998
........................................................ Chief Financial Officer
DAVID J. RAYNER
(iii) Directors
* Director July 2, 1998
........................................................
RICHARD J. BRESSLER
* Director July 2, 1998
........................................................
PETER R. HAJE
* Director July 2, 1998
........................................................
SPENCER B. HAYS
* By: /S/ DAVID J. RAYNER
........................................................
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>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------- ---------------------------------------------------------------------------------------------------- ----
<C> <S> <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 1998 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**.............................................................
10.10 -- Employment Agreement between the Company and John T. Blount*.....................................
10.11 -- Form of Trade Name License between the Company, TWT and Time Warner Inc. ........................
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**............................................
24.4 -- Power of Attorney of Spencer B. Hays, representative of the Company..............................
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>
$400,000,000 ___% SENIOR NOTES DUE 2008
TIME WARNER TELECOM L.L.C.
AND
TIME WARNER TELECOM INC.
UNDERWRITING AGREEMENT
[__________], 1998
<PAGE>
<PAGE>
[_____________], 1998
Morgan Stanley & Co. Incorporated
Lehman Brothers Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Time Warner Telecom LLC, a Delaware limited liability company
("TIME WARNER"), and Time Warner Telecom Inc., a Delaware corporation (the
"COMPANY" and together with Time Warner, the "OBLIGORS"), propose to issue and
sell to the several Underwriters (as defined below) $400,000,000 aggregate
principal amount of their __% Senior Notes due 2008 (the "Notes") to be issued
pursuant to the provisions of an Indenture dated as of ____________, 1998 (the
"INDENTURE") between the Obligors and The Chase Manhattan Bank (the "TRUSTEE").
Time Warner and the Company were recently formed in connection
with a reorganization (the "REORGANIZATION") of certain assets and liabilities
previously owned by subsidiaries and divisions of Time Warner Entertainment
Company, L.P. ("TWE"), Time Warner Entertainment-Advance/Newhouse Partnership
("TWE-A/N") and Time Warner Inc. ("TW") pursuant to a Reorganization Agreement
dated as of June __, 1998 (the "Reorganization Agreement"), among Time Warner
Companies, Inc. ("TWC"), MediaOne Group, Inc. ("MEDIAONE"), Advance/Newhouse
Partnership ("NEWHOUSE"), TWE and TWE-A/N. The Reorganization was consummated
immediately prior to effectiveness of the Registration Statement (as defined
below).
The Obligors have filed with the Securities and Exchange
Commission (the "COMMISSION") a registration statement, including a prospectus,
relating to the Notes. The registration statement as amended at the time it
becomes effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), is hereinafter
referred to as the "REGISTRATION STATEMENT"; the prospectus in the form first
used to confirm sales of Securities is hereinafter referred to as the
"PROSPECTUS." If the Company has filed an abbreviated registration statement to
register additional Notes pursuant to Rule 462(b) under the Securities Act (the
"RULE 462 REGISTRATION STATEMENT"), then any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462 Registration
Statement.
<PAGE>
<PAGE>
2
1. Representations and Warranties. (A) The Obligors represent and
warrant to and agree with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or, to
the knowledge of Time Warner or the Company, threatened by the
Commission.
(b) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement and
the Prospectus comply and, as amended or supplemented, if applicable,
will comply in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder and (iii)
the Prospectus does not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in
this paragraph do not apply (A) to statements or omissions in the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, based upon information relating to any Underwriter furnished to
the Obligors in writing by such Underwriter through you expressly for
use therein or (B) to that part of the Registration Statement that
constitutes the Statement of Eligibility and Qualification (Form T-1)
under the Trust Indenture Act of 1939, as amended (the "TRUST INDENTURE
ACT"), of the Trustee.
(c) Time Warner has been duly formed and is validly existing as a
limited liability company in good standing under the laws of Delaware,
has the requisite limited liability company power and authority to own
its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its ownership
or leasing of property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing would not
have a material adverse effect on Time Warner and its subsidiaries,
taken as a whole.
(d) The Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the jurisdiction of
its incorporation, has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus and
is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
that the failure to be
<PAGE>
<PAGE>
3
so qualified or be in good standing would not have a material adverse
effect on Time Warner and its subsidiaries, taken as a whole.
(e) Each subsidiary of Time Warner has been duly incorporated or,
in the case of partnerships or limited liability companies, duly
organized, is validly existing as a corporation, a partnership or a
limited liability company, as the case may be, in good standing under
the laws of the jurisdiction of its incorporation or organization, has
the power and authority to own its property and to conduct its business
as described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires
such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on Time Warner and its subsidiaries, taken as a whole; all of the
issued shares of capital stock of each subsidiary of Time Warner that is
a corporation have been duly and validly authorized and issued, are
fully paid and non-assessable and are owned directly by Time Warner,
free and clear of all liens, encumbrances, equities or claims; and all
of the partnership interests and membership interests in each subsidiary
of Time Warner that is a partnership or a limited liability company, as
the case may be, are owned directly by Time Warner, free and clear of
all liens, encumbrances, equities or claims.
(f) This Agreement has been duly authorized, executed and
delivered by Time Warner and the Company.
(g) The Indenture has been duly qualified under the Trust
Indenture Act and has been duly authorized, executed and delivered by
each of the Obligors and is a valid and binding agreement of each of the
Obligors, enforceable in accordance with its terms except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited
by equitable principles of general applicability.
(h) The Notes have been duly authorized and, when executed and
authenticated in accordance with the provisions of the Indenture, and
delivered to and paid for by the Underwriters in accordance with the
terms of this Agreement, will be entitled to the benefits of the
Indenture, and will be valid and binding obligations of each of the
Obligors, enforceable in accordance with their terms except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited
by equitable principles of general applicability.
<PAGE>
<PAGE>
4
(i) The Reorganization Agreement has been duly authorized,
executed and delivered by each of the parties thereto and is a valid and
binding agreement of each of the parties thereto, enforceable in
accordance with its terms except as (i) the enforceability thereof may
be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable
principles of general applicability.
(j) No consent, approval, waiver or authorization is required to
be obtained by any of the parties to the Reorganization Agreement, and
no notice or filing is required to be given by such parties to, or made
by such parties to, or made by such parties with, any federal, state,
local or other governmental authority or any other person in connection
with the execution, delivery and performance by such parties of the
Reorganization Agreement.
(k) The execution, delivery and performance of the Reorganization
Agreement by the parties thereto, and the consummation of the
transactions contemplated thereby, does not and will not (i) violate any
provision of the charter or bylaws or partnership agreement or other
organizational documents of such parties or (ii) violate or result in a
breach of or constitute a default under any law of any country or
governmental authority to which such party is subject.
(l) The execution and delivery by each of the Obligors of, and
the performance by the Obligors of their respective obligations under,
this Agreement, the Indenture and the Notes will not contravene any
provision of applicable law or the certificate of incorporation or the
certificate of formation, as applicable, or by-laws or limited liability
company agreement, as applicable, of the Obligors or any agreement or
other instrument binding upon either of the Obligors or any of their
subsidiaries that is material to Time Warner and its subsidiaries, taken
as a whole, or any judgment, order or decree of any governmental body,
agency or court having jurisdiction over Time Warner or any of its
subsidiaries, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Obligors of their respective obligations under this
Agreement, except (1) such as may have been obtained and (2) such as may
be required by the securities or Blue Sky laws of the various states and
other jurisdictions in connection with the offer and sale of the Notes.
(m) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of Time Warner and its subsidiaries, taken as a whole, from
that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).
<PAGE>
<PAGE>
5
(n) There are no legal or governmental proceedings pending or, to
the knowledge of the Obligors, threatened to which either of the
Obligors or any of their subsidiaries is a party or to which any of the
properties of either of the Obligors or any of their subsidiaries is
subject that are required to be described in the Registration Statement
or the Prospectus and are not so described or any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement that are not described or filed as required.
(o) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Securities Act, complied when so
filed in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder.
(p) Neither of the Obligors is, and after giving effect to the
offering and sale of the Notes and the application of the proceeds
thereof as described in the Prospectus, neither will be, an "investment
company" as such term is defined in the Investment Company Act of 1940,
as amended.
(q) The Obligors and their subsidiaries (i) are in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on Time Warner and its subsidiaries, taken as a
whole.
(r) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval,
any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate,
have a material adverse effect on Time Warner and its subsidiaries,
taken as a whole.
(s) Except as set forth in the Prospectus, there are no
contracts, agreements or understandings between Time Warner or the
Company and any person granting such person the right to require Time
Warner or the Company to file a registration statement
<PAGE>
<PAGE>
6
under the Securities Act with respect to any securities of Time Warner
or the Company or to require Time Warner or the Company to include such
securities with the Notes registered pursuant to the Registration
Statement.
(t) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (1) neither Time
Warner, nor any of their respective subsidiaries has incurred any
material liability or obligation, direct or contingent, nor entered into
any material transaction not in the ordinary course of business; (2)
neither Time Warner, nor any of its subsidiaries has purchased any of
Time Warner's outstanding capital stock, nor declared, paid or otherwise
made any dividend or distribution of any kind on Time Warner's capital
stock other than ordinary and customary dividends; and (3) there has not
been any material change in the capital stock, short-term debt or
long-term debt of Time Warner and its subsidiaries, taken as a whole,
except in each case as set forth or described in the Prospectus.
(u) The Obligors and their subsidiaries have good and marketable
title in fee simple to all real property and good marketable title to
all personal property owned by them, in each case free and clear of all
liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made
of such property by the Obligors and their subsidiaries or such as do
not, individually or in the aggregate have, or could not result in, a
material adverse effect on Time Warner and its subsidiaries, taken as a
whole; and any real property and buildings held under lease by the
Obligors and their subsidiaries are held by them under valid, subsisting
and enforceable leases with such exceptions do not interfere with the
use made and proposed to be made of such property and buildings by the
Obligors and their subsidiaries or such as do not, individually or in
the aggregate have or could not result in, a material adverse effect on
Time Warner and its subsidiaries, taken as a whole, in each case except
as described in the Prospectus.
(v) The Obligors and their subsidiaries own or possess, or can
acquire on reasonable terms, all patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names,
currently employed by them in connection with the business now operated
by them, except where the failure to own or possess or to have the right
to acquire any of the foregoing, singly or in the aggregate, does not
have a material adverse effect on Time Warner and its subsidiaries,
taken as a whole, and neither the Obligors nor any of their subsidiaries
has received any notice of infringement of or conflict with asserted
rights of others with respect to any of the foregoing which, singly or
in the aggregate,
<PAGE>
<PAGE>
7
if the subject of an unfavorable decision, ruling or finding, would have
a material adverse effect on Time Warner and its subsidiaries, taken as
a whole.
(w) No material labor dispute with the employees of the Obligors
or any of their subsidiaries exists, except as described in the
Prospectus, or, to the knowledge of the Obligors, is imminent; and the
Obligors are not aware of any existing, threatened or imminent labor
disturbance by the employees of any of their principal suppliers or
contractors that could have a material adverse effect on Time Warner and
its subsidiaries, taken as a whole.
(x) The Obligors and their subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and
in such amounts as are prudent and customary in the businesses in which
they are engaged; and neither of the Obligors nor any of their
respective subsidiaries has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a
material adverse effect on Time Warner and its subsidiaries, taken as a
whole, except as described in the Prospectus.
(y) The Obligors and their subsidiaries possess all permits,
licenses, rights of way, approvals, consents and other authorizations
issued by the appropriate federal, state, local or foreign regulatory
agencies or bodies (including the Federal Communications Commission (the
"FCC"), the public utilities commission, or any equivalent body, of each
state in which the Obligors do business and any other relevant state and
local authorities (the "LOCAL AUTHORITIES")) required for the conduct of
the business now operated by them (collectively, the "GOVERNMENTAL
LICENSES"), except where the failure to possess any such Governmental
Licenses would not, singly or in the aggregate, have a material adverse
effect on Time Warner and its subsidiaries, taken as a whole; the
Obligors and their subsidiaries are in compliance with the terms and
conditions of all such Licenses, except where the failure so to comply
would not, singly or in the aggregate, have a material adverse effect on
Time Warner and its subsidiaries, taken as a whole; all of the
Governmental Licenses are valid and in full force and effect, except
where the invalidity of such Governmental Licenses or the failure of
such Governmental Licenses to be in full force and effect would not,
singly or in the aggregate, have a material adverse effect on Time
Warner and its subsidiaries, taken as a whole; there is no outstanding
adverse judgment, decree or order that has been issued by the FCC or any
of the Local Authorities against the Obligors or any of their
subsidiaries and which, singly or in the aggregate, would have a
material adverse effect on Time Warner and its subsidiaries, taken as a
whole; and neither the Obligors nor any of their subsidiaries has
received any notice of or is aware of proceedings relating to the
revocation or modification of any such Governmental Licenses or that
<PAGE>
<PAGE>
8
would otherwise affect the operations of the Obligors or their
subsidiaries and which, singly or in the aggregate, would have a
material adverse effect on Time Warner and its subsidiaries, taken as a
whole.
(z) The Obligors and each of their subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable
assurance that (1) transactions are executed in accordance with
management's general or specific authorizations; (2) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
asset accountability; (3) access to assets is permitted only in
accordance with management's general or specific authorization; and (4)
the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
2. Agreements to Sell and Purchase. The Obligors hereby agree to
sell to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Obligors the respective principal amounts of Notes set forth in Schedule I
hereto opposite its name at __% of their principal amount with respect to the
Notes (the "PURCHASE PRICE") plus accrued interest, if any, from ____________,
1998 to the date of payment and delivery.
3. Terms of Public Offering. The Company is advised by you that
the Underwriters propose to make a public offering of their respective portions
of the Notes as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that (a) the Notes are to be offered to the public initially at
__% of the principal amount (the "PUBLIC OFFERING PRICE") plus accrued interest,
if any, and to certain dealers selected by you at a price that represents a
concession not in excess of __% of their principal amount under the Public
Offering Price, and that any Underwriter may allow, and such dealers may
reallow, a concession, not in excess of __% of their principal amount, to any
Underwriter or to certain other dealers.
4. Payment and Delivery. Payment for the Notes shall be made to
the Company in Federal or other funds immediately available in New York City
against delivery of such Notes for the respective accounts of the several
Underwriters at the offices of Shearman & Sterling, 599 Lexington Avenue, New
York, New York, at 10:00 a.m., New York City time, on [____________], 1998, or
at such other time on the same or such other date, not later than [_________],
1998, as shall be designated in writing by you. The time and date of such
payment are hereinafter referred to as the "CLOSING DATE."
<PAGE>
<PAGE>
9
Certificates for the Notes shall be in definitive form and
registered in such names and in such denominations as you shall request in
writing not later than one full business day prior to the Closing Date. The
certificates evidencing the Notes shall be delivered to you on the Closing Date
for the respective accounts of the several Underwriters, with any transfer taxes
payable in connection with the transfer of the Notes to the Underwriters duly
paid, against payment of the Purchase Price therefor.
5. Conditions to the Underwriters' Obligations. The obligations
of the Company to sell the Notes to the Underwriters and the several obligations
of the Underwriters to purchase and pay for the Notes on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than 5:30 p.m. (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor
shall any notice have been given of any intended or potential
downgrading or of any review for a possible change that does not
indicate the direction of the possible change, in the rating
accorded any of Time Warner's or the Company's securities by any
"nationally recognized statistical rating organization," as such
term is defined for purposes of Rule 436(g)(2) under the
Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or
operations of Time Warner and its subsidiaries, taken as a whole,
from that set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this
Agreement) that, in your judgment, is material and adverse and
that makes it, in your judgment, impracticable to market the
Notes on the terms and in the manner contemplated in the
Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate from each of Time Warner and the Company, dated the Closing
Date and signed by an executive officer of Time Warner and the Company,
respectively, to the effect set forth in Section 5(a)(i) above and to
the effect that the representations and warranties of the Obligors
contained in this Agreement are true and correct as of the Closing Date
and that the Obligors have complied with all of the agreements and
satisfied all of the
<PAGE>
<PAGE>
10
conditions on their part to be performed or satisfied hereunder on or
before the Closing Date.
The officer signing and delivering each such certificate may rely
upon the best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Cravath, Swaine & Moore, outside counsel for the Obligors,
dated the Closing Date, to the effect that:
(i) Time Warner has been duly formed and is validly
existing as a limited liability company in good standing under
the laws of Delaware, has the requisite limited liability company
power and authority to own its property and to conduct its
business as described in the Prospectus (referenced herein to the
Prospectus being taken to mean the same, as amended or
supplemented) and is duly qualified to transact business and is
in good standing in each jurisdiction in which the conduct of its
business or the ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material
adverse effect on Time Warner and its subsidiaries, taken as a
whole;
(ii) [based solely on a certificate of good standing from
the Secretary of State of Delaware,] the Company has been duly
incorporated, is validly existing and in good standing under the
laws of the State of Delaware, with full corporate power and
authority to own its property and to conduct its business as
described in the Prospectus;
(iii) the Notes have been duly authorized by each of the
Obligors, and, when executed and authenticated in accordance with
the provisions of the Indenture, and delivered to and paid for by
the Underwriters in accordance with the terms of the Underwriting
Agreement, will be valid and binding obligations of each of the
Obligors, enforceable against each of them in accordance with
their terms, subject to applicable bankruptcy, insolvency or
similar laws affecting creditors' rights generally and general
principles of equity, and will be entitled to the benefits of the
Indenture; provided, however, that no opinion is given concerning
the enforceability of waivers of notice or of any other
constitutional, statutory or common law rights, including,
without limitation, waiver of stay, extension or usury laws;
<PAGE>
<PAGE>
11
(iv) the Indenture has been duly authorized, executed and
delivered by, and is a valid and binding agreement of, each of
the Obligors, enforceable against both of them in accordance with
their terms, subject to applicable bankruptcy, insolvency or
similar laws affecting creditors' rights generally and general
principles of equity;
(v) this Agreement has been duly authorized, executed
and delivered by each of Time Warner and the Company;
(vi) the Reorganization Agreement has been duly
authorized, executed and delivered by, and is a valid and binding
agreement of TWC, TWE-A/N and TWE, enforceable against each of
them in accordance with its terms, subject to applicable
bankruptcy, insolvency or similar laws affecting creditors'
rights generally and general principles of equity;
(vii) the execution and delivery by the Obligors of, and
the performance by the Obligors of their respective obligations
under, this Agreement, the Indenture or the Notes will not
contravene any provision of applicable law or the certificate of
incorporation or the certificate of formation, as applicable, or
by-laws or limited liability company agreement, as applicable, of
the Obligors or, to such counsel's knowledge, any agreement or
other instrument binding upon either of the Obligors or any of
their subsidiaries that is material to Time Warner and its
subsidiaries, taken as a whole, or, to the best of such counsel's
knowledge, any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Obligors or
any of their subsidiaries, and no consent, approval,
authorization or order of, or qualification with, any
governmental body or agency is required for the performance by
the Obligors of their obligations under this Agreement, except
such as has been obtained under the Securities Act and such as
may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Notes by the
U.S. Underwriters;
(viii) the statements (A) in the Prospectus under the
captions "Certain Relationships and Related Transactions,"
"Certain United States Federal Income Tax Consequences to
Non-United States Holders of Notes," "Description of Capital
Stock," "Description of the Notes" and ["Underwriters"] and (B)
in the Registration Statement in Items 14 and 15, in each case
insofar as such statements constitute summaries of the legal
matters, documents or proceedings referred to therein, fairly
present the information required to be described with respect to
such legal matters, documents and proceedings and summarize in
all material respects the matters referred to therein;
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12
(ix) to such counsel's knowledge[, after due inquiry,]
there are no (i) legal or governmental proceedings pending or
threatened to which the Obligors or any of their subsidiaries is
a party or to which any of the properties of the Obligors or any
of their subsidiaries is subject that are required to be
described in the Registration Statement or the Prospectus and are
not so described or (ii) contracts, indentures, mortgages, loan
agreements, notes, leases or other documents that are required to
be described in the Registration Statement or the Prospectus or
to be filed as exhibits to the Registration Statement that are
not described or filed as required; and
(x) neither of the Obligors is and, after giving effect to
the offering and sale of the Notes and the application of the
proceeds thereof as described in the Prospectus, neither will be
an "investment company" as such term is defined in the Investment
Company Act of 1940, as amended.
(d) The Underwriters shall have received on the Closing Date a
statement of Cravath, Swaine & Moore, outside counsel for the Obligors,
dated the Closing Date, to the effect that:
Although we have made certain inquiries and investigations
in connection with the preparation of the Registration Statement
and the Prospectus, the limitations inherent in the role of
outside counsel are such that we cannot and do not assume
responsibility for the accuracy or completeness of the statements
made in the Registration Statement and Prospectus, except in so
far as such statements relate to us and except to the extent set
forth in paragraphs (ii) and (ix) of our opinion to you dated the
date hereof. Subject to the foregoing, we hereby advise you that
our work in connection with this matter did not disclose any
information that gave us reason to believe that: (i) the
Registration Statement at the time the Registration Statement
became effective, or the Prospectus as of the date hereof (in
each case except the financial statements and other information
of a statistical, accounting or financial nature included
therein, as to which we do not express any view) was not
appropriately responsive in all material respects to the
requirements of the Securities Act and the applicable rules and
regulations of the Commission thereunder, or (ii) the
Registration Statement at the time the Registration Statement
became effective, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading or that the Prospectus, as of its date and as of the
date hereof, included or includes an untrue statement of a
material fact or omits to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading
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13
(in each case except for the financial statements and other
information of a statistical, accounting or financial nature
included therein, as to which we do not express any view).
(e) The Underwriters shall have received on the Closing Date an
opinion of Paul B. Jones, Esq., General Counsel to Time Warner and to
the Company, dated the Closing Date, to the effect that:
(i) Each of Time Warner and the Company is duly qualified
to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing
of property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing would
not have a material adverse effect on Time Warner and its
subsidiaries, taken as a whole;
(ii) each subsidiary of Time Warner has been duly
incorporated or, in the case of partnerships or limited liability
companies, duly organized, is validly existing as a corporation,
a partnership or a limited liability company, as the case may be,
in good standing under the laws of the jurisdiction of its
incorporation or organization, as the case may be, has the power
and authority to own its property and to conduct its business as
described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not
have a material adverse effect on Time Warner and its
subsidiaries, taken as a whole;
(iii) all of the issued shares of capital stock of each
subsidiary of Time Warner that is a corporation have been duly
and validly authorized and issued, are fully paid and
non-assessable and are owned directly by Time Warner free and
clear of all liens, encumbrances, equities or claims; and all of
the partnership interests and membership interests in each
subsidiary of Time Warner that is a partnership or limited
liability company, as the case may be, are owned directly by Time
Warner free and clear of all liens, encumbrances, equities or
claims;
(iv) the Obligors (A) are in compliance with any and all
applicable Environmental Laws, (B) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (C)
are in compliance with all terms and conditions of any such
permit, license or approval, except where such noncompliance with
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14
Environmental Laws, failure to receive required permits, licenses
or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on
Time Warner and its subsidiaries, taken as a whole; and
(v) The statements contained in the Registration Statement
under the captions "Risk Factors--Risks Relating to Long
Distance," "Risk Factors--Dependence Upon Interconnection with
ILECs; Competition," "Risk Factors--Federal and State
Regulation," "Risk Factors--Relationship with TW Cable,"
"Certain Relationships and Related Transactions--Certain
Operating Agreements" and "Business--Competition," insofar as
such statements constitute a summary of the legal or regulatory
matters or legal or regulatory proceedings referred to therein,
are correct in all material respects and do not omit a material
fact necessary to make the statements contained therein not
misleading.
(vi) the Obligors possess the Governmental Licenses and
the Obligors are in compliance with the terms and conditions of
all such Governmental Licenses, except where the failure to so
comply would not, singly or in the aggregate, have a material
adverse effect on Time Warner and its subsidiaries, taken as a
whole, and all of the Governmental Licenses are valid and in full
force and effect, except when the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in
full force and effect would not have a material adverse effect on
Time Warner and its subsidiaries, taken as a whole;
(vii) there is no outstanding adverse judgment, decree or
order that has been issued by the FCC or any of the Local
Authorities against the Obligors and their subsidiaries which,
singly or in the aggregate, would have a material adverse effect
on Time Warner and its subsidiaries, taken as a whole, and, to
the best of such counsel's knowledge, neither the Obligors nor
any of their subsidiaries is the object of, or threatened by, any
proceedings relating to the revocation or modification of any
such Governmental Licenses or that would otherwise affect the
operation of the Obligors, which, singly or in the aggregate,
would have a material adverse effect on Time Warner and its
subsidiaries, taken as a whole;
(viii) the Obligors have obtained all authorizations and
consents from New York, Tennessee, North Carolina and Hawaii
required for the issuance of the Notes, and no further filings
with, authorizations, approval, consent, license, order,
registrations, qualification or decree is necessary or required
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15
from any other New York, Tennessee, North Carolina and Hawaii
State or local governmental department, commission, board,
bureau, agency, court or other authority thereof (collectively
referred to hereinafter as "LOCAL GOVERNMENTAL AGENCIES") having
jurisdiction over telecommunications matters for the Company in
connection with the due authorization, execution and delivery of
this Agreement or for the offering, issuance, sale or delivery of
the Notes, except for notice filings where the failure to make
such filings would not materially adversely affect the
performance by the Obligors of their obligations under this
Agreement;
(ix) the Notes, and the issuance thereof, are properly
authorized under the applicable statutes, rules, and published
orders of the [New York State] Board of Public Utilities and all
other applicable laws, policies, rules, and rulings of any [New
York State] Governmental Agency and will be validly issued;]
(x) the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated
in this Agreement, the issuance and sale of the Notes, and the
use of the proceeds from the sale of the Notes to the extent
expressly described in the Prospectus under the caption "Use of
Proceeds" and compliance by the Obligors with their respective
obligations under this Agreement do not and will not, whether
with or without the giving of notice or lapse of time or both,
result in any violation of any applicable law, statute, rule,
regulation, judgment, order, writ or decree, known to such
counsel of any Local Government Agency having jurisdiction over
Time Warner or any of its subsidiaries or any of their respective
assets or operations with respect to the provision of
telecommunications services except for such violations that would
not have a material adverse effect on Time Warner and its
subsidiaries, taken as a whole, or on the Company and its
subsidiaries, taken as a whole; and
(xi) to such counsel's knowledge, after due inquiry, there
are no statutes or regulations that are required to be described
in the Registration Statement or the Prospectus that are not
described as required.
(f) The Underwriters shall have received on the Closing Date an
opinion of [___________], regulatory counsel for the Company, dated the
Closing Date, to the effect that:
(i) The statements contained in the Registration Statement
under the captions "Risk Factors--Governmental and Other
Authorizations," and "Business--Government Regulation," insofar
as such statements constitute a
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<PAGE>
16
summary of the legal or regulatory matters or legal or
regulatory proceedings referred to therein, are correct in all
material respects and do not omit a material fact necessary to
make the statements contained therein not misleading;
(ii) The execution and delivery of the Amended and
Restated Limited Liability Company Agreement dated as of
________, 1998 (the "LLC Agreement"), by and among TWE, TWE-A/N,
TWC, MediaOne, Newhouse, American Television and Communications
Corporation, Warner Communications, Inc., TW/TAE Inc., Fibercomm
Holdings L.P. and Paragon Communications, and compliance by Time
Warner with the terms of the LLC Agreement does not and will not
violate the Federal Communications Act of 1934, as amended, or
the rules and regulations of the FCC.
(g) The Underwriters shall have received on the Closing Date an
opinion of ___________, outside counsel for Advance/Newhouse
Partnership, dated as of the Closing Date, to the effect that the
Reorganization Agreement has been duly authorized, executed and
delivered by, and is a valid and binding agreement of, Advance/Newhouse
Partnership, enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally and general principles of equity.
(h) The Underwriters shall have received on the Closing Date an
opinion of Weil, Gotshal & Manges, outside counsel for MediaOne, dated
as of the Closing Date, to the effect that the Reorganization Agreement
has been duly authorized, executed and delivered by, and is a valid and
binding agreement of, MediaOne Group, Inc., enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency
or similar laws affecting creditors' rights generally and general
principles of equity.
(i) The Underwriters shall have received on the Closing Date an
opinion of Shearman & Sterling, counsel for the Underwriters, dated the
Closing Date, covering the matters referred to in Sections 5(c)(v),
5(c)(vii), 5(c)(x) (but only as to the statements in the Prospectus
under "Description of the Notes" and "Underwriters") and 5(d) above.
With respect to Section 5(d) above, Cravath, Swaine & Moore and
Shearman & Sterling may provide their statements in separate letters and
may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and
discussion of the contents thereof, but are without independent check or
verification, except as specified.
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17
The opinion of Cravath, Swaine & Moore described in Section 5(c)
above shall be rendered to the Underwriters at the request of the
Company and shall so state therein.
(j) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory to
the Underwriters, from Ernst & Young, LLP, independent public
accountants, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus;
provided that the letter delivered on the Closing Date shall use a
"cut-off date" not earlier than the date hereof.
(k) The Reorganization (as defined in the Prospectus) shall have
been consummated.
6. Covenants of the Obligors. In further consideration of the
agreements of the Underwriters herein contained, the Obligors covenant with each
Underwriter as follows:
(a) To furnish to you, without charge, three signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City,
without charge, prior to 10:00 a.m. New York City time on the business
day next succeeding the date of this Agreement and during the period
mentioned in Section 6(c) below, as many copies of the Prospectus and
any supplements and amendments thereto or to the Registration Statement
as you may reasonably request.
(b) Before amending or supplementing the Registration Statement
or the Prospectus, to furnish to you a copy of each such proposed
amendment or supplement and not to file any such proposed amendment or
supplement to which you reasonably object, and to file with the
Commission within the applicable period specified in Rule 424(b) under
the Securities Act any prospectus required to be filed pursuant to such
Rule.
(c) If, during such period after the first date of the public
offering of the Notes as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with
sales by an Underwriter or dealer, any event shall occur or condition
exist as a result of which it is necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if[,
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18
in the opinion of counsel for the Underwriters,] it is necessary to
amend or supplement the Prospectus to comply with applicable law,
forthwith to prepare, file with the Commission and furnish, at its own
expense, to the Underwriters and to the dealers (whose names and
addresses you will furnish to the Obligors) to which Notes may have been
sold by you on behalf of the Underwriters and to any other dealers upon
request, either amendments or supplements to the Prospectus so that the
statements in the Prospectus as so amended or supplemented will not, in
the light of the circumstances when the Prospectus is delivered to a
purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with law.
(d) To endeavor to qualify the Notes for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall
reasonably request; provided that, in connection therewith, neither
Obligor shall be required to qualify as a foreign corporation or foreign
limited liability company, as the case may be, or to file a general
consent to service of process in any jurisdiction.
(e) To make generally available to Time Warner's security holders
and to the Company's security holders and to you as soon as practicable
an earning statement covering the twelve-month period ending [________],
199[_] that satisfies the provisions of Section 11(a) of the Securities
Act and the rules and regulations of the Commission thereunder.
(f) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees, disbursements
and expenses of the Obligors' counsel and the Obligors' accountants in
connection with the registration and delivery of the Notes under the
Securities Act and all other fees or expenses in connection with the
preparation and filing of the Registration Statement, any preliminary
prospectus, the Prospectus and amendments and supplements to any of the
foregoing, including all printing costs associated therewith, and the
mailing and delivering of copies thereof to the Underwriters and
dealers, in the quantities hereinabove specified, (ii) all costs and
expenses related to the transfer and delivery of the Notes to the
Underwriters, including any transfer or other taxes payable thereon,
(iii) the cost of printing or producing any Blue Sky or Legal Investment
memorandum in connection with the offer and sale of the Notes under
state securities laws and all expenses in connection with the
qualification of the Notes for offer and sale under state securities
laws as provided in Section 6(d) hereof, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky
or Legal Investment memorandum, (iv) all filing fees and the reasonable
fees and disbursements of counsel to the Underwriters incurred in
connection with the review
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19
and qualification of the offering of the Notes by the National
Association of Securities Dealers, Inc., (v) the cost of preparation,
issuance and delivery of the Notes, (vi) the costs and charges of the
Trustee, (vii) the costs and expenses of the Company relating to
investor presentations on any "road show" undertaken in connection with
the marketing of the offering of the Notes, including, without
limitation, expenses associated with the production of road show slides
and graphics, fees and expenses of any consultants engaged in connection
with the road show presentations with the prior approval of the
Obligors, travel and lodging expenses of the representatives and
officers of the Obligors and any such consultants, and the cost of any
aircraft chartered in connection with the road show and (viii) all other
costs and expenses incident to the performance of the obligations of the
Company hereunder for which provision is not otherwise made in this
Section. It is understood, however, that except as provided in this
Section, Section 7 entitled "Indemnity and Contribution," and the last
paragraph of Section 9 below, the Underwriters will pay all of their
costs and expenses, including fees and disbursements of their counsel,
stock transfer taxes payable on resale of any of the Notes by them and
any advertising expenses connected with any offers they may make.
7. Indemnity and Contribution. (a) Time Warner and the Company,
jointly and severally, agree to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), from and against any and all losses,
claims, damages and liabilities (including, without limitation, any legal or
other expenses reasonably incurred in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Obligors shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, 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 relating to any Underwriter
furnished to the Obligors in writing by such Underwriter through you expressly
for use therein.
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless each of Time Warner, the Company, their directors
and officers who sign the Registration Statement and each person, if any, who
controls Time Warner or 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 Time Warner and the Company to such Underwriter, but
only with reference to information relating to such Underwriter furnished to the
Obligors in writing by such Underwriter through you expressly for use in the
Registration
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20
Statement, any preliminary prospectus, the Prospectus or any amendments or
supplements thereto.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to Section 7(a) or 7(b), such person (the
"INDEMNIFIED PARTY") shall promptly notify the person against whom such
indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain 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 or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all such indemnified parties and that all such fees
and expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by Morgan Stanley & Co. Incorporated, in the case of
parties indemnified pursuant to Section 7(a), and by the Obligors, in the case
of parties indemnified pursuant to Section 7(b). The indemnifying party shall
not be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such request
prior to the date of such settlement. No indemnifying party shall, without the
prior written consent of the indemnified party, 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 on claims that are the subject matter
of such proceeding.
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21
(d) To the extent the indemnification provided for in Section
7(a) or 7(b) is unavailable to an indemnified party or insufficient in respect
of any losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Obligors on the one hand and the Underwriters on the
other hand from the offering of the Notes or (ii) if the allocation provided by
clause 7(d)(i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
7(d)(i) above but also the relative fault of the Obligors on the one hand and of
the Underwriters on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative benefits received
by the Obligors on the one hand and the Underwriters on the other hand in
connection with the offering of the Notes shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Notes
(before deducting expenses) received by the Obligors and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the Public Offering
Price of the Notes. The relative fault of the Obligors on the one hand and the
Underwriters on the other hand 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 Obligors or by the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective principal amounts of Notes they have purchased hereunder, and not
joint.
(e) The Obligors and the Underwriters agree that it would not be
just or equitable if contribution pursuant to this Section 7 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 that does not take account of
the equitable considerations referred to in Section 7(d). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages and
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 7, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Notes
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. 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
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22
misrepresentation. The remedies provided for in this Section 7 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this
Section 7 and the representations, warranties and other statements of the
Obligors contained in this Agreement shall remain operative and in full force
and effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter or by or on behalf of the Obligors, its respective officers or
directors or any person controlling the Obligors and (iii) acceptance of and
payment for any of the Notes.
8. Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 8(a)(i) through 8(a)(iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Notes on the terms and in the manner contemplated in the Prospectus.
9. Effectiveness; Defaulting Underwriters. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date, any one or more of the Underwriters
shall fail or refuse to purchase Notes that it has or they have agreed to
purchase hereunder on such date, and the aggregate principal amount of Notes
which such defaulting Underwriter or Underwriters agreed but failed or refused
to purchase is not more than one-tenth of the aggregate principal amount of
Notes to be purchased on such date, the other Underwriters shall be obligated
severally in the proportions that the principal amount of Notes set forth
opposite their respective names in Schedule I bears to the principal amount of
Notes set forth opposite the names of all such non-defaulting Underwriters, or
in such other proportions as you may specify, to purchase the Notes which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
on such date; provided that in no event shall the principal amount of Notes that
any Underwriter has agreed to purchase pursuant to this Agreement be increased
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23
pursuant to this Section 9 by an amount in excess of one-ninth of such principal
amount of Notes without the written consent of such Underwriter. If, on the
Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase
Notes and the aggregate principal amount of Notes with respect to which such
default occurs is more than one-tenth of the aggregate principal amount of Notes
to be purchased, and arrangements satisfactory to you and the Company for the
purchase of such Notes are not made within 36 hours after such default, this
Agreement shall terminate without liability on the part of any non-defaulting
Underwriter or the Company. In any such case either you or the Company shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and in the Prospectus or in any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any
of them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
10. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
11. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
<PAGE>
<PAGE>
24
12. Headings. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
Very truly yours,
TIME WARNER TELECOM LLC
By:_______________________
Name:
Title:
TIME WARNER TELECOM INC.
By:_______________________
Name:
Title:
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
LEHMAN BROTHERS INC.
Acting severally on behalf of themselves
and the several Underwriters
named in Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By: ___________________________
Name:
Title:
<PAGE>
<PAGE>
SCHEDULE I
U.S. UNDERWRITERS
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL AMOUNT
OF NOTES
UNDERWRITER TO BE PURCHASED
----------- ---------------
<S> <C>
Morgan Stanley & Co. Incorporated
Lehman Brothers Inc.
-----------
Total Notes..................................
===========
</TABLE>
<PAGE>
<PAGE>
CERTIFICATE OF INCORPORATION
OF
TIME WARNER TELECOM INC.
------------------------
The undersigned, for the purposes of forming a corporation under the laws
of the State of Delaware, do make, file and record this Certificate, and do
certify that:
FIRST: The name of this corporation is TIME WARNER TELECOM INC.
SECOND: Its Registered Office in the State of Delaware is to be
located at 9 Lookerman Street, in the City of Dover, County of Kent, 19901.
The Registered Agent in charge thereof is National Registered Agents, Inc.
THIRD: The purpose of the corporation is to engage in lawful act or
activity for which a corporation may be organized under the General
Corporation Law of Delaware.
FOURTH: The amount of the total authorized capital stock of the
corporation is two hundred (200), all of which are without par value and
classified as common stock.
FIFTH: The name and mailing address of the incorporator are as
follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
---- ---------------
<S> <C>
Leif A. Tonnessen 3 Brandon Road
Lawrenceville, New Jersey 08648
</TABLE>
SIXTH: The duration of the corporation shall be perpetual.
SEVENTH: When a compromise or arrangement is proposed between the
corporation and its creditors or any class of them or between the
corporation and its shareholders or any class of them, a court of equity
jurisdiction within the state, on application of the corporation or of a
creditor or shareholder thereof, or on application of a receiver appointed
for the corporation pursuant to the provisions of Section 291 of Title 8 of
the Delaware Code or on application of trustees in dissolution or of any
receiver or receivers appointed for the corporation pursuant to provisions
of Section 279 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors or of the shareholders or class of
shareholders to be affected by the proposed compromise or arrangement or
reorganization, to be summoned in such manner as the court directs. If a
majority in number representing 3/4 in value of the creditors or class of
creditors, or of the shareholders or class of shareholders to be affected
by the proposed compromise or arrangement or a reorganization, agree to a
compromise or arrangement or a reorganization of the corporation as a
consequence of the compromise or arrangement, the compromise or arrangement
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 05:00 PM 02/05/1998
981047474 - 2855774
<PAGE>
<PAGE>
and the reorganization, if sanctioned by the court to which the application
has been made, shall be binding on all the creditors or class of creditors,
or on all the shareholders or class of shareholders and also on the
corporation.
EIGHTH: The personal liability of all of the directors of the
corporation is hereby eliminated to the fullest extent allowed as provided
by the Delaware General Corporation Law, as the same may be supplemented
and amended.
NINTH: The corporation shall, to the fullest extent legally
permissible under the provisions of the Delaware General corporation Law,
as the same may be amended and supplemented, shall indemnify and hold
harmless any and all persons whom it shall have power to indemnify under
said provisions from and against any and all liabilities (including
expenses) imposed upon or reasonably incurred by him in connection with any
action, suit or other proceeding in which he may be involved or with which
he may be threatened, or other matters referred to in or covered by said
provisions both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a
person who has ceased to be a director or officer of the corporation. Such
indemnification provided shall not be deemed exclusive of any other rights
to which those indemnified may be entitled under any Bylaw, Agreement or
Resolution adopted by the shareholders entitled to vote thereon after
notice.
Dated: February 5, 1998
/s/ Leif A. Tonnessen
______________________________________
Lief A. Tonnessen, Incorporator
<PAGE>
<PAGE>
* * * * * * * *
BY-LAWS
* * * * * * * *
TIME WARNER TELECOM INC.
ARTICLE I
OFFICES
Section 1. The registered office shall be located in the state
of incorporation.
Section 2. The corporation may also have offices at such other
places both within and without the state of incorporation as the board of
directors may from time to time determine, or the business of the corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election
of directors shall be held at such place as may be fixed from time to time by
the board of directors, either within or without the state of incorporation as
shall be designated from time to time by the board of directors and stated in
the notice of the meeting. Meetings of stockholders for any other purpose may be
held at such time and place, within or without such state as shall be stated in
the notice of the meeting or in a duly executed waiver of notice thereof.
<PAGE>
<PAGE>
Section 2. Annual meetings of stockholders, commencing with
the year 1999, shall be held on the second Tuesday in May in each year if not a
legal holiday, and if a legal holiday, then on the next secular day following,
at 11 A.M., or at such other date and time as shall be designated from time to
time by the board of directors and stated in the notice of the meeting, at which
they shall elect by a plurality vote, by written ballot, a board of directors,
and transact such other business as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the
place, date and hour of the meeting shall be given to each stockholder entitled
to vote at such meeting not less than ten nor more than fifty days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of 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
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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 who is present.
Section 5. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the chairman of the board or
president and shall be called by the chairman of the board or president or
secretary at the request in writing of a majority of the board of directors, or
at the request in writing of stockholders owning a majority in amount of the
entire capital stock of the corporation issued and outstanding and entitled to
vote. Such request shall state the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the
place, date and hour of the meeting and the purpose or purposes for which the
meeting is called, shall be given not less than ten nor more than fifty days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
3
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Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting, at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. 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 notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote
of the holders of a majority of the stock having voting power present in person
or represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required in
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which case such express provision shall govern and control the decision of such
question.
Section 10. Each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock having voting power held by such stockholder, but no proxy shall
be voted on after three years from its date, unless the proxy provides for a
longer period.
Section 11. To the extent permitted by statute, whenever the
vote of stockholders at a meeting thereof is required or permitted to be taken
for or in connection with any corporate action, by any provision of the
statutes, the meeting and vote of stockholders may be dispensed with if all of
the stockholders who would have been entitled to vote upon the action if such
meeting were held shall consent in writing to such corporate action being taken;
or if the certificate of incorporation authorizes the action to be taken with
the written consent of the holders of less than all of the stock who would have
been entitled to vote upon the action if a meeting were held, then on the
written consent of the stockholders having not less than such percentage of the
total number of votes as may be authorized in the certificate of incorporation;
provided that in no case shall the written consent be by the holders of stock
having less than the minimum percentage of the total vote
5
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<PAGE>
required by statute for the proposed corporate action, and provided that prompt
notice must be given to all stockholders of the taking of corporate action
without a meeting and by less than unanimous written consent.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the
whole board shall be not less than three nor more than eleven. The directors
shall be elected at the annual meeting of the stockholders, except as provided
in Section 2 of this Article, and each director elected shall hold office until
his successor is elected and qualified. To the extent permitted by statute,
directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until the
next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no directors in office, then an
election of directors may be held in the manner provided by statute. If, at the
time of filling any vacancy or any newly created directorship, the directors
then in office shall constitute less than a majority of the whole board (as
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constituted immediately prior to any such increase), the appropriate court
having jurisdiction may, upon application of any stockholder or stockholders
holding at least ten percent of the total number of the shares at the time
outstanding have the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorship, or
to replace the directors chosen by the directors then in office.
Section 3. At any special meeting of stockholders called for
the purpose, a majority of the stockholders voting may remove any one or all of
the board of directors with or without cause, and may elect a new director or
directors to fill the vacancy or vacancies resulting from such removal, or the
stockholders may at such meeting reconstitute the entire board of directors.
Section 4. The business of the corporation shall be managed by
its board of directors which may exercise all such powers of the corporation and
do all such lawful acts and things as are not by statute or by the certificate
of incorporation or by these by-laws directed or required to be exercised or
done by the stockholders.
7
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<PAGE>
MEETINGS OF THE BOARD OF DIRECTORS
Section 5. The board of directors of the corporation may hold
meetings, both regular and special, either within or without the state of
incorporation.
Section 6. The first meeting of each newly elected board of
directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time and place of such first meeting of the newly
elected board of directors, or in the event such meeting is not held at the time
and place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 7. Regular meetings of the board of directors may be
held without notice at such time and at such place as shall from time to time be
determined by the board.
Section 8. Special meetings of the board may be called by the
chairman of the board or the president on five days' notice to each director,
either personally or mail or by telefax or telex; special meetings shall be
called by the chairman of the
8
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<PAGE>
board or the president or secretary in like manner and on like notice on the
written request of two directors.
Section 9. At all meetings of the board, a majority of the
directors then in office shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum shall not be present at any meeting of the board of
directors the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these by-laws, or by statute, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting, if all 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.
COMMITTEES OF DIRECTORS
Section 11. The board of directors may, by resolution passed
by a majority of the whole board, designate one or more committees, each
committee to consist of two or more of the
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<PAGE>
directors of the corporation. The board may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. Any such committee, to the extent
provided in the resolution, shall have and may exercise the powers of the board
of directors in the management of the business and affairs of the corporation,
and may authorize the seal of the corporation to be affixed to all papers which
may require it; provided, however, that in the absence or disqualification of
any member of such committee or committees, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the board of directors.
Section 12. Each committee shall keep regular minutes of its
meetings and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 13. The directors may be paid their expenses, if any,
of attendance at each meeting of the board of directors and may be paid a fixed
sum for attendance at each meeting of the
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<PAGE>
board of directors or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provision of the statutes or of
the certificate of incorporation or of these by-laws, notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telefax or telex.
Section 2. Whenever any notice is required to be given under
the provisions of the statutes or of the certificate of incorporation or of
these by-laws, 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 thereto.
11
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<PAGE>
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by
the board of directors and shall be a president, a vice president, a secretary
and a treasurer. In addition, the board of directors may choose a chairman of
the board. The board of directors may also choose additional vice presidents,
and one or more assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the statutes, the certificate of
incorporation or these by-laws otherwise provide.
Section 2. The board of directors at its first meeting after
each annual meeting of stockholders shall choose a president, one or more vice
presidents, a secretary and a treasurer; and it may choose a chairman of the
board.
Section 3. The board of directors may appoint such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 4. The salaries of all officers and agents of the
corporation shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold
office subject to the pleasure of the board. Any officer elected
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<PAGE>
or appointed by the board of directors may be removed at any time, with or
without cause, by the affirmative vote of a majority of the board of directors.
Any vacancy occurring in any office of the corporation shall be filled by the
board of directors.
THE CHAIRMAN OF THE BOARD
Section 6. If a chairman of the board is elected, he shall be
the chief executive officer and he shall preside at all meetings of the
stockholders and the board of directors. Together with the president, he shall
have responsibility for the general management of the business of the
corporation and shall see that all orders and resolutions of the board of
directors are carried into effect. He shall be a member of all committees of the
board of directors.
THE PRESIDENT
Section 7. The president shall be the principal operating
officer of the corporation, performing such duties, and exercising such
responsibilities, as shall be designated for him by the board of directors; and
in the absence or incapacity of the chairman of the board, he shall perform the
duties, carry out the responsibilities, of the chairman of the board, described
in the section immediately preceding this section. If the corporation does not
elect a chairman of the board, he shall also be the chief executive officer.
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He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
THE VICE PRESIDENTS
Section 8. On the absence of the president or in the event of
his inability or refusal to act, the vice president (or in the event there be
more than one vice president, the vice presidents in the order designated, or in
the absence of any designation, then in the order of their election) shall
perform the duties of the president, and when so acting, shall have all powers
of and be subject to all the restrictions upon the president. The vice president
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 9. The secretary shall attend all meetings of
the board of directors and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the board of directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give or cause to be given notice of
all
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meetings of the stockholders and special meetings of the board of directors, and
shall perform such other duties as may be prescribed by the board of directors
or the president, under whose supervision he shall be. He shall keep in safe
custody the seal of the corporation and, when authorized by the board of
directors, affix the same to any instrument requiring it and, when so affixed,
it shall be attested by his signature or by the signature of an assistant
secretary.
Section 10. The assistant secretary, or if there be more than
one, the assistant secretaries in the order determined by the board of
directors, shall, in the absence or disability of the secretary, perform the
duties and exercise the powers of the secretary, and shall perform such other
duties and have such other powers as the board of directors may from time to
time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the board of
directors.
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Section 12. He shall disburse the funds of the corporation as
may be ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings, or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 13. If required by the board of directors, he shall
give the corporation a bond (which shall be renewed every six years) in such sum
and with such surety or sureties as shall be satisfactory to the board of
directors for the faithful performance of the duties of his office and for the
restoration to the corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
corporation.
Section 14. The assistant treasurer, or if there shall be more
than one, the assistant treasurers in the order determined by the board of
directors (or if there be no such determination, then in the order of their
election), shall, in the absence of the treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the power of the
treasurer and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
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ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by,
the chairman or vice-chairman of the board of directors or the president or a
vice president and the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of the corporation, certifying the number of shares owned
by him in the corporation.
Section 2. Where a certificate is countersigned (1) by a
transfer agent other than the corporation or its employee, or, (2) by a
registrar other than the corporation or its employee, the signatures of the
officers of the corporation may be facsimiles. In case any officer who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the corporation with the same effect as if he were such officer at the
date of issue.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate
or certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the
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certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the board of directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it 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 with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFERS OF STOCK
Section 4. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment, or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or
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allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the board of directors may fix a new record date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. 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 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 provided by the laws of Delaware.
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ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of capital stock, subject to the provisions of the certificate of
incorporation.
Section 2. 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 directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual
meeting, and at any special meeting of the stockholders when called for by vote
of the stockholders, a full and clear statement of the business and condition of
the corporation.
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CHECKS
Section 4. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed
by resolution of the board of directors.
SEAL
Section 6. The corporation seal shall have inscribed thereon
the name of the corporation, the year of its organization and the words
"Corporate Seal, (State of Incorporation)". The seal may be used by causing it
or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
Section 7. Every person now or hereafter serving as a
director, officer or employee of the corporation shall be indemnified and held
harmless by the corporation from and against any and all loss, cost, liability
and expense that may be imposed upon or incurred by him in connection with or
resulting from any claim, action, suit, or proceeding, civil or criminal, in
which he may become involved, as a party or otherwise, by reason of his being or
having been a director, officer or employee of the corporation, whether or not
he continues to be such at the time
21
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such loss, cost, liability or expense shall have been imposed or incurred. As
used herein, the term "loss, cost, liability and expense" shall include, but
shall not be limited to, counsel fees and disbursements and amounts of
judgments, fines or penalties against, and amounts paid in settlement by, any
such director, officer or employee; provided, however, that no such director,
officer or employee shall be entitled to claim such indemnity: (1) with respect
to any matter as to which there shall have been a final adjudication that he has
committed or allowed some act or omission, (a) otherwise than in good faith in
what he considered to be the best interests of the corporation, and (b) without
reasonable cause to believe that such act or omission was proper and legal; or
(2) in the event of a settlement of such claim, action, suit, or proceeding
unless (a) the court having jurisdiction thereof shall have approved of such
settlement with knowledge of the indemnity provided herein, or (b) a written
opinion of independent legal counsel, selected by or in a manner determined by
the board of directors, shall have been rendered substantially concurrently with
such settlement, to the effect that it was not probable that the matter as to
which indemnification is being made would have resulted in a final adjudication
as specified in clause (1) above and that the said loss, cost, liability or
expense may properly be borne by the corporation. A conviction or judgment
(whether based on a plea
22
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of guilty or nolo contendere or its equivalent, or after trial) in a criminal
action, suit or proceeding shall not be deemed an adjudication that such
director, officer or employee has committed or allowed some act or omission as
hereinabove provided if independent legal counsel, selected as hereinabove set
forth, shall substantially concurrently with such conviction or judgment give to
the corporation a written opinion that such director, officer or employee was
acting in good faith in what he considered to be the best interests of the
corporation or was not without reasonable cause to believe that such act or
omission was proper and legal.
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered, amended or repealed
or new by-laws may be adopted by the stockholders or by the board of directors,
at any regular or special meeting properly convened.
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================================================================================
TIME WARNER TELECOM LLC
and
TIME WARNER TELECOM INC.,
Obligors,
and
THE CHASE MANHATTAN BANK,
Trustee
--------------------
Indenture
Dated as of ________, 1998
--------------------
[__]% Senior Notes due 2008
================================================================================
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CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Sections Indenture Sections
- ------------ ------------------
<S> <C>
'SS' 310(a)(1).......................................................... 7.10
(a)(2).......................................................... 7.10
(b)............................................................. 7.03; 7.08
'SS' 311(a).............................................................. 7.03
(b)............................................................. 7.03
'SS' 312(a).............................................................. 2.03
(b)............................................................. 10.02
(c)............................................................. 10.02
'SS' 313(a).............................................................. 7.06
(b)(2).......................................................... 7.07
(c)............................................................. 7.05; 7.06; 10.02
(d)............................................................. 7.06
'SS' 314(a)............................................................. 7.05; 10.02
(a)(4).......................................................... 4.17; 10.02
(c)(1).......................................................... 10.03
(c)(2).......................................................... 10.03
(e)............................................................. 4.17; 10.04
'SS' 315(a).............................................................. 7.02
(b)............................................................. 7.05; 10.02
(c)............................................................. 7.02
(d)............................................................. 7.02
(e)............................................................. 6.11
'SS' 316(a)(1)(A)....................................................... 6.05
(a)(1)(B)....................................................... 6.04
(b)............................................................. 6.07
(c)............................................................. 9.03
'SS' 317(a)(1).......................................................... 6.08
(a)(2).......................................................... 6.09
(b)............................................................. 2.04
'SS' 318(a)............................................................. 10.01
(c)............................................................. 10.01
</TABLE>
Note: The Cross-Reference Table shall not for any purpose be deemed to be a part
of the Indenture.
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions....................................................................................1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.............................................20
SECTION 1.03. Rules of Construction.........................................................................21
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating...............................................................................21
SECTION 2.02. Execution, Authentication and Denominations...................................................22
SECTION 2.03. Registrar and Paying Agent....................................................................23
SECTION 2.04. Paying Agent to Hold Money in Trust...........................................................24
SECTION 2.05. Transfer and Exchange.........................................................................24
SECTION 2.06. Replacement Notes.............................................................................26
SECTION 2.07. Outstanding Notes.............................................................................26
SECTION 2.08. Temporary Notes...............................................................................27
SECTION 2.09. Cancellation..................................................................................27
SECTION 2.10. CUSIP Numbers.................................................................................27
SECTION 2.11. Defaulted Interest............................................................................27
SECTION 2.12. Issuance of Additional Notes..................................................................28
ARTICLE THREE
REDEMPTION
SECTION 3.01. Right of Redemption...........................................................................28
SECTION 3.02. Notices to Trustee............................................................................28
SECTION 3.03. Selection of Notes to Be Redeemed.............................................................29
SECTION 3.04. Notice of Redemption..........................................................................29
SECTION 3.05. Effect of Notice of Redemption................................................................30
SECTION 3.06. Deposit of Redemption Price...................................................................30
SECTION 3.07. Payment of Notes Called for Redemption........................................................30
SECTION 3.08. Notes Redeemed in Part........................................................................31
</TABLE>
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Note: The Table of Contents shall not for any purposes be deemed to be a part of
the Indenture.
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ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes..............................................................................31
SECTION 4.02. Maintenance of Office or Agency...............................................................31
SECTION 4.03. Limitation on Indebtedness....................................................................32
SECTION 4.04. Limitation on Restricted Payments.............................................................35
SECTION 4.05. Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries.....................................................................37
SECTION 4.06. Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries................................................................................38
SECTION 4.07. Limitation on Issuances of Guarantees by Restricted Subsidiaries..............................39
SECTION 4.08. Limitation on Transactions with Stockholders and Affiliates...................................40
SECTION 4.09. Limitation on Liens...........................................................................40
SECTION 4.10. Limitation on Sale-Leaseback Transactions.....................................................41
SECTION 4.11. Limitation on Asset Sales.....................................................................41
SECTION 4.12. Repurchase of Notes upon a Change of Control..................................................42
SECTION 4.13. Existence.....................................................................................43
SECTION 4.14. Payment of Taxes and Other Claims.............................................................43
SECTION 4.15. Maintenance of Properties and Insurance.......................................................43
SECTION 4.16. Notice of Defaults............................................................................44
SECTION 4.17. Compliance Certificates.......................................................................44
SECTION 4.18. Commission Reports and Reports to Holders.....................................................44
SECTION 4.19. Waiver of Stay, Extension or Usury Laws.......................................................45
SECTION 4.20. Amendments to Parent Company Debt.............................................................45
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc...................................................................45
SECTION 5.02. Successor Substituted.........................................................................46
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.............................................................................47
SECTION 6.02. Acceleration..................................................................................48
SECTION 6.03. Other Remedies................................................................................49
SECTION 6.04. Waiver of Past Defaults.......................................................................49
SECTION 6.05. Control by Majority...........................................................................49
SECTION 6.06. Limitation on Suits...........................................................................50
</TABLE>
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SECTION 6.07. Rights of Holders to Receive Payment..........................................................50
SECTION 6.08. Collection Suit by Trustee....................................................................50
SECTION 6.09. Trustee May File Proofs of Claim..............................................................51
SECTION 6.10. Priorities....................................................................................51
SECTION 6.11. Undertaking for Costs.........................................................................52
SECTION 6.12. Restoration of Rights and Remedies............................................................52
SECTION 6.13. Rights and Remedies Cumulative................................................................52
SECTION 6.14. Delay or Omission Not Waiver..................................................................52
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. General ......................................................................................53
SECTION 7.02. Certain Rights of Trustee.....................................................................53
SECTION 7.03. Individual Rights of Trustee..................................................................54
SECTION 7.04. Trustee's Disclaimer..........................................................................54
SECTION 7.05. Notice of Default.............................................................................54
SECTION 7.06. Reports by Trustee to Holders.................................................................54
SECTION 7.07. Compensation and Indemnity....................................................................55
SECTION 7.08. Replacement of Trustee........................................................................55
SECTION 7.09. Successor Trustee by Merger, Etc..............................................................57
SECTION 7.10. Eligibility...................................................................................57
SECTION 7.11. Money Held in Trust...........................................................................57
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Obligors' Obligations..........................................................57
SECTION 8.02. Defeasance and Discharge of Indenture.........................................................58
SECTION 8.03. Defeasance of Certain Obligations.............................................................60
SECTION 8.04. Application of Trust Money....................................................................62
SECTION 8.05. Repayment to Obligors.........................................................................62
SECTION 8.06. Reinstatement.................................................................................62
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders....................................................................63
SECTION 9.02. With Consent of Holders.......................................................................63
SECTION 9.03. Revocation and Effect of Consent..............................................................65
SECTION 9.04. Notation on or Exchange of Notes..............................................................65
</TABLE>
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SECTION 9.05. Trustee to Sign Amendments, Etc...............................................................65
SECTION 9.06. Conformity with Trust Indenture Act...........................................................66
ARTICLE TEN
MISCELLANEOUS
SECTION 10.01. Trust Indenture Act of 1939..................................................................66
SECTION 10.02. Notices......................................................................................66
SECTION 10.03. Certificate and Opinion as to Conditions Precedent...........................................67
SECTION 10.04. Statements Required in Certificate or Opinion................................................67
SECTION 10.05. Rules by Trustee, Paying Agent or Registrar..................................................68
SECTION 10.06. Payment Date Other Than a Business Day.......................................................68
SECTION 10.07. Governing Law................................................................................68
SECTION 10.08. No Adverse Interpretation of Other Agreements................................................68
SECTION 10.09. No Recourse Against Others...................................................................68
SECTION 10.10. Successors...................................................................................69
SECTION 10.11. Duplicate Originals..........................................................................69
SECTION 10.12. Separability.................................................................................69
SECTION 10.13. Table of Contents, Headings, Etc.............................................................69
EXHIBIT A Form of Note........................................................................................A-1
</TABLE>
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<PAGE>
INDENTURE, dated as of _________, 1998, among TIME WARNER TELECOM LLC,
a Delaware limited liability corporation (the "Company"), TIME WARNER TELECOM
INC., a Delaware corporation ("TWT," and together with the Company, the
"Obligors") and THE CHASE MANHATTAN BANK, a New York banking corporation,
trustee (the "Trustee").
RECITALS
The Obligors have duly authorized the execution and delivery of this
Indenture to provide for the issuance initially of up to $400 million aggregate
principal amount of their [__]% Senior Notes due 2008 (the "Notes") issuable as
provided in this Indenture. All things necessary to make this Indenture a valid
agreement of the Obligors, in accordance with its terms, have been done, and the
Obligors have done all things necessary to make the Notes, when executed by the
Obligors and authenticated and delivered by the Trustee hereunder and duly
issued by the Obligors, valid obligations of the Obligors as hereinafter
provided.
This Indenture is subject to, and shall be governed by, the provisions
of the Trust Indenture Act of 1939, as amended, that are required to be a part
of and to govern indentures qualified under the Trust Indenture Act of 1939, as
amended.
AND THIS INDENTURE FURTHER WITNESSETH
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders, as follows.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"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
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2
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 Section 4.04 (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 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 Section 4.04, 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 Section 4.18.
"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
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3
management and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"Agent" means any Registrar, Co-Registrar, Paying Agent or
authenticating agent.
"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 this 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 Section
4.04, (c) sales, transfers or other dispositions of assets with a fair market
value (as 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 Section 4.11.
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4
"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.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in The City of New York, or in the city of the Corporate
Trust Office of the Trustee, are authorized by law to close.
"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); provided that the Directors nominated by the Existing
Stockholders shall constitute a majority of the committee that selects the Board
of Directors' nominees for 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
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5
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 this Indenture.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the TIA, then the body performing such duties at
such time.
"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.
"Company" means Time Warner Telecom LLC and, following the
Reconstitution, any corporate successor to Time Warner Telecom LLC.
"Company Order" means a written request or order signed in the name of
each of the respective Obligors (i) by its Chairman, a Vice Chairman, its
President or a Vice President and (ii) by its Treasurer, an Assistant Treasurer,
its Secretary or an Assistant Secretary and delivered to the Trustee; provided,
however, that such written request or order may be signed by any two of the
officers or directors listed in clause (i) above in lieu of being signed by one
of such officers or directors listed in such clause (i) and one of the officers
listed in clause (ii) above.
"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
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6
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 Section 4.04, less (to the extent not 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 Section 4.18 (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
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7
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).
"Corporate Trust Office" means the office of the Trustee at which the
corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office is, at the date of this Indenture,
located at The Chase Manhattan Bank, Corporate Trust Securities Window, 55 Water
Street, Room 234, New York, New York 10041.
"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.
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8
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Depositary" means The Depository Trust Company, its nominees, and
their respective successors.
"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 Section 4.11 and Section 4.12 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 Section
4.11 and Section 4.12.
"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.
"Exchange Act" means the Securities Exchange Act of 1934.
"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 Section 4.03, (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
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9
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 Trustee.
"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 this 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 this
Indenture 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.
"Global Notes" has the meaning provided in Section 2.01.
"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 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.
"Holder" or "Noteholder" means the registered holder of any Note.
"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.
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10
"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.
"Indenture" means this Indenture as originally executed or as it may be
amended or supplemented from time to time by one or more indentures supplemental
to this Indenture entered into pursuant to the applicable provisions of this
Indenture.
"Interest Payment Date" means each semiannual interest payment date on
January 15 and July 15 of each year, commencing January 15, 1999.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap
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11
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 Section 4.06; provided
that the fair market value of the Investment 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 Section 4.04, (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., BB- (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.
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12
"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.
"Notes" means any of the securities, as defined in the first paragraph
of the recitals hereof, that are authenticated and delivered under this
Indenture. For all purposes of this Indenture, the term "Notes" shall include
the Notes initially issued on the Closing Date and any other Notes issued after
the Closing Date under this Indenture. For purposes of this Indenture, all Notes
shall vote together as one series of Notes under this Indenture.
"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
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13
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 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.
"Officer" means, with respect to the Obligors, (i) the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President or the
Chief Financial Officer, and (ii) the Treasurer or any Assistant Treasurer, or
the Secretary or any Assistant Secretary.
"Officers' Certificate" means a certificate signed by one Officer
listed in clause (i) of the definition thereof and one Officer listed in clause
(ii) of the definition thereof or two officers listed in clause (i) of the
definition thereof. Each Officers' Certificate (other than certificates provided
pursuant to TIA Section 314(a)(4)) shall include the statements provided for in
TIA Section 314(e).
"Opinion of Counsel" means a written opinion signed by legal counsel,
who may be an employee of or counsel to the Company, that meets the requirements
of Section 10.04 hereof. Each such Opinion of Counsel shall include the
statements provided for in TIA Section 314(e).
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14
"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.
"Paying Agent" has the meaning provided in Section 2.03, except that,
for the purposes of Article Eight, the Paying Agent shall not be the Company or
a Subsidiary of the Company or an Affiliate of any of them. The term "Paying
Agent" includes any additional Paying Agent.
"Payment Date" has the meaning provided in the definition of Offer to
Purchase.
"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,
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15
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 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 Section 4.03, 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
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16
of receivables; and (xix) Liens that secure Indebtedness with an aggregate
principal amount not in excess of $5 million at any time outstanding.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"principal" of a debt security, including the Notes, means the
principal amount due on the Stated Maturity as shown on such debt security.
"Reconstitution" means the reconstitution of the Company from a limited
liability company to a corporation, whether by merger, exchange or otherwise.
"Redemption Date" means, when used with respect to any Note to be
redeemed, the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price" means, when used with respect to any Note to be
redeemed, the price at which such Note is to be redeemed pursuant to this
Indenture.
"Registrar" has the meaning provided in Section 2.03.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the January 1 or July 1 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
"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.
"Responsible Officer", when used with respect to the Trustee, means the
chairman or any vice chairman of the board of directors, the chairman or any
vice chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, any assistant vice
president, the secretary, any assistant secretary, the treasurer, any assistant
treasurer, the cashier, any assistant cashier, any trust officer or assistant
trust officer, the controller or any assistant controller or any other officer
of the Trustee in its corporate trust department customarily performing
functions similar to those performed by any of the above-designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his or her knowledge of and
familiarity with the particular subject.
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"Restricted Payments" has the meaning provided in Section 4.04.
"Restricted Subsidiary" means any Subsidiary of the Company other than
an Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933.
"Security Register" has the meaning provided in Section 2.03.
"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.
"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.
<PAGE>
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18
"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.
"Tax Amount" means, with respect to any period, without duplication,
the increase in the cumulative United States Federal, state and local tax
liability of holders of equity interests in the Company (or if such holder is a
pass-through entity for United States income tax purposes, holders of its equity
interests) in respect of their interests in the Company for such period plus any
additional amounts payable to such holders to cover taxes arising from the
ownership of such equity interests, but excluding any increase in tax liability
or additional amounts payable in respect of a gain realized by a holder of an
equity interest in the Company upon the sale or disposition by such holder of an
equity interest, including without limitation, any redemption thereof by the
Company, in the Company.
"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.
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19
"TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939
(15 U.S. Code ss.ss. 77aaa-77bbbb), as in effect on the date this Indenture was
executed, except as provided in Section 9.06.
"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.
"Trustee" means the party named as such in the first paragraph of this
Indenture until a successor replaces it in accordance with the provisions of
Article Seven of this Indenture and thereafter means such successor.
"United States Bankruptcy Code" means the Bankruptcy Reform Act of
1978, as amended and as codified in Title 11 of the United States Code, as
amended from time to time hereafter, or any successor federal bankruptcy law.
"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 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 Section 4.04 and (C) if
applicable, the Incurrence of Indebtedness and the Investment referred to in
clause (A) of this proviso would be permitted under Section 4.03 and Section
4.04. 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 this 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
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20
Resolution giving effect to such designation and an Officers" Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof at any time prior
to the Stated Maturity of the Notes, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such U.S.
Government Obligation or a specific payment of interest on or principal of any
such U.S. Government Obligation held by such custodian for the account of the
holder of a depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of interest on
or principal of the U.S. Government Obligation evidenced by such depository
receipt.
"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.
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder or a Noteholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee; and
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21
"obligor" on the indenture securities means the Company or any
other obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by a rule of the
Commission and not otherwise defined herein have the meanings assigned to them
therein.
SECTION 1.03. Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and words in
the plural include the singular;
(v) provisions apply to successive events and transactions;
(vi) "herein," "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision;
(vii) all ratios and computations based on GAAP contained in
this Indenture shall be computed in accordance with the definition of
GAAP set forth in Section 1.01; and
(viii) all references to Sections or Articles refer to
Sections or Articles of this Indenture unless otherwise indicated.
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating. The Notes and the Trustee's certificate
of authentication shall be substantially in the form annexed hereto as Exhibit A
with such appropriate insertions, omissions, substitutions and other variations
as are required or permitted by this Indenture. The Notes may have notations,
legends or endorsements required by law, stock exchange agreements to which the
Obligors are subject or usage. The Obligors shall approve the form of the Notes
and any notation, legend or endorsement on the Notes. Each Note shall be dated
the date of its authentication.
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22
The terms and provisions contained in the form of the Notes annexed
hereto as Exhibit A shall constitute, and are hereby expressly made, a part of
this Indenture. To the extent applicable, the Obligors and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
The Notes shall be issued initially in the form of one or more global
Notes in registered form, substantially in the form set forth in Exhibit A (the
"Global Notes"), deposited with, or on behalf of the Depositary, duly executed
by the Obligors and authenticated by the Trustee as hereinafter provided. Each
Global Note shall bear such legend as may be required or reasonably requested by
the Depositary.
The definitive Notes shall be typed, printed, lithographed or engraved
or produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Notes may
be listed, all as determined by the Officers executing such Notes, as evidenced
by their execution of such Notes.
SECTION 2.02. Execution, Authentication and Denominations. Subject to
Article Four and applicable law, the aggregate principal amount of Notes which
may be authenticated and delivered under this Indenture is unlimited. The Notes
shall be executed by an Officer of the Company and an Officer of TWT. The
signature of these Officers on the Notes may be by facsimile or manual signature
in the name and on behalf of the Obligors.
If an Officer whose signature is on a Note no longer holds that office
at the time the Trustee or authenticating agent authenticates the Note, the Note
shall be valid nevertheless.
A Note shall not be valid until the Trustee or authenticating agent
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
At any time and from time to time after the execution of this
Indenture, the Trustee or an authenticating agent shall upon receipt of a
Company Order authenticate for original issue Global Notes in the aggregate
principal amount specified in such Company Order; provided that the Trustee
shall be entitled to receive an Officers' Certificate and an Opinion of Counsel
of the Company in connection with such authentication of Notes. Such Company
Order shall specify the amount of Global Notes to be authenticated and the date
on which the original issue of Notes is to be authenticated and, in case of an
issuance of Notes pursuant to Section 2.12, shall certify that such issuance is
in compliance with Article Four.
The Trustee may appoint an authenticating agent to authenticate Notes.
An authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such authenticating agent. An
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23
authenticating agent has the same rights as an Agent to deal with the Obligors
or an Affiliate of the Obligors.
The Notes shall be issuable only in registered form without coupons and
only in denominations of $1,000 in principal amount and any integral multiple
thereof.
SECTION 2.03. Registrar and Paying Agent. The Obligors shall maintain
an office or agency where Notes may be presented for registration of transfer or
for exchange (the "Registrar"), an office or agency where Notes may be presented
for payment (the "Paying Agent") and an office or agency where notices and
demands to or upon the Obligors in respect of the Notes and this Indenture may
be served, which shall be in the Borough of Manhattan, The City of New York. The
Obligors shall cause the Registrar to keep a register of the Notes and of their
transfer and exchange (the "Security Register"). The Security Register shall be
in written form or any other form capable of being converted into written form
within a reasonable time. The Obligors may have one or more co-Registrars and
one or more additional Paying Agents.
The Obligors shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Obligors shall give
prompt written notice to the Trustee of the name and address of any such Agent
and any change in the address of such Agent. If the Obligors fail to maintain a
Registrar, Paying Agent and/or agent for service of notices and demands, the
Trustee shall act as such Registrar, Paying Agent and/or agent for service of
notices and demands. The Obligors may remove any Agent upon written notice to
such Agent and the Trustee; provided that no such removal shall become effective
until (i) the acceptance of an appointment by a successor Agent to such Agent as
evidenced by an appropriate agency agreement entered into by the Obligors and
such successor Agent and delivered to the Trustee or (ii) notification to the
Trustee that the Trustee shall serve as such Agent until the appointment of a
successor Agent in accordance with clause (i) of this proviso. The Company, TWT,
any Subsidiary of the Company, or any Affiliate of any of them may act as Paying
Agent, Registrar or co-Registrar, and/or agent for service of notice and
demands.
The Obligors initially appoint the Trustee as Registrar, Paying Agent,
authenticating agent and agent for service of notice and demands. The Trustee
shall preserve in as current a form as is reasonably practicable the most recent
list available to it of the names and addresses of Holders and shall otherwise
comply with TIA 'SS' 312(a). If the Trustee is not the Registrar, the Obligors
shall furnish to the Trustee as of each Regular Record Date and at such other
times as the Trustee may reasonably request the names and addresses of Holders
as they appear in the Security Register, including the aggregate principal
amount of Notes held by each Holder.
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24
SECTION 2.04. Paying Agent to Hold Money in Trust. Not later than 11:00
a.m. (New York City time) on each due date of the principal, premium, if any,
and interest on any Notes, the Obligors shall deposit with the Paying Agent
money in immediately available funds sufficient to pay such principal, premium,
if any, and interest so becoming due. The Obligors shall require each Paying
Agent other than the Trustee to agree in writing that such Paying Agent shall
hold in trust for the benefit of the Holders or the Trustee all money held by
the Paying Agent for the payment of principal of, premium, if any, and interest
on the Notes (whether such money has been paid to it by the Obligors or any
other obligor on the Notes), and such Paying Agent shall promptly notify the
Trustee of any default by the Obligors (or any other obligor on the Notes) in
making any such payment. The Obligors at any time may require a Paying Agent to
pay all money held by it to the Trustee and account for any funds disbursed, and
the Trustee may at any time during the continuance of any payment default, upon
written request to a Paying Agent, require such Paying Agent to pay all money
held by it to the Trustee and to account for any funds disbursed. Upon doing so,
the Paying Agent shall have no further liability for the money so paid over to
the Trustee. If the Company or any Subsidiary of the Company or any Affiliate of
any of them acts as Paying Agent, it will, on or before each due date of any
principal of, premium, if any, or interest on the Notes, segregate and hold in a
separate trust fund for the benefit of the Holders a sum of money sufficient to
pay such principal, premium, if any, or interest so becoming due until such sum
of money shall be paid to such Holders or otherwise disposed of as provided in
this Indenture, and will promptly notify the Trustee of its action or failure to
act.
SECTION 2.05. Transfer and Exchange. When Notes are presented to the
Registrar or a co-Registrar with a request to register the transfer or to
exchange them for an equal principal amount of Notes of other authorized
denominations, the Registrar shall register the transfer or make the exchange as
requested if its requirements for such transactions are met (including that such
Notes are duly endorsed or accompanied by a written instrument of transfer in
form satisfactory to the Trustee and Registrar duly executed by the Holder
thereof or by an attorney who is authorized in writing to act on behalf of the
Holder). To permit registrations of transfers and exchanges, the Obligors shall
execute and the Trustee shall authenticate Notes at the Registrar's request. No
service charge shall be made for any registration of transfer or exchange or
redemption of the Notes, but the Obligors may require payment of a sum
sufficient to cover any transfer tax or similar governmental charge payable in
connection therewith (other than any such transfer taxes or other similar
governmental charge payable upon exchanges pursuant to Section 2.08, 3.08 or
9.04).
The Registrar shall not be required (i) to issue, register the transfer
of or exchange any Note during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Notes selected
for redemption under Section 3.03 and ending at the close of business on the day
of such mailing, or (ii) to register the transfer of or exchange any Note so
selected for redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part.
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25
Notwithstanding any other provisions of this Section 2.05, unless and
until it is exchanged in whole or in part for Notes in definitive registered
form, the Global Notes representing all or a portion of the Notes may not be
transferred except as a whole by the Depositary to a nominee of such Depositary
or by a nominee of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary.
If the Depositary notifies the Obligors that it is unwilling or unable
to continue as Depositary for the Global Notes or if at any time the Depositary
shall no longer be eligible under the next sentence of this paragraph, the
Obligors shall appoint a successor Depositary with respect to the Notes. Each
Depositary appointed pursuant to this Section 2.05 must, at the time of its
appointment and at all times while it serves as Depositary, be a clearing agency
registered under the Exchange Act and any other applicable statute or
regulation. The Obligors will execute, and the Trustee, upon receipt of an
authentication order, will authenticate and deliver, Notes in definitive
registered form in any authorized denominations, in an aggregate principal
amount equal to the principal amount of the Global Note or Notes representing
such Notes in exchange for such Global Note or Notes if (i) the Depositary
notifies the Obligors that it is unwilling or unable to continue as Depositary
for the Global Notes or if at any time the Depositary shall no longer be
eligible to serve as Depositary and a successor Depositary for the Notes is not
appointed by the Obligors within 60 days after the Obligors receive such notice
or becomes aware of such ineligibility or (ii) an Event of Default has occurred
and is continuing.
The Obligors may at any time and in their sole discretion determine
that the Notes shall no longer be represented by a Global Note or Notes. In such
event the Obligors will execute, and the Trustee will, upon receipt of an
authentication order, authenticate and deliver, Notes in definitive registered
form in any authorized denominations, in an aggregate principal amount equal to
the principal amount of the Global Note or Notes representing such Notes in
exchange for such Global Note or Notes.
Upon the exchange of a Global Note for Notes in definitive registered
form, without coupons, in authorized denominations, such Global Note shall be
cancelled by the Trustee. Notes in definitive registered form issued in exchange
for a Global Note pursuant to this Section 2.05 shall be registered in such
names and in such authorized denominations as the Depositary for such Global
Note, pursuant to instructions from its direct or indirect participants or
otherwise, shall instruct the Trustee. The Trustee shall deliver such Notes to
or as directed by the Persons in whose names such Notes are so registered.
All Notes issued upon any transfer or exchange of Notes shall be valid
obligations of the Obligors, evidencing the same debt, and entitled to the same
benefits under this Indenture, as the Notes surrendered upon such transfer or
exchange.
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26
SECTION 2.06. Replacement Notes. If a mutilated Note is surrendered to
the Trustee or if the Holder claims that the Note has been lost, destroyed or
wrongfully taken, then, in the absence of notice to the Obligors or the Trustee
that such Note has been acquired by a bona fide purchaser, the Obligors shall
issue and the Trustee shall authenticate a replacement Note of like tenor and
principal amount and bearing a number not contemporaneously outstanding;
provided that the requirements of this Section 2.06 are met. If required by the
Trustee or the Obligors, an indemnity bond must be furnished that is sufficient
in the judgment of both the Trustee and the Obligors to protect the Obligors,
the Trustee or any Agent from any loss that any of them may suffer if a Note is
replaced. The Obligors may charge such Holder for its expenses and the expenses
of the Trustee in replacing a Note. In case any such mutilated, lost, destroyed
or wrongfully taken Note has become or is about to become due and payable, the
Obligors in their discretion may pay such Note instead of issuing a new Note in
replacement thereof.
Every replacement Note is an additional obligation of the Obligors and
shall be entitled to the benefits of this Indenture.
SECTION 2.07. Outstanding Notes. Notes outstanding at any time are all
Notes that have been authenticated by the Trustee except for those cancelled by
it, those delivered to it for cancellation and those described in this Section
2.07 as not outstanding.
If a Note is replaced pursuant to Section 2.06, it ceases to be
outstanding unless and until the Trustee and the Obligors receive proof
satisfactory to them that the replaced Note is held by a bona fide purchaser.
If the Paying Agent (other than the Company or an Affiliate of the
Company) holds on a maturity date money sufficient to pay Notes payable on that
date, then on and after that date such Notes cease to be outstanding and
interest on them shall cease to accrue.
A Note does not cease to be outstanding because the Company or one of
its Affiliates holds such Note, provided, however, that in determining whether
the Holders of the requisite principal amount of the outstanding Notes have
given any request, demand, authorization, direction, notice, consent or waiver
hereunder, Notes owned by the Company or any other obligor upon the Notes or any
Affiliate of the Company or of such other obligor shall be disregarded and
deemed not to be outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes which the Trustee has actual
knowledge to be so owned shall be so disregarded. Notes so owned which have been
pledged in good faith may be regarded as outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act with respect to
such Notes and that the pledgee is not the Company or any other obligor upon the
Notes or any Affiliate of the Company or of such other obligor.
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27
SECTION 2.08. Temporary Notes. Until definitive Notes are ready for
delivery, the Obligors may prepare and execute and the Trustee shall
authenticate temporary Notes. Temporary Notes shall be substantially in the form
of definitive Notes but may have insertions, substitutions, omissions and other
variations determined to be appropriate by the Officers executing the temporary
Notes, as evidenced by their execution of such temporary Notes. If temporary
Notes are issued, the Obligors will cause definitive Notes to be prepared
without unreasonable delay. After the preparation of definitive Notes, the
temporary Notes shall be exchangeable for definitive Notes upon surrender of the
temporary Notes at the office or agency of the Obligors designated for such
purpose pursuant to Section 4.02, without charge to the Holder. Upon surrender
for cancellation of any one or more temporary Notes the Obligors shall execute
and the Trustee shall authenticate and deliver in exchange therefor a like
principal amount of definitive Notes of authorized denominations. Until so
exchanged, the temporary Notes shall be entitled to the same benefits under this
Indenture as definitive Notes.
SECTION 2.09. Cancellation. The Obligors at any time may deliver to the
Trustee for cancellation any Notes previously authenticated and delivered
hereunder which the Obligors may have acquired in any manner whatsoever, and may
deliver to the Trustee for cancellation any Notes previously authenticated
hereunder which the Obligors have not issued and sold. The Registrar and the
Paying Agent shall forward to the Trustee any Notes surrendered to them for
transfer, exchange or payment. The Trustee shall cancel all Notes surrendered
for transfer, exchange, payment or cancellation and shall destroy them in
accordance with its normal procedure.
SECTION 2.10. CUSIP Numbers. The Obligors in issuing the Notes may use
a "CUSIP" number (if then generally in use), and the Obligors and the Trustee
shall use such "CUSIP" number in notices of redemption or exchange as a
convenience to Holders; provided that any such notice shall state that no
representation is made as to the correctness of such number either as printed on
the Notes or as contained in any notice of redemption or exchange and that
reliance may be placed only on the other identification numbers printed on the
Notes. The Obligors shall promptly notify the Trustee of any change in "CUSIP"
number for the Notes.
SECTION 2.11. Defaulted Interest. If the Obligors default in a payment
of interest on the Notes, it shall pay, or shall deposit with the Paying Agent
money in immediately available funds sufficient to pay, the defaulted interest,
plus (to the extent lawful) any interest payable on the defaulted interest, to
the Persons who are Holders on a subsequent special record date. A special
record date, as used in this Section 2.11 with respect to the payment of any
defaulted interest, shall mean the 15th day next preceding the date fixed by the
Obligors for the payment of defaulted interest, whether or not such day is a
Business Day. At least 15 days before the subsequent special record date, the
Obligors shall mail to each Holder and to the Trustee a notice that states the
subsequent special record date, the payment date and the amount of defaulted
interest to be paid.
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28
SECTION 2.12. Issuance of Additional Notes. The Obligors may, subject
to Article Four of this Indenture and applicable law, issue additional Notes
under this Indenture. The Notes issued on the Closing Date and any additional
Notes subsequently issued shall be treated as a single class for all purposes
under this Indenture.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Right of Redemption. (a) The Notes are redeemable, at the
Obligors' option, in whole or in part, at any time or from time to time, on or
after July 15, 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 following Redemption Prices
(expressed in percentages of principal amount), plus accrued and unpaid interest
to the Redemption Date (subject to the right of Holders of record on the
relevant Regular Record Date that is prior to the Redemption Date to receive
interest due on an Interest Payment Date), if redeemed during the 12-month
period commencing July 15 of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2003...............................[___.__]%
2004...............................[___.__]
2005...............................[___.__]
2006 and thereafter................100.000%
</TABLE>
(b) In addition, at any time prior to July 15, 2001, the Obligors may
redeem up to 35% of the aggregate principal amount of the Notes with the
proceeds of one or more Public Equity Offerings, at any time as a whole or from
time to time in part, at a Redemption Price (expressed as a percentage of
principal amount) of [___]%, plus accrued and unpaid interest to the Redemption
Date (subject to the rights of Holders of record on the relevant Regular Record
Date that is prior to the Redemption Date to receive interest due on an Interest
Payment Date); provided that (i) at least 65% of the aggregate principal amount
of Notes originally issued on the Closing Date remains outstanding after each
such redemption and (ii) notice of such redemption is mailed within 60 days of
the related Public Equity Offering.
SECTION 3.02. Notices to Trustee. If the Obligors elect to redeem Notes
pursuant to Section 3.01, they shall notify the Trustee in writing of the
Redemption Date and the principal amount of Notes to be redeemed and the clause
of this Indenture pursuant to which redemption shall occur.
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The Obligors shall give each notice provided for in this Section 3.02
in an Officers' Certificate at least 45 days before the Redemption Date (unless
a shorter period shall be satisfactory to the Trustee).
SECTION 3.03. Selection of Notes to Be Redeemed. If less than all of
the Notes are to be redeemed at any time, the Trustee shall select the Notes to
be redeemed in compliance with the requirements, as certified to it by the
Obligors, of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not listed on a national securities
exchange or automated quotation system, by lot or by such other method as the
Trustee in its sole discretion shall deem fair and appropriate; provided that no
Note of $1,000 in principal amount or less shall be redeemed in part.
The Trustee shall make the selection from the Notes outstanding and not
previously called for redemption. Notes in denominations of $1,000 in principal
amount may only be redeemed in whole. The Trustee may select for redemption
portions (equal to $1,000 in principal amount or any integral multiple thereof)
of Notes that have denominations larger than $1,000 in principal amount.
Provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption. The Trustee shall notify the
Obligors and the Registrar promptly in writing of the Notes or portions of Notes
to be called for redemption.
SECTION 3.04. Notice of Redemption. With respect to any redemption of
Notes pursuant to Section 3.01, at least 30 days but not more than 60 days
before a Redemption Date, the Obligors shall mail a notice of redemption by
first-class mail to each Holder whose Notes are to be redeemed.
The notice shall identify the Notes to be redeemed and shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the name and address of the Paying Agent;
(iv) that Notes called for redemption must be surrendered to
the Paying Agent in order to collect the Redemption Price;
(v) that, unless the Obligors default in making the
redemption payment, interest on Notes called for redemption ceases to
accrue on and after the Redemption Date and the only remaining right of
the Holders is to receive payment of the Redemption Price plus accrued
interest to the Redemption Date upon surrender of the Notes to the
Paying Agent;
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(vi) that, if any Note is being redeemed in part, the
portion of the principal amount (equal to $1,000 in principal amount or
any integral multiple thereof) of such Note to be redeemed and that, on
and after the Redemption Date, upon surrender of such Note, a new Note
or Notes in principal amount equal to the unredeemed portion thereof
will be reissued; and
(vii) that, if any Note contains a CUSIP number as provided
in Section 2.10, no representation is being made as to the correctness
of the CUSIP number either as printed on the Notes or as contained in
the notice of redemption and that reliance may be placed only on the
other identification numbers printed on the Notes.
At the Obligors' request (which request may be revoked by the Obligors
at any time prior to the time at which the Trustee shall have given such notice
to the Holders), made in writing to the Trustee at least 45 days (or such
shorter period as shall be satisfactory to the Trustee) before a Redemption
Date, the Trustee shall give the notice of redemption in the name and at the
expense of the Obligors. If, however, the Obligors give such notice to the
Holders, each Obligor shall concurrently deliver to the Trustee an Officers'
Certificate stating that such notice has been given.
SECTION 3.05. Effect of Notice of Redemption. Once notice of redemption
is mailed, Notes called for redemption become due and payable on the Redemption
Date and at the Redemption Price. Upon surrender of any Notes to the Paying
Agent, such Notes shall be paid at the Redemption Price, plus accrued interest,
if any, to the Redemption Date.
Notice of redemption shall be deemed to be given when mailed, whether
or not the Holder receives the notice. In any event, failure to give such
notice, or any defect therein, shall not affect the validity of the proceedings
for the redemption of Notes held by Holders to whom such notice was properly
given.
SECTION 3.06. Deposit of Redemption Price. On or prior to any
Redemption Date, the Obligors shall deposit with the Paying Agent (or, if one of
the Obligors is acting as the Paying Agent, shall segregate and hold in trust as
provided in Section 2.04) money sufficient to pay the Redemption Price of and
accrued interest on all Notes to be redeemed on that date other than Notes or
portions thereof called for redemption on that date that have been delivered by
the Obligors to the Trustee for cancellation.
SECTION 3.07. Payment of Notes Called for Redemption. If notice of
redemption has been given in the manner provided above, the Notes or portion of
Notes specified in such notice to be redeemed shall become due and payable on
the Redemption Date at the Redemption Price stated therein, together with
accrued interest to such Redemption Date, and on and after such date (unless the
Obligors shall default in the payment of such Notes at the Redemption Price and
accrued interest to the Redemption Date, in which case the principal, until
paid, shall bear interest
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from the Redemption Date at the rate prescribed in the Notes), such Notes shall
cease to accrue interest. Upon surrender of any Note for redemption in
accordance with a notice of redemption, such Note shall be paid and redeemed by
the Obligors at the Redemption Price, together with accrued interest, if any, to
the Redemption Date; provided that installments of interest whose Stated
Maturity is on or prior to the Redemption Date shall be payable to the Holders
registered as such at the close of business on the relevant Regular Record Date.
SECTION 3.08. Notes Redeemed in Part. Upon surrender of any Note that
is redeemed in part, the Obligors shall execute and the Trustee shall
authenticate and deliver to the Holder without service charge, a new Note equal
in principal amount to the unredeemed portion of such surrendered Note.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes. The Obligors shall pay the principal
of, premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes and this Indenture. An installment of principal, premium,
if any, or interest shall be considered paid on the date due if the Trustee or
Paying Agent (other than the Company, a Subsidiary of the Company, or any
Affiliate of any of them) holds on that date money designated for and sufficient
to pay the installment. If the Company or TWT, or any Subsidiary of TWT or the
Company or any Affiliate of any of them acts as Paying Agent, an installment of
principal, premium, if any, or interest shall be considered paid on the due date
if the entity acting as Paying Agent complies with the last sentence of Section
2.04. As provided in Section 6.09, upon any bankruptcy or reorganization
procedure relative to the Obligors, the Trustee shall serve as the Paying Agent,
if any, for the Notes.
The Obligors shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful, at
the rate per annum specified in the Notes.
SECTION 4.02. Maintenance of Office or Agency. The Obligors will
maintain in the Borough of Manhattan, The City of New York, an office or agency
where Notes may be surrendered for registration of transfer or exchange or for
presentation for payment and where notices and demands to or upon the Obligors
in respect of the Notes and this Indenture may be served. The Obligors will give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Obligors shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 10.02.
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The Obligors may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided
that no such designation or rescission shall in any manner relieve the Obligors
of their obligation to maintain an office or agency in the Borough of Manhattan,
The City of New York, for such purposes. The Obligors shall give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Obligors hereby initially designate the Corporate Trust Office of
the Trustee as such office of the Obligors in accordance with Section 2.03.
SECTION 4.03. 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 Section 4.11; (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
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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 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 pursuant to Article
Eight; (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 Section 4.07; (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) or (vii) of the second paragraph of
Section 4.04 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
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of Capital Stock has not been used pursuant to clause (iii), (iv), (vi) or (vii)
of the second paragraph of Section 4.04 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 Section 4.11.
(b) Notwithstanding any other provision of this Section 4.03, the
maximum amount of Indebtedness that the Company or a Restricted Subsidiary may
Incur pursuant to this Section 4.03 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 Section 4.03, (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 Section 4.09
shall not be treated as Indebtedness. For purposes of determining compliance
with this Section 4.03, 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 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 Indebtedness, if Incurred
in a different
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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.
SECTION 4.04. 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 Section 4.03 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 Section 4.18,
plus (2) the aggregate Net Cash Proceeds received by the Company after the
Closing Date from the issuance and sale permitted by this 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 this
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
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extent such Net Cash Proceeds are used to Incur Indebtedness pursuant to clause
(viii) or (ix) of the second paragraph under Section 4.03, plus (3) an amount
equal to the net reduction in 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 Section 4.03; (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 this 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 Section 4.03 or to
make Restricted Payments pursuant to clause (C)(2) of the first paragraph, or
clauses (iii) or (iv) of this paragraph, of this Section 4.04, 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
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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; (ix) for so long as the Company is
treated as a pass through entity for United States Federal income tax purposes,
distributions to equity holders of the Company in an amount not to exceed the
Tax Amount for such period; and (x) 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 (x) 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 Section 4.04 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 clause (C) of the first paragraph of this Section 4.04 only to
the extent such proceeds are not used for such redemption, repurchase or other
acquisition of Indebtedness.
SECTION 4.05. 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 this Indenture or any other
agreements in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such agreements; provided that the
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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 Section 4.05, (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 this 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 Section 4.05 shall prevent the Company or any Restricted
Subsidiary from (1) creating, incurring, assuming or suffering to exist any
Liens otherwise permitted in Section 4.09 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.
SECTION 4.06. 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
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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 Investment
in such Person remaining after giving effect to such issuance or sale would have
been permitted to be made under Section 4.04 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 Section 4.11.
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.
SECTION 4.07. 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 this 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 this 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.
SECTION 4.08. Limitation on Transactions with Stockholders and
Affiliates. The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, enter
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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 Company has
determined to be fair to the Company or the relevant Restricted Subsidiary) or
(vi) any Restricted Payments not prohibited by Section 4.04. Notwithstanding the
foregoing, any transaction or series of related transactions covered by the
first paragraph of this Section 4.08 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.
SECTION 4.09. 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 this 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.
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41
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 Section 4.03; 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 Section 4.03; or (vi) Permitted Liens.
SECTION 4.10. 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 Section 4.11.
SECTION 4.11. 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) 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 Section 4.18), then the Company shall
or shall cause
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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 Section 4.07 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 Section 4.11. 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
Section 4.11 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.
SECTION 4.12. Repurchase of Notes upon a Change of Control. The
Obligors shall commence, within 30 days of the occurrence of 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, plus accrued
interest, if any, to the Payment Date.
SECTION 4.13. Existence. Subject to Article Five of this Indenture, the
Obligors will do or cause to be done all things necessary to preserve and keep
in full force and effect its
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existence and the existence of each of the Restricted Subsidiaries in accordance
with the respective organizational documents of the Obligors and each Restricted
Subsidiary and the rights (whether pursuant to charter, partnership certificate,
agreement, statute or otherwise), licenses and franchises of the Obligors and
each Restricted Subsidiary; provided that the Obligors shall not be required to
preserve any such right, license or franchise, or the existence of any
Restricted Subsidiary, if the maintenance or preservation thereof is no longer
desirable in the conduct of the business of the Obligors and the Restricted
Subsidiaries taken as a whole.
SECTION 4.14. Payment of Taxes and Other Claims. Each Obligors will pay
or discharge and shall cause each of their respective Subsidiaries to pay or
discharge, or cause to be paid or discharged, before the same shall become
delinquent (i) all material taxes, assessments and governmental charges levied
or imposed upon (a) the Obligors or any such Subsidiary, (b) the income or
profits of any such Subsidiary which is a corporation or (c) the property of the
Obligors or any such Subsidiary and (ii) all material lawful claims for labor,
materials and supplies that, if unpaid, might by law become a lien upon the
property of the Company or any such Subsidiary; provided that the Obligors shall
not be required to pay or discharge, or cause to be paid or discharged, any such
tax, assessment, charge or claim the amount, applicability or validity of which
is being contested in good faith by appropriate proceedings and for which
adequate reserves have been established.
SECTION 4.15. Maintenance of Properties and Insurance. Each Obligor
will cause all properties used or useful in the conduct of its business or the
business of any of its Restricted Subsidiaries to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of each Obligor may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided that nothing in
this Section 4.15 shall prevent an Obligor or any Restricted Subsidiary from
discontinuing the use, operation or maintenance of any of such properties or
disposing of any of them, if such discontinuance or disposal is, in the judgment
of the appropriate Obligor, desirable in the conduct of the business of such
Obligor or such Restricted Subsidiary.
The Company will provide or cause to be provided, for itself and its
Restricted Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds customarily insured against by corporations
similarly situated and owning like properties, including, but not limited to,
products liability insurance and public liability insurance, with reputable
insurers or with the government of the United States of America, or an agency or
instrumentality thereof, in such amounts, with such deductibles and by such
methods as shall be customary for corporations similarly situated in the
industry in which the Obligor or any such Restricted Subsidiary, as the case may
be, is then conducting business.
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SECTION 4.16. Notice of Defaults. In the event that any Officer of an
Obligor becomes aware of any Default or Event of Default, the Obligors shall
promptly deliver to the Trustee an Officers' Certificate specifying such Default
or Event of Default.
SECTION 4.17. Compliance Certificates. (a) The Obligors shall deliver
to the Trustee, within 45 days after the end of each fiscal quarter (90 days
after the end of the last fiscal quarter of each year), an Officers' Certificate
stating whether or not the signers know of any Default or Event of Default that
occurred during such fiscal quarter. In the case of the Officers' Certificate
delivered within 90 days after the end of the Obligor's fiscal year, such
certificate shall contain a certification from the principal executive officer,
principal financial officer or principal accounting officer of the Obligor that
a review has been conducted of the activities of the Obligors and the Restricted
Subsidiaries and the Obligor's and the Restricted Subsidiaries' performance
under this Indenture and that the Obligors have complied with all conditions and
covenants under this Indenture. For purposes of this Section 4.17, such
compliance shall be determined without regard to any period of grace or
requirement of notice provided under this Indenture. If any of the officers of
the Obligors signing such certificate has knowledge of such a Default or Event
of Default, the certificate shall describe any such Default or Event of Default
and its status. The first certificate to be delivered pursuant to this Section
4.17(a) shall be for the first fiscal quarter beginning after the execution of
this Indenture.
(b) The Company shall deliver to the Trustee, within 90 days after the
end of each fiscal year, beginning with the fiscal year in which this Indenture
was executed, a certificate signed by the Company's independent certified public
accountants stating (i) that their audit examination has included a review of
the terms of this Indenture and the Notes as they relate to accounting matters,
(ii) that they have read the most recent Officers' Certificate delivered to the
Trustee pursuant to paragraph (a) of this Section 4.17 and (iii) whether, in
connection with their audit examination, anything came to their attention that
caused them to believe that the Company was not in compliance with any of the
terms, covenants, provisions or conditions of Article Four and Section 5.01 of
this Indenture as they pertain to accounting matters and, if any Default or
Event of Default has come to their attention, specifying the nature and period
of existence thereof; provided that such independent certified public
accountants shall not be liable in respect of such statement by reason of any
failure to obtain knowledge of any such Default or Event of Default that would
not be disclosed in the course of an audit examination conducted in accordance
with generally accepted auditing standards in effect at the date of such
examination.
SECTION 4.18. Commission Reports and Reports to Holders. The Obligors
shall file with the Commission all such reports and other information required
by Section 13(a) or 15(d) under the Exchange Act, regardless of whether such
Sections of the Exchange Act are applicable to the Company. 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 within 15 days after the date it would have been required to
file such reports or other
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information with the Commission had it been subject to such Sections. The
Obligors also shall comply with the other provisions of TIA Section 314(a).
SECTION 4.19. Waiver of Stay, Extension or Usury Laws. The Obligors
covenant (to the extent that they may lawfully do so) that they will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other law
that would prohibit or forgive the Obligors from paying all or any portion of
the principal of, premium, if any, or interest on the Notes as contemplated
herein, wherever enacted, now or at any time hereafter in force, or that may
affect the covenants or the performance of this Indenture; and (to the extent
that they may lawfully do so) the Obligors hereby expressly waive all benefit or
advantage of any such law and covenant that they will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law had been
enacted.
SECTION 4.20. Amendments to Parent Company Debt. The Company will not
amend or modify the terms of the Parent Company Debt from those in effect on the
Closing Date, in any way that is materially adverse to the Holders of the Notes,
provided, however, that no amendment or modification may, without the consent of
each Holder of the Notes, (i) change the maturity of the Parent Company Debt,
(ii) change the subordination provisions thereof or (iii) change the provisions
that require payment of interest in kind. 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.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc. 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 this 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
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Net Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction; 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
paragraph of Section 4.03; 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 this 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 Trustee an Officers' Certificate (attaching the
arithmetic computations to demonstrate compliance with clauses (iii) and (iv)
above) and an 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.
SECTION 5.02. Successor Substituted. Upon any consolidation or merger,
or any sale, conveyance, transfer, lease or other disposition of all or
substantially all of the property and assets of the Company in accordance with
Section 5.01 of this Indenture, the successor Person formed by such
consolidation or into which the Company is merged or to which such sale,
conveyance, transfer, lease or other disposition is made shall succeed to, and
be substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company herein; provided that the Company shall not be released from its
obligation to pay the principal of, premium, if any, or interest on the Notes in
the case of a lease of all or substantially all of its property and assets.
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ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default. Any of the following events shall
constitute an "Event of Default" hereunder:
(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
this 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 Section 4.11
or Section 4.12;
(d) the Company or TWT defaults in the performance of or
breaches any other covenant or agreement of the Company or TWT in this
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
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48
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.
SECTION 6.02. Acceleration. If an Event of Default (other than an Event
of Default specified in clause (g) or (h) of Section 6.01 that occurs with
respect to an Obligor) occurs and is continuing under this 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 of, premium, if any, and accrued
interest on the Notes to be immediately due and payable. Upon a declaration of
acceleration, such principal, 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) of Section 6.01 has occurred
and is continuing, such declaration of acceleration shall be automatically
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) of Section 6.01 occurs with
respect to an Obligor, the principal 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.
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At any time after such declaration of acceleration, but before a
judgment or decree for the payment of the money due has been obtained by the
Trustee, 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 (a) the Company has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, (ii) all overdue interest on all Notes, (iii) the
principal of and premium, if any, on any Notes that have become due otherwise
than by such declaration or occurrence of acceleration and interest thereon at
the rate prescribed therefor by such Notes, and (iv) to the extent that payment
of such interest is lawful, interest upon overdue interest, if any, at the rate
prescribed therefor by such Notes, (b) all existing Events of Default, other
than the non-payment of the principal of, premium, if any, and accrued interest
on the Notes that have become due solely by such declaration of acceleration,
have been cured or waived and (c) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may, and at the direction of the Holders of at least a
majority in principal amount of the outstanding Notes shall, pursue any
available remedy by proceeding at law or in equity to collect the payment of
principal of, premium, if any, or interest on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding.
SECTION 6.04. Waiver of Past Defaults. Subject to Sections 6.02, 6.07
and 9.02, the Holders of at least a majority in principal amount of the
outstanding Notes, by notice to the Trustee, may waive an existing Default or
Event of Default and its consequences, except a Default in the payment of
principal of, premium, if any, or interest on any Note as specified in clause
(a) or (b) of Section 6.01 or in respect of a covenant or provision of this
Indenture which cannot be modified or amended without the consent of the Holder
of each outstanding Note affected. Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured, for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereto.
SECTION 6.05. Control by Majority. 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; provided that
the Trustee may refuse to follow any direction that conflicts with law or this
Indenture, that may involve the Trustee in personal liability, or that the
Trustee determines
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in good faith may be unduly prejudicial to the rights of Holders of Notes not
joining in the giving of such direction; and provided further that the Trustee
may take any other action it deems proper that is not inconsistent with any such
direction received from Holders of Notes.
SECTION 6.06. Limitation on Suits. A Holder may not institute any
proceeding, judicial or otherwise, with respect to this Indenture or the Notes,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless:
(i) the Holder has previously given the Trustee written notice
of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount
of outstanding Notes shall have made a written request to the Trustee
to pursue such remedy;
(iii) such Holder or Holders offer the Trustee indemnity
reasonably 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.
For purposes of Section 6.05 of this Indenture and this Section 6.06,
the Trustee shall comply with TIA Section 316(a) in making any determination of
whether the Holders of the required aggregate principal amount of outstanding
Notes have concurred in any request or direction of the Trustee to pursue any
remedy available to the Trustee or the Holders with respect to this Indenture or
the Notes or otherwise under the law.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any
other provision of this Indenture, the right of any Holder of a Note to receive
payment of the principal 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, shall not be impaired or affected without the consent of
such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default in
payment of principal, premium or interest specified in clause (a), (b) or (c) of
Section 6.01 occurs and is
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51
continuing, the Trustee may recover judgment in its own name and as trustee of
an express trust against the Company or any other obligor of the Notes for the
whole amount of principal, premium, if any, and accrued interest remaining
unpaid, together with interest on overdue principal, premium, if any, and, to
the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate specified in the Notes, and
such further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07) and the Holders allowed in any judicial proceedings relative to
the Company (or any other obligor of the Notes), its creditors or its property
and shall be entitled and empowered to collect and receive any monies,
securities or other property payable or deliverable upon conversion or exchange
of the Notes or upon any such claims and to distribute the same, and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.07. Nothing herein contained shall be
deemed to empower the Trustee to authorize or consent to, or accept or adopt on
behalf of any Holder, any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10. Priorities. If the Trustee collects any money pursuant to
this Article Six, it shall pay out the money in the following order:
First: to the Trustee for all amounts due under Section 7.07;
Second: to Holders for amounts then due and unpaid for
principal of, premium, if any, and interest on the Notes in respect of
which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Notes for principal, premium, if any,
and interest, respectively; and
Third: to the Company or any other obligors of the Notes, as
their interests may appear, or as a court of competent jurisdiction may
direct.
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The Trustee, upon prior written notice to the Company, may fix a record
date and payment date for any payment to Holders pursuant to this Section 6.10.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of
any right or remedy under this Indenture or in any suit against the Trustee for
any action taken or omitted by it as Trustee, a court may require any party
litigant in such suit to file an undertaking to pay the costs of the suit, and
the court may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section 6.11
does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section
6.07, or a suit by Holders of more than 10% in principal amount of the
outstanding Notes.
SECTION 6.12. Restoration of Rights and Remedies. If the Trustee or any
Holder has instituted any proceeding to enforce any right or remedy under this
Indenture and such proceeding has been discontinued or abandoned for any reason,
or has been determined adversely to the Trustee or to such Holder, then, and in
every such case, subject to any determination in such proceeding, the Obligors,
the Trustee and the Holders shall be restored severally and respectively to
their former positions hereunder and thereafter all rights and remedies of the
Obligors, Trustee and the Holders shall continue as though no such proceeding
had been instituted.
SECTION 6.13. Rights and Remedies Cumulative. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or wrongfully taken Notes in Section 2.06, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 6.14. Delay or Omission Not Waiver. No delay or omission of the
Trustee or of any Holder to exercise any right or remedy accruing upon any Event
of Default shall impair any such right or remedy or constitute a waiver of any
such Event of Default or an acquiescence therein. Every right and remedy given
by this Article Six or by law to the Trustee or to the Holders may be exercised
from time to time, and as often as may be deemed expedient, by the Trustee or by
the Holders, as the case may be.
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ARTICLE SEVEN
TRUSTEE
SECTION 7.01. General. The duties and responsibilities of the Trustee
shall be as provided by the TIA and as set forth herein. Notwithstanding the
foregoing, no provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it. Whether or not herein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Article Seven.
SECTION 7.02. Certain Rights of Trustee. Subject to TIA Sections 315(a)
through (d):
(i) the Trustee may rely, and shall be protected in acting or
refraining from acting, upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed
or presented by the proper person;
(ii) before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel, which shall
conform to Section 10.04. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on such
certificate or opinion;
(iii) the Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any
attorney or agent appointed with due care by it hereunder;
(iv) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities that might be incurred by it in
compliance with such request or direction;
(v) the Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within
its rights or powers, provided that the Trustee's conduct does not
constitute negligence or bad faith;
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(vi) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate; and
(vii) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company personally or by agent or
attorney.
SECTION 7.03. Individual Rights of Trustee. The Trustee, in its
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Company or its Affiliates with the same rights it
would have if it were not the Trustee. Any Agent may do the same with like
rights. However, the Trustee is subject to TIA Sections 310(b) and 311.
SECTION 7.04. Trustee's Disclaimer. The Trustee (i) makes no
representation as to the validity or adequacy of this Indenture or the Notes,
(ii) shall not be accountable for the Obligors' use or application of the
proceeds from the Notes and (iii) shall not be responsible for any statement in
the Notes other than its certificate of authentication.
SECTION 7.05. Notice of Default. If any Default or any Event of Default
occurs and is continuing and if such Default or Event of Default is known to the
Trustee, the Trustee shall mail to each Holder in the manner and to the extent
provided in TIA Section 313(c) notice of the Default or Event of Default within
45 days after it occurs, unless such Default or Event of Default has been cured;
provided, however, that, except in the case of a default in the payment of the
principal of, premium, if any, or interest on any Note, the Trustee shall be
protected in withholding such notice if and so long as the board of directors,
the executive committee or a trust committee of directors and/or Responsible
Officers of the Trustee in good faith determine that the withholding of such
notice is in the interest of the Holders.
SECTION 7.06. Reports by Trustee to Holders. Within 60 days after each
May 15, beginning with May 15, 1999, the Trustee shall mail to each Holder as
provided in TIA Section 313(c) a brief report dated as of such May 15, if
required by TIA Section 313(a).
A copy of each report at the time of its mailing to the Holders of
Securities shall be mailed to the Company and filed with the Commission and each
stock exchange on which the Securities are listed in accordance with TIA Section
313(d). The Company shall promptly notify the Trustee when the Securities are
listed on any stock exchange or of any delisting thereof.
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SECTION 7.07. Compensation and Indemnity. The Obligors shall pay to the
Trustee such compensation as shall be agreed upon in writing for its services
hereunder. The compensation of the Trustee shall not be limited by any law on
compensation of a trustee of an express trust. The Obligors shall reimburse the
Trustee upon request for all reasonable disbursements, expenses and advances
incurred or made by the Trustee without negligence or bad faith on its part.
Such expenses shall include the reasonable compensation and expenses of the
Trustee's agents and counsel.
The Obligors shall indemnify the Trustee for, and hold it harmless
against, any loss or liability or expense incurred by it without negligence or
bad faith on its part in connection with the acceptance or administration of
this Indenture and its duties under this Indenture and the Notes, including the
costs and expenses of defending itself against any claim or liability and of
complying with any process served upon it or any of its officers in connection
with the exercise or performance of any of its powers or duties under this
Indenture and the Notes. The Trustee shall notify the Obligors promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Obligors shall not relieve the Obligors of their obligations hereunder, unless
the Obligors are materially prejudiced thereby. The Obligors shall defend the
claim and the Trustee shall cooperate in the defense. Unless otherwise set forth
herein, the Trustee may have separate counsel and the Obligors shall pay the
reasonable fees and expenses of such counsel. The Obligors need not pay for any
settlement made without their consent, which consent shall not be unreasonably
withheld.
To secure the Obligors' payment obligations in this Section 7.07, the
Trustee shall have a lien prior to the Notes on all money or property held or
collected by the Trustee, in its capacity as Trustee, except money or property
held in trust to pay principal of, premium, if any, and interest on particular
Notes.
If the Trustee incurs expenses or renders services after the occurrence
of an Event of Default specified in clause (g) or (h) of Section 6.01, the
expenses and the compensation for the services will be intended to constitute
expenses of administration under Title 11 of the United States Bankruptcy Code
or any applicable federal or state law for the relief of debtors.
The provisions of this Section 7.07 shall survive the termination of
this Indenture.
The Trustee shall comply with the provisions of TIA Section 313(b)(2)
to the extent applicable.
SECTION 7.08. Replacement of Trustee. A resignation or removal of the
Trustee and appointment of a successor Trustee shall become effective only upon
the successor Trustee's acceptance of appointment as provided in this Section
7.08.
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The Trustee may resign at any time by so notifying the Company in
writing at least 30 days prior to the date of the proposed resignation. The
Holders of a majority in principal amount of the outstanding Notes may remove
the Trustee by so notifying the Trustee in writing and may appoint a successor
Trustee with the consent of the Company. The Company may remove the Trustee if:
(i) the Trustee is no longer eligible under Section 7.10; (ii) the Trustee is
adjudged a bankrupt or an insolvent; (iii) a receiver or other public officer
takes charge of the Trustee or its property; or (iv) the Trustee becomes
incapable of acting.
If the Trustee resigns or is removed, or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company. If
the successor Trustee does not deliver its written acceptance required by the
next succeeding paragraph of this Section 7.08 within 30 days after the retiring
Trustee resigns or is removed, the retiring Trustee, the Company or the Holders
of a majority in principal amount of the outstanding Notes may, at the expense
of the Company, petition any court of competent jurisdiction for the appointment
of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after the
delivery of such written acceptance, subject to the lien provided in Section
7.07, (i) the retiring Trustee shall transfer all property held by it as Trustee
to the successor Trustee, (ii) the resignation or removal of the retiring
Trustee shall become effective and (iii) the successor Trustee shall have all
the rights, powers and duties of the Trustee under this Indenture. A successor
Trustee shall mail notice of its succession to each Holder. No successor Trustee
shall accept its appointment unless at the time of such acceptance such
successor Trustee shall be qualified and eligible under this Article.
If the Trustee is no longer eligible under Section 7.10 or shall fail
to comply with TIA Section 310(b), any Holder who satisfies the requirements of
TIA Section 310(b) may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee. If at any
time the Trustee shall cease to be eligible in accordance with the provisions of
this Section 7.08, the Trustee shall resign immediately in the manner and with
the effect provided in this Section.
The Company shall give notice of any resignation and any removal of the
Trustee and each appointment of a successor Trustee to all Holders. Each notice
shall include the name of the successor Trustee and the address of its Corporate
Trust Office.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligation under Section 7.07 shall continue for the benefit
of the retiring Trustee.
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SECTION 7.09. Successor Trustee by Merger, Etc. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation or national banking
association, the resulting, surviving or transferee corporation or national
banking association without any further act shall be the successor Trustee with
the same effect as if the successor Trustee had been named as the Trustee
herein, provided such corporation shall be otherwise qualified and eligible
under this Article.
SECTION 7.10. Eligibility. This Indenture shall always have a Trustee
who satisfies the requirements of TIA Section 310(a)(1). The Trustee shall have
a combined capital and surplus of at least $25 million as set forth in its most
recent published annual report of condition that is subject to the requirements
of applicable federal or state supervising or examining authority. If at any
time the Trustee shall cease to be eligible in accordance with the provisions of
this Section, the Trustee shall resign immediately in the manner and with the
effect specified in this Article.
SECTION 7.11. Money Held in Trust. The Trustee shall not be liable for
interest on any money received by it except as the Trustee may agree with the
Company. Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law and except for money held in trust
under Article Eight of this Indenture.
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Obligors' Obligations. Except as otherwise
provided in this Section 8.01, the Obligors may terminate their obligations
under the Notes and this Indenture if:
(i) all Notes previously authenticated and delivered (other
than destroyed, lost or stolen Notes that have been replaced or Notes
that are paid pursuant to Section 4.01 or Notes for whose payment money
or securities have theretofore been held in trust and thereafter repaid
to the Obligors, as provided in Section 8.05) have been delivered to
the Trustee for cancellation and the Obligors have paid all sums
payable by them hereunder; or
(ii) (A) the Notes mature within one year or all of them are
to be called for redemption within one year under arrangements
satisfactory to the Trustee for giving the notice of redemption, (B)
the Obligors irrevocably deposit in trust with the Trustee during such
one-year period, under the terms of an irrevocable trust agreement in
form and substance satisfactory to the Trustee, as trust funds solely
for the benefit of the Holders for that purpose, money or U.S.
Government Obligations sufficient (in the opinion of a nationally
recognized firm of independent public accountants expressed in a
written
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certification thereof delivered to the Trustee), without consideration
of any reinvestment of any interest thereon, to pay principal, premium,
if, any, and interest on the Notes to maturity or redemption, as the
case may be, and to pay all other sums payable by it hereunder, (C) no
Default or Event of Default with respect to the Notes shall have
occurred and be continuing on the date of such deposit, (D) such
deposit will not result in a breach or violation of, or constitute a
default under, this Indenture or any other agreement or instrument to
which the Obligors are a party or by which they are bound and (E) the
Obligors have each delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, in each case stating that all conditions
precedent provided for herein relating to the satisfaction and
discharge of this Indenture have been complied with.
With respect to the foregoing clause (i), the Obligors' obligations
under Section 7.07 shall survive. With respect to the foregoing clause (ii), the
Obligors' obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.11, 4.01,
4.02, 7.07, 7.08, 8.04, 8.05 and 8.06 shall survive until the Notes are no
longer outstanding. Thereafter, only the Obligors' obligations in Sections 7.07,
8.04, 8.05 and 8.06 shall survive. After any such irrevocable deposit, the
Trustee upon request shall acknowledge in writing the discharge of the Obligors'
obligations under the Notes and this Indenture except for those surviving
obligations specified above.
SECTION 8.02. Defeasance and Discharge of Indenture. 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 date of the deposit referred to
in clause (A) of this Section 8.02, and the provisions of this Indenture will no
longer be in effect with respect to the Notes, and the Trustee, at the expense
of the Obligors, shall execute proper instruments acknowledging the same if:
(A) with reference to this Section 8.02, the Obligors have
irrevocably deposited or caused to be irrevocably deposited with the
Trustee (or another trustee satisfying the requirements of Section
7.10) and conveyed all right, title and interest to the Trustee for the
benefit of the Holders, under the terms of an irrevocable trust
agreement in form and substance satisfactory to the Trustee as trust
funds in trust, specifically pledged to the Trustee for the benefit of
the Holders as security for payment of the principal of, premium, if
any, and interest, if any, on the Notes, and dedicated solely to, the
benefit of the Holders, in and to (1) money in an amount, (2) U.S.
Government Obligations that, through the payment of interest, premium,
if any, and principal in respect thereof in accordance with their
terms, will provide, not later than one day before the due date of any
payment referred to in this clause (A), money in an amount or (3) a
combination thereof in an amount sufficient, in the opinion of a
nationally recognized firm of independent public accountants expressed
in a written certification thereof delivered to the Trustee, to pay and
discharge, without consideration of the reinvestment of such interest
and after payment of all federal, state and local taxes or other
charges and assessments in respect thereof payable by the Trustee, the
principal of, premium, if any, and interest on the outstanding Notes on
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the Stated Maturity of such principal or interest; provided that the
Trustee shall have been irrevocably instructed to apply such money or
the proceeds of such U.S. Government Obligations to the payment of such
principal, premium, if any, and interest with respect to the Notes;
(B) the Obligors have delivered to the Trustee (1) 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 Section 8.02 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 option had
not been exercised, which Opinion of Counsel shall 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 (2) an Opinion of Counsel to the effect that the
creation of the defeasance trust does not violate the Investment
Company Act of 1940 and that after the passage of 123 days following
the deposit (except, with respect to any trust funds for the account of
any Holder who may be deemed to be an "insider" for purposes of the
United States Bankruptcy Code, after one year following the deposit),
the trust funds 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 in a case commenced by or against the Obligors under
either such statute, and either (I) the trust funds will no longer
remain the property of the Obligors (and therefore will not be subject
to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally) or (II) if a
court were to rule under any such law in any case or proceeding that
the trust funds remained property of the Obligors, (a) assuming such
trust funds remained in the possession of the Trustee prior to such
court ruling to the extent not paid to the Holders, the Trustee will
hold, for the benefit of the Holders, a valid and perfected security
interest in such trust funds that is not avoidable in bankruptcy or
otherwise except for the effect of Section 552(b) of the United States
Bankruptcy Code on interest on the trust funds accruing after the
commencement of a case under such statute and (b) the Holders will be
entitled to receive adequate protection of their interests in such
trust funds if such trust funds are used in such case or proceeding;
(C) immediately after giving effect to such deposit, on a pro
forma basis, no Default or 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 such date of such deposit, and such deposit shall
not result in a breach or violation of, or constitute a default under,
this Indenture or 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;
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60
(D) if the Notes are then 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; and
(E) the Obligors have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.02 have been complied with.
Notwithstanding the foregoing, prior to the end of the 123-day (or one
year) period referred to in clause (B)(2) of this Section 8.02, none of the
Obligors' obligations under this Indenture shall be discharged. Subsequent to
the end of such 123-day (or one year) period with respect to this Section 8.02,
the Obligors' obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.11, 4.01,
4.02, 8.04, 8.05, 8.06 and the rights, powers, trusts, duties and immunities of
the Trustee hereunder shall survive until the Notes are no longer outstanding.
Thereafter, only the Obligors' obligations in Sections 7.07, 8.04, 8.05 and 8.06
shall survive. If and when a ruling from the Internal Revenue Service or an
Opinion of Counsel referred to in clause (B)(1) of this Section 8.02 is able to
be provided specifically without regard to, and not in reliance upon, the
continuance of the Obligors' obligations under Section 4.01, then the Obligors'
obligations under such Section 4.01 shall cease upon delivery to the Trustee of
such ruling or Opinion of Counsel and compliance with the other conditions
precedent provided for herein relating to the defeasance contemplated by this
Section 8.02.
After any such irrevocable deposit, the Trustee upon request shall
acknowledge in writing the discharge of the Obligors' obligations under the
Notes and this Indenture except for those surviving obligations in the
immediately preceding paragraph.
SECTION 8.03. Defeasance of Certain Obligations. The Obligors may omit
to comply with any term, provision or condition set forth in clauses (iii) and
(iv) of Section 5.01 and Sections 4.03 through 4.11 and Section 4.20 and clause
(c) of Section 6.01 with respect to clauses (iii) and (iv) of Section 5.01,
clause (d) of Section 6.01 with respect to Sections 4.01, 4.02 and 4.12 through
4.19 and clauses (e) and (f) of Section 6.01 shall be deemed not to be Events of
Default, in each case with respect to the outstanding Notes if:
(i) with reference to this Section 8.03, the Obligors have
irrevocably deposited or caused to be irrevocably deposited with the
Trustee (or another trustee satisfying the requirements of Section
7.10) and conveyed all right, title and interest to the Trustee for the
benefit of the Holders, under the terms of an irrevocable trust
agreement in form and substance satisfactory to the Trustee as trust
funds in trust, specifically pledged to the Trustee for the benefit of
the Holders as security for payment of the principal of, premium, if
any, and interest, if any, on the Notes, and dedicated solely to, the
benefit of the Holders, in and to (A) money in an amount, (B) U.S.
Government Obligations that,
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61
through the payment of interest, premium, if any, and principal in
respect thereof in accordance with their terms, will provide, not later
than one day before the due date of any payment referred to in this
clause (i), money in an amount or (C) a combination thereof in an
amount sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge, without
consideration of the reinvestment of such interest and after payment of
all federal, state and local taxes or other charges and assessments in
respect thereof payable by the Trustee, the principal of, premium, if
any, and interest on the outstanding Notes on the Stated Maturity of
such principal or interest; provided that the Trustee shall have been
irrevocably instructed to apply such money or the proceeds of such U.S.
Government Obligations to the payment of such principal, premium, if
any, and interest with respect to the Notes;
(ii) the Obligors have delivered to the Trustee an Opinion of
Counsel to the effect that (A) the creation of the defeasance trust
does not violate the Investment Company Act of 1940, (B) after the
passage of 123 days following the deposit (except, with respect to any
trust funds for the account of any Holder who may be deemed to be an
"insider" for purposes of the United States Bankruptcy Code, after one
year following the deposit), the trust funds 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 in a case commenced by or
against the Obligors
under either such statute, and either (1) the trust funds will no longer remain
the property of the Company (and therefore will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally) or (2) if a court were to rule under any such law
in any case or proceeding that the trust funds remained property of the
Obligors, (x) assuming such trust funds remained in the possession of the
Trustee prior to such court ruling to the extent not paid to the Holders, the
Trustee will hold, for the benefit of the Holders, a valid and perfected
security interest in such trust funds that is not avoidable in bankruptcy or
otherwise (except for the effect of Section 552(b) of the United States
Bankruptcy Code on interest on the trust funds accruing after the commencement
of a case under such statute) and (y) the Holders will be entitled to receive
adequate protection of their interests in such trust funds if such trust funds
are used in such case or proceeding, (C) 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 and (D) the Trustee, for the benefit of the Holders, has a valid
first-priority security interest in the trust funds;
(iii) immediately after giving effect to such deposit on a pro
forma basis, no Default or 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 such date of such deposit, and
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62
such deposit shall not result in a breach or violation of, or
constitute a default under, this Indenture or 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;
(iv) if the Notes are then 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; and
(v) the Obligors have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.03 have been complied with.
SECTION 8.04. Application of Trust Money. Subject to Section 8.06, the
Trustee or Paying Agent shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 8.01, 8.02 or 8.03, as the case may be,
and shall apply the deposited money and the money from U.S. Government
Obligations in accordance with the Notes and this Indenture to the payment of
principal of, premium, if any, and interest on the Notes; but such money need
not be segregated from other funds except to the extent required by law.
SECTION 8.05. Repayment to Obligors. Subject to Sections 7.07, 8.01,
8.02 and 8.03, the Trustee and the Paying Agent shall promptly pay to the
Obligors upon request set forth in an Officers' Certificate any excess money
held by them at any time and thereupon shall be relieved from all liability with
respect to such money. The Trustee and the Paying Agent shall pay to the
Obligors upon request any money held by them for the payment of principal,
premium, if any, or interest that remains unclaimed for two years; provided that
the Trustee or Paying Agent before being required to make any payment may cause
to be published at the expense of the Obligors once in a newspaper of general
circulation in The City of New York or mail to each Holder entitled to such
money at such Holder's address (as set forth in the Security Register) notice
that such money remains unclaimed and that after a date specified therein (which
shall be at least 30 days from the date of such publication or mailing) any
unclaimed balance of such money then remaining will be repaid to the Obligors.
After payment to the Obligors, Holders entitled to such money must look to the
Obligors for payment as general creditors unless an applicable law designates
another Person, and all liability of the Trustee and such Paying Agent with
respect to such money shall cease.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable
to apply any money or U.S. Government Obligations in accordance with Section
8.01, 8.02 or 8.03, as the case may be, by reason of any legal proceeding or by
reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, the Obligors'
obligations under this Indenture and the Notes shall be revived and reinstated
as though no deposit had occurred pursuant to Section 8.01, 8.02 or 8.03, as the
case may be, until such
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63
time as the Trustee or Paying Agent is permitted to apply all such money or U.S.
Government Obligations in accordance with Section 8.01, 8.02 or 8.03, as the
case may be; provided that, if the Obligors have made any payment of principal
of, premium, if any, or interest on any Notes because of the reinstatement of
its obligations, the Obligors shall be subrogated to the rights of the Holders
of such Notes to receive such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders. The Obligors, when authorized
by a resolution of their Boards of Directors (as evidenced by Board Resolutions
delivered to the Trustee), and the Trustee may amend or supplement this
Indenture or the Notes without notice to or the consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency in this
Indenture; provided that such amendments or supplements shall not, in
the good faith opinion of the Board of Directors as evidenced by a
Board Resolution, adversely affect the interests of the Holders in any
material respect;
(2) to comply with Article Five;
(3) to comply with any requirements of the Commission in
connection with the qualification of this Indenture under the TIA;
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee;
(5) to provide for uncertificated Notes in addition to or in
place of certificated Notes;
(6) to add one or more subsidiary guarantees on the terms
required by this Indenture; or
(7) to make any change that, in the good faith opinion of the
Board of Directors as evidenced by a Board Resolution, does not
materially and adversely affect the rights of any Holder.
SECTION 9.02. With Consent of Holders. Subject to Sections 6.04 and
6.07 and without prior notice to the Holders, the Obligors, when authorized by
their Boards of Directors (as
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64
evidenced by Board Resolutions delivered to the Trustee), and the Trustee may
amend this Indenture and the Notes with the written consent of the Holders of a
majority in aggregate principal amount of the Notes then outstanding, and the
Holders of a majority in aggregate principal amount of the Notes then
outstanding by written notice to the Trustee may waive future compliance by the
Obligors with any provision of this Indenture or the Notes.
Notwithstanding the provisions of this Section 9.02, without the
consent of each Holder affected, an amendment or waiver, including a waiver
pursuant to Section 6.04, may not:
(i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note;
(ii) reduce the principal amount of, premium, if any, or
interest on any Note;
(iii) change any place or currency of payment of principal of,
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
redemption, on or after the Redemption Date) on any Note;
(v) reduce the percentage or principal amount of outstanding
Notes the consent of whose Holders is necessary to modify or amend this
Indenture or to waive compliance with certain provisions of or certain
Defaults under this Indenture;
(vi) waive a default in the payment of principal of, premium,
if any, or interest on, any Note; or
(vii) modify any of the provisions of this Section 9.02,
except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each outstanding Note affected thereby.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Obligors shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. The Obligors will
mail supplemental indentures to Holders upon request.
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65
Any failure of the Obligors to mail such notice, or any defect therein, shall
not, however, in any way impair or affect the validity of any such supplemental
indenture or waiver.
SECTION 9.03. Revocation and Effect of Consent. Until an amendment or
waiver becomes effective, a consent to it by a Holder is a continuing consent by
the Holder and every subsequent Holder of a Note or portion of a Note that
evidences the same debt as the Note of the consenting Holder, even if notation
of the consent is not made on any Note. However, any such Holder or subsequent
Holder may revoke the consent as to its Note or portion of its Note. Such
revocation shall be effective only if the Trustee receives the notice of
revocation before the date the amendment, supplement or waiver becomes
effective. An amendment, supplement or waiver shall become effective on receipt
by the Trustee of written consents from the Holders of the requisite percentage
in principal amount of the outstanding Notes.
The Obligors may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then, notwithstanding the last
two sentences of the immediately preceding paragraph, those persons who were
Holders at such record date (or their duly designated proxies) and only those
persons shall be entitled to consent to such amendment, supplement or waiver or
to revoke any consent previously given, whether or not such persons continue to
be Holders after such record date. No such consent shall be valid or effective
for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder unless it is of the type described in the second paragraph of
Section 9.02. In case of an amendment or waiver of the type described in the
second paragraph of Section 9.02, the amendment or waiver shall bind each Holder
who has consented to it and every subsequent Holder of a Note that evidences the
same indebtedness as the Note of the consenting Holder.
SECTION 9.04. Notation on or Exchange of Notes. If an amendment,
supplement or waiver changes the terms of a Note, the Trustee may require the
Holder to deliver such Note to the Trustee. At the Obligors' expense, the
Trustee may place an appropriate notation on the Note about the changed terms
and return it to the Holder and the Trustee may place an appropriate notation on
any Note thereafter authenticated. Alternatively, if the Obligors or the Trustee
so determines, the Obligors in exchange for the Note shall issue and the Trustee
shall authenticate a new Note that reflects the changed terms. Failure to make
the appropriate notation, or issue a new Note, shall not affect the validity and
effect of such amendment, supplement or waiver.
SECTION 9.05. Trustee to Sign Amendments, Etc. The Trustee shall be
entitled to receive, and shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture and that it will be valid and binding upon the Obligors.
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66
Subject to the preceding sentence, the Trustee shall sign such amendment,
supplement or waiver if the same does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. The Trustee may, but shall not be
obligated to, execute any such amendment, supplement or waiver that affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.06. Conformity with Trust Indenture Act. Every supplemental
indenture executed pursuant to this Article Nine shall conform to the
requirements of the TIA as then in effect.
ARTICLE TEN
MISCELLANEOUS
SECTION 10.01. Trust Indenture Act of 1939. This Indenture shall be
subject to the provisions of the TIA that are required to be a part of this
Indenture and shall, to the extent applicable, be governed by such provisions.
SECTION 10.02. Notices. Any notice or communication shall be
sufficiently given if in writing and delivered in person, mailed by first-class
mail or sent by telecopier transmission addressed as follows:
if to the Company:
Time Warner Telecom LLC
Time Warner Telecom Inc.
Telecopier No.: [____________]
Attention: [________________]
if to the Trustee:
The Chase Manhattan Bank
[Address]
Telecopier No.: [___________]
Attention: [_______________]
The Obligors or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Holder shall be mailed to it at
its address as it appears on the Security Register by first-class mail and shall
be sufficiently given to him if so
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67
mailed within the time prescribed. Any notice or communication shall also be so
mailed to any Person described in TIA Section 313(c), to the extent required by
the TIA. Copies of any such communication or notice to a Holder shall also be
mailed to the Trustee and each Agent at the same time.
Failure to mail notice or communication to a Holder as provided herein
or any defect in any such notice or communication shall not affect its
sufficiency with respect to other Holders. Except for a notice to the Trustee,
which is deemed given only when received, and except as otherwise provided in
this Indenture, if a notice or communication is mailed in the manner provided in
this Section 10.02, it is duly given, whether or not the addressee receives it.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA Section 312(c).
SECTION 10.03. Certificate and Opinion as to Conditions Precedent. Upon
any request or application by the Obligors to the Trustee to take any action
under this Indenture, the Obligors shall furnish to the Trustee:
(i) an Officers' Certificate stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(ii) an Opinion of Counsel stating that, in the opinion of
such Counsel, all such conditions precedent have been complied with.
SECTION 10.04. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
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68
(i) a statement that each person signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statement or opinion
contained in such certificate or opinion is based;
(iii) a statement that, in the opinion of each such person, he
has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(iv) a statement as to whether or not, in the opinion of each
such person, such condition or covenant has been complied with;
provided, however, that, with respect to matters of fact, an Opinion of
Counsel may rely on an Officers' Certificate or certificates of public
officials.
SECTION 10.05. Rules by Trustee, Paying Agent or Registrar. The Trustee
may make reasonable rules for action by or at a meeting of Holders. The Paying
Agent or Registrar may make reasonable rules for its functions.
SECTION 10.06. Payment Date Other Than a Business Day. If an Interest
Payment Date, Redemption Date, Payment Date, Stated Maturity or date of maturity
of any Note shall not be a Business Day, then payment of principal of, premium,
if any, or interest on such Note, as the case may be, need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date, Payment Date or Redemption
Date, or at the Stated Maturity or date of maturity of such Note; provided that
no interest shall accrue for the period from and after such Interest Payment
Date, Payment Date, Redemption Date, Stated Maturity or date of maturity, as the
case may be.
SECTION 10.07. Governing Law. This Indenture and the Notes shall be
governed by the laws of the State of New York. The Trustee, the Obligors and the
Holders agree to submit to the jurisdiction of the courts of the State of New
York in any action or proceeding arising out of or relating to this Indenture or
the Notes.
SECTION 10.08. No Adverse Interpretation of Other Agreements. This
Indenture may not be used to interpret another indenture, loan or debt agreement
of the Company, TWT or any Subsidiary of the Company. Any such indenture, loan
or debt agreement may not be used to interpret this Indenture.
SECTION 10.09. No Recourse Against Others. 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
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69
otherwise in respect thereof, and no recourse under or upon any obligation,
covenant or agreement of the Obligors contained in this Indenture or in any of
the Notes, or because of the creation of any Indebtedness represented thereby,
shall be had against any incorporator or against any past, present or future
partner, stockholder, other equityholder, officer, director, employee or
controlling person, as such, of the Obligors or of any successor Person, either
directly or through the Obligors or any successor Person, whether by virtue of
any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise; it being expressly understood that all such
liability is hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Indenture and the issue of the Notes.
SECTION 10.10. Successors. All agreements of the Obligors in this
Indenture and the Notes shall bind its successors. All agreements of the Trustee
in this Indenture shall bind its successor.
SECTION 10.11. Duplicate Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
SECTION 10.12. Separability. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 10.13. Table of Contents, Headings, Etc. The Table of Contents,
Cross-Reference Table and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof and shall in no way modify or restrict any of the terms
and provisions hereof.
<PAGE>
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the date first written above.
TIME WARNER TELECOM LLC
By:
_____________________________________
Name:
Title:
TIME WARNER TELECOM INC.
By:
_____________________________________
Name:
Title:
THE CHASE MANHATTAN BANK
By:
_____________________________________
Name:
Title:
<PAGE>
<PAGE>
EXHIBIT A
[FACE OF NOTE]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE REGISTERED FORM, THIS CERTIFICATE MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF DTC TO DTC OR ANOTHER
NOMINEE OF DTC OR BY DTC OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A
NOMINEE OF SUCH SUCCESSOR DEPOSITARY.
TIME WARNER TELECOM LLC
TIME WARNER TELECOM INC.
[__]% Senior Note due 2008
CUSIP [__________]
No. ____ $_________
Issue Date: [__________], 1998
Yield to maturity for period from Issue Date to July 15, 2008: [____]%,
compounded semi-annually on January 15 and July 15, commencing January 15, 1999
TIME WARNER TELECOM LLC, a Delaware limited liability company, and TIME
WARNER TELECOM INC., a Delaware corporation (together, the "Obligors"), which
term includes any successor under the Indenture hereinafter referred to), for
value received, promises to pay to _____________, or its registered assigns, the
principal sum of ____________ ($____) on July 15, 2008
<PAGE>
<PAGE>
A-2
Interest Payment Dates: January 15 and July 15, commencing January 15,
1999
Regular Record Dates: January 1 and July 1
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE>
<PAGE>
A-3
IN WITNESS WHEREOF, the Obligors have caused this Note to be signed
manually or by facsimile by its duly authorized officers.
TIME WARNER TELECOM LLC
By:
______________________________________
Name:
Title:
TIME WARNER TELECOM INC.
By:
______________________________________
Name:
Title:
(Trustee's Certificate of Authentication)
This is one of the [__]% Senior Notes due 2008 described in the within-mentioned
Indenture.
Date: [________], 1998 THE CHASE MANHATTAN BANK,
as Trustee
By:
______________________________________
Authorized Signatory
<PAGE>
<PAGE>
A-4
[REVERSE SIDE OF NOTE]
TIME WARNER TELECOM LLC
TIME WARNER TELECOM INC.
[__]% Senior Note due 2008
1. Principal and Interest.
The Obligors will pay the principal of this Note on July 15, 2008.
The Obligors promise to pay interest on the principal amount of this
Note on each Interest Payment Date, as set forth below, at the rate per annum
shown above.
Interest will be payable semiannually (to the holders of record of the
Notes at the close of business on the January 1 or July 1 immediately preceding
the Interest Payment Date) on each Interest Payment Date, commencing January 15,
1999.
Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from [________], 1998;
provided that, if there is no existing default in the payment of interest and
this Note is authenticated between a Regular Record Date referred to on the face
hereof and the next succeeding Interest Payment Date, interest shall accrue from
such Interest Payment Date. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
The Obligors shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful, at
a rate per annum that is 2% in excess of the rate otherwise payable.
2. Method of Payment.
The Obligors will pay interest (except defaulted interest) on the
principal amount of the Notes as provided above on each January 15 and July 15,
commencing January 15, 1999 to the persons who are Holders (as reflected in the
Security Register at the close of business on the January 1 or July 1
immediately preceding the Interest Payment Date), in each case, even if the Note
is cancelled on registration of transfer or registration of exchange after such
record date; provided that, with respect to the payment of principal, the
Obligors will make payment to the Holder that surrenders this Note to a Paying
Agent on or after July 15, 2008.
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A-5
The Obligors will pay principal, premium, if any, and as provided
above, interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. However, the Obligors may
pay principal, premium, if any, and interest by its check payable in such money.
It may mail an interest check to a Holder's registered address (as reflected in
the Security Register). If a payment date is a date other than a Business Day at
a place of payment, payment may be made at that place on the next succeeding day
that is a Business Day and no interest shall accrue for the intervening period.
3. Paying Agent and Registrar.
Initially, the Trustee will act as authenticating agent, Paying Agent
and Registrar. The Obligors may change any authenticating agent, Paying Agent or
Registrar without notice. The Obligors, any Subsidiary or any Affiliate of any
of them may act as Paying Agent, Registrar or co-Registrar.
4. Indenture; Limitations.
The Obligors issued the Notes under an Indenture dated as of
[________], 1998 (the "Indenture"), among the Company, Time Warner and The Chase
Manhattan Bank, trustee (the "Trustee"). Capitalized terms herein are used as
defined in the Indenture unless otherwise indicated. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act. The Notes are subject to all such terms,
and Holders are referred to the Indenture and the Trust Indenture Act for a
statement of all such terms. To the extent permitted by applicable law, in the
event of any inconsistency between the terms of this Note and the terms of the
Indenture, the terms of the Indenture shall control.
The Notes are general unsecured obligations of the Obligors.
The Obligors may, subject to Article Four of the Indenture and
applicable law, issue additional Notes under the Indenture.
5. Optional Redemption.
The Notes are redeemable, at the Obligors' option, in whole or in part,
at any time or from time to time, on or after July 15, 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 following Redemption Prices (expressed in percentages of
principal amount), plus accrued and unpaid interest to the Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
that is prior to the Redemption Date to receive interest due on an Interest
Payment Date), if redeemed during the 12-month period commencing July 15 of the
years set forth below:
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<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2003................. [__.___]%
2004................. [__.___]
2005................. [__.___]
2006 and thereafter.. 100.000%
</TABLE>
At any time prior to July 15, 2001, the Obligors may redeem up to 35%
of the aggregate principal amount of the Notes with the proceeds of one or more
Public Equity Offerings, at any time as a whole or from time to time in part, at
a Redemption Price (expressed as a percentage of principal amount) of [___]%,
plus accrued and unpaid interest to the Redemption Date (subject to the rights
of Holders of record on the relevant Regular Record Date that is prior to the
Redemption Date to receive interest due on an Interest Payment Date); provided
that (i) at least 65% of the aggregate principal amount of Notes originally
issued on the Closing Date remains outstanding after each such redemption and
(ii) notice of such redemption shall be mailed within 60 days of the related
Public Equity Offering.
Notes in original denominations larger than $1,000 may be redeemed in
part. On and after the Redemption Date, interest ceases to accrue on Notes or
portions of Notes called for redemption, unless the Obligors default in the
payment of the Redemption Price.
6. Repurchase upon Change of Control.
Upon the occurrence of any Change of Control, each Holder shall have
the right to require the repurchase of its Notes by the Obligors in cash
pursuant to the offer described in the Indenture at a purchase price equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of purchase (the "Payment Date").
A notice of such Change of Control will be mailed within 30 days after
any Change of Control occurs to each Holder at its last address as it appears in
the Security Register. Notes in original denominations larger than $1,000 may be
sold to the Company in part. On and after the Payment Date, interest ceases to
accrue on Notes or portions of Notes surrendered for purchase by the Obligors,
unless the Obligors default in the payment of the purchase price.
7. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons in denominations of
$1,000 of principal amount and multiples of $1,000 in excess thereof. A Holder
may register the transfer or exchange of Notes in accordance with the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
or
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A-7
exchange of any Notes selected for redemption. Also, it need not register the
transfer or exchange of any Notes for a period of 15 days before the day of
mailing of a notice of redemption of Notes selected for redemption.
8. Persons Deemed Owners.
A Holder shall be treated as the owner of a Note for all purposes.
9. Unclaimed Money.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Obligors at their request. After that, Holders entitled to the
money must look to the Obligors for payment, unless an abandoned property law
designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
10. Discharge Prior to Redemption or Maturity.
If the Obligors deposit with the Trustee money or U.S. Government
Obligations sufficient to pay the then outstanding principal of, premium, if
any, and accrued interest on the Notes (a) to redemption or maturity, the
Obligors will be discharged from the Indenture and the Notes, except in certain
circumstances for certain provisions thereof, and (b) to the Stated Maturity,
the Obligors will be discharged from certain covenants set forth in the
Indenture.
11. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then outstanding, and any existing default or
compliance with any provision may be waived with the consent of the Holders of
at least a majority in principal amount of the Notes then outstanding. Without
notice to or the consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Notes to, among other things, cure any
ambiguity, defect or inconsistency and make any change that does not materially
and adversely affect the rights of any Holder.
12. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the
Company, TWT and the Company's Restricted Subsidiaries, among other things, to
Incur additional Indebtedness, make Restricted Payments, suffer to exist
restrictions on the ability of Restricted Subsidiaries to make certain payments
to the Company, issue Capital Stock of Restricted Subsidiaries, Guarantee
Indebtedness of the Company, engage in transactions with Affiliates, suffer to
exist or incur Liens,
<PAGE>
<PAGE>
A-8
enter into sale-leaseback transactions, use the proceeds from Asset Sales, or
merge, consolidate or transfer substantially all of its assets. Within 45 days
after the end of each fiscal quarter (90 days after the end of the last fiscal
quarter of each year), the Obligors shall deliver to the Trustee an Officers'
Certificate stating whether or not the signers thereof know of any Default or
Event of Default under such restrictive covenants.
13. Successor Persons.
When a successor person or other entity assumes all the obligations of
its predecessor under the Notes and the Indenture, the predecessor person will
be released from those obligations.
14. Defaults and Remedies.
Any of the following events constitutes an "Event of Default" under 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
this 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 Section 4.11
or Section 4.12;
(d) the Company or TWT defaults in the performance of or
breaches any other covenant or agreement of the Company or TWT in this
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
<PAGE>
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A-9
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, as defined in the Indenture, occurs and is
continuing, the Trustee may, and at the direction of the Holders of at least 25%
in aggregate principal amount of the Notes then outstanding shall, declare all
the Notes to be due and payable. If a bankruptcy or insolvency default with
respect to the Obligors occurs and is continuing, the Notes automatically become
due and payable. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may require indemnity satisfactory to it
before it enforces the Indenture or the Notes. Subject to certain limitations,
Holders of at least a majority in principal amount of the Notes then outstanding
may direct the Trustee in its exercise of any trust or power.
<PAGE>
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A-10
15. Trustee Dealings with the Company.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Obligors or their Affiliates and may otherwise deal with the Obligors and their
Affiliates as if it were not the Trustee.
16. No Recourse Against Others.
No incorporator or any past, present or future partner, stockholder,
other equityholder, officer, director, employee or controlling person, as such,
of the Obligors or of any successor Person shall have any liability for any
obligations of the Obligors under the Notes or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the Notes.
17. Authentication.
This Note shall not be valid until the Trustee or authenticating agent
signs the certificate of authentication on the other side of this Note.
18. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Obligors will furnish a copy of the Indenture to any Holder upon
written request and without charge. Requests may be made to Time Warner Telecom
LLC, Time Warner Telecom Inc., [Address]; Attention: [Chief Financial Officer].
<PAGE>
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A-11
ASSIGNMENT FORM
I or we assign and transfer this Note to:
Please insert social security or other identifying number of assignee
_____________________________
_____________________________
Print or type name, address and zip code of assignee and irrevocably appoint
________________________, as agent, to transfer this Note on the books of the
Company.
The agent may substitute another to act for him.
Dated __________________
Signed
______________________________________________________
(Sign exactly as name appears on the other side of this Note)
Signature Guarantee(1)
___________________________
- --------
(1) The Holder's signature must be guaranteed by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" as
defined by Rule 17Ad-15 under the Exchange Act.
<PAGE>
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A-12
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Obligors pursuant to
Section 4.11 or Section 4.12 of the Indenture, as applicable, check the Box: [ ]
If you wish to have a portion of this Note purchased by the Obligors
pursuant to Section 4.11 or Section 4.12 of the Indenture, as applicable, state
the amount to be purchased (in principal amount at maturity):
$_____________.
Date:
___________________
Signed
___________________________________________
(Sign exactly as name appears on the other side of this Note)
Signature Guarantee(2)
___________________________
- --------
(2) The Holder's signature must be guaranteed by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" as
defined by Rule 17Ad-15 under the Exchange Act.
<PAGE>
<PAGE>
TRADE NAME LICENSE AGREEMENT
AGREEMENT dated as of the ____ day of ____________, 1998, by and between
Time Warner Inc., a Delaware corporation, located at 75 Rockefeller Plaza, New
York, NY 10019 (hereinafter "Licensor") and Time Warner Telecom LLC, a Delaware
limited liability company, located at 5700 S. Quebec Street Greenwood Village,
CO 80111 (hereinafter "Licensee").
WHEREAS, Licensor is the owner of the TIME WARNER trademark, service mark
and trade name (hereinafter the "Name");
WHEREAS, Licensee was formed on ________, 1998, and wishes
to use the Name as part of its corporate name; and
WHEREAS, Licensor is willing to allow Licensee to use the Name as part of
its corporate name.
NOW, THEREFORE, subject to and upon the terms and conditions set forth
herein, the parties hereto agree as follows:
1. Grant
-----
(a) Licensor hereby grants to Licensee a non-exclusive, royalty-free
license to use the Name in Licensee's trade name TIME WARNER TELECOM and in the
trade names of Licensee's subsidiaries as indicated on Schedule 1 hereto, in
connection with the operation of the business (hereinafter "the Business") as
permitted under the provisions of its Amended and Restated Limited Liability
Company Agreement as in effect on the date hereof (the "LLC Agreement").
<PAGE>
<PAGE>
(b) During the term of this Agreement, Licensor shall not use, or
license any third party to use, the Name in combination with the word TELECOM.
(c) Except as specifically provided in Paragraph 1(b) above, this
Agreement shall not in any way limit or restrict Licensor's right, either by
itself or through third parties, to use, promote, license or otherwise exploit
the Name.
2. Territory
---------
The license granted herein shall be limited to the United States, its
territories and possessions (hereinafter the "Territory").
3. Term
----
(a) The term of this Agreement shall commence on the date set forth on
page one hereof and, unless earlier terminated as provided herein, shall
continue for a period of four (4) years (hereinafter the "Initial Term").
(b) Following the Initial Term, this Agreement shall renew
automatically from year to year unless either party shall advise the other of
its intention not to renew at least three (3) months prior to the expiration of
the then current term.
4. Quality Control
---------------
(a) Licensee acknowledges and is familiar with the high standards,
quality, style and image of Licensor and Licensee shall at all times conduct all
aspects of the Business in a manner which is consistent therewith.
(b) Licensor shall have the right to periodically review Licensee's
use of the Name in connection with the Business to insure that the operation,
quality, style and image thereof conforms to the standards set forth in
Paragraph 4(a) hereof.
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<PAGE>
(c) In the event that the operation, quality, style and image of the
Business falls below the standards set forth in Paragraph 4(a) hereof, Licensor
shall so notify Licensee and Licensee shall restore the quality to said
standards as soon as possible.
(d) Licensee shall use the Name only in such logotype(s) and manner as
has been expressly approved in advance by Licensor.
(e) Licensee shall not use or display the Name in any manner which
might be deceptive or misleading or which might bring Licensor into disrepute.
(f) The proper use and protection of the Name and of the goodwill
associated therewith in accordance with the terms of this Agreement is a
material provision of this Agreement.
5. Rights in the Name
------------------
(a) Licensee hereby acknowledges that the Name is a valuable asset
belonging to Licensor and that all rights in and to the Name are and shall
remain the sole and exclusive property of Licensor subject only to the license
granted herein. Nothing in this Agreement shall confer any right of ownership in
the Name in Licensee. Licensee acknowledges, and shall not at any time contest,
the validity or ownership of the Name or the validity of the license granted
herein. Licensee acknowledges that all rights accruing from Licensee's use of
the Name shall inure to the benefit of Licensor.
(b) Licensee shall execute and deliver to Licensor upon Licensor's
request, all documents which are necessary or desirable to secure or preserve
Licensor's rights in the Name.
(c) Licensee agrees to use the Name in a manner which will protect
-3-
<PAGE>
<PAGE>
Licensor's rights and the goodwill therein.
(d) Licensee agrees that its use of the Name shall at all times be as
Licensee for the account and benefit of Licensor. The use of the Name pursuant
to this Agreement shall not vest in Licensee any right or presumptive right to
continue such use after termination of this Agreement. Nothing contained in this
Agreement shall be construed as an assignment or grant to Licensee of any right,
title or interest in or to the Name, it being understood that all rights
relating thereto are reserved by Licensor, except for the license hereunder to
Licensee of the right to use the Name as specifically and expressly provided
herein. To the extent any rights in and to the Name or in the goodwill
associated therewith are deemed to accrue to Licensee, Licensee agrees to assign
and hereby assigns any and all such rights and goodwill, at such time as they
may be deemed to accrue, to Licensor.
6. Infringement of the Name
------------------------
(a) Licensee shall promptly give notice to Licensor of any use of the
Name, or of a similar name or mark, by any third party of which it becomes
aware. Licensor shall decide, in its sole discretion, if proceedings shall be
commenced against said third party. In the event that Licensor commences a
proceeding or any other form of action against said third party, Licensee shall
cooperate fully with Licensor to whatever extent Licensor deems necessary or
appropriate to prosecute such action or proceeding, provided that all expenses
of such action or proceeding shall be borne by Licensor and all recoveries
(including settlements) resulting from any such action shall belong solely to
Licensor.
(b) Licensee shall not take any action to protect the Name without the
prior express written consent of Licensor's General Counsel, nor shall Licensee
settle any claim for
-4-
<PAGE>
<PAGE>
infringement of the Name without the prior express written consent of Licensor's
General Counsel.
7. Termination
-----------
(a) This Agreement shall automatically and immediately terminate upon
the occurrence of any of the following events:
(i) Licensor or its majority owned and controlled affiliates,
collectively, own less than thirty percent (30%) of the
member interests or, after the Reconstitution referred to
in Paragraph 10(a) hereof, the Common Stock of Licensee;
(ii) Licensor and its majority owned and controlled affiliates,
collectively, no longer have at least three (3) nominees
serving on the Board of Representatives or, after the
Reconstitution, the Board of Directors of Licensee;
(iii) Licensee does not comply with the restrictions on the
conduct of its business set forth in the LLC Agreement,
or, after the Reconstitution, its Certificate of
Incorporation or as otherwise approved by the holders of
its member interests or, after the Reconstitution, its
Class B Common stock; or
(iv) Any member of Licensee shall have transferred its Class B
Interests to a third party together with its rights to
appoint Representatives to the Management Committee under
the LLC
-5-
<PAGE>
<PAGE>
Agreement or, after the Reconstitution, any holder of the
Class B Common Stock of Licensee shall have transferred
its Class B Common Stock together with its rights to
designate nominees to the Board of Directors of Licensee
as contemplated in the Stockholder's Agreement expected to
be entered into among such holders of Class B Common
Stock.
(b) If Licensee defaults in the performance of any of its material
obligations (including, without limitation, Licensee's obligations under
Paragraph 4) under this Agreement, and (i) any such default is not cured by
Licensee within thirty (30) business days of Licensee's receipt of written
notice of such default from Licensor, or (ii) in the case of a default which
cannot reasonably be cured within said thirty (30) business day period, Licensee
has not initiated such action within said period as may be required to cure such
default within a reasonable time thereafter, then Licensor shall have the right
to terminate this Agreement upon written notice to Licensee. Termination shall
become effective immediately upon Licensee's receipt of written notice thereof.
(c) If Licensee commences an action or has an order for relief entered
against it under the federal bankruptcy laws as now or hereafter constituted or
any other federal or state bankruptcy, insolvency or other similar law, or if
within one hundred twenty (120) days after the commencement against Licensee of
such an action, such action shall have been consented to or shall not have been
dismissed or all orders or proceedings thereunder affecting the operation of
Licensee shall not have been stayed, or if Licensee shall fail
-6-
<PAGE>
<PAGE>
generally to pay its debts as such debts become due or shall make an assignment
for the benefit of its creditors, or if Licensee discontinues the Business or
within one hundred twenty (120) days of entry of a decree appointing a trustee
or a receiver for Licensee or its business, such appointment shall not have been
vacated, this Agreement shall terminate upon written notice by Licensor to
Licensee. Termination shall become effective immediately upon Licensee's receipt
of written notice thereof.
(d) Upon the termination of this Agreement for any reason, Licensee
shall thereafter have a period of three (3) months from the termination date to
phase out all use of the Name. Thereafter, all materials bearing the Name in the
possession, custody or control of Licensee shall be promptly destroyed or
otherwise disposed of to the mutual satisfaction of the parties.
(e) Subject to Paragraph 7(d) above, upon and after the expiration or
termination of this Agreement, all rights in the Name shall revert to Licensor,
and Licensee shall assign any goodwill which may have accrued through its use of
the Name to Licensor. Licensee shall refrain from any further use of the Name or
of any similar mark or name. Licensee shall, at its own expense, execute all
papers and take all actions necessary to prevent further use by Licensee (and
any sub-Licensee permitted hereunder) of the Name, including but not limited to,
the voluntary cancellation of any business name, company name or corporate name
registrations or recordals. Licensee shall return to Licensor or destroy all
material used for the purpose of printing or reproducing the Name.
8. Representations and Warranties
------------------------------
(a) Licensor represents and warrants as follows:
-7-
<PAGE>
<PAGE>
(i) Licensor owns the Name in the Territory for use in
connection with the Business; and
(ii) Licensor has the right to enter into and fully perform this
Agreement, and to do so will not violate or conflict with
any material term or provision of its charter or by-laws or
of any agreement, instrument, statute, rule, regulation,
order or decree to which it is a party or by which it is
bound.
(b) Licensee represents and warrants as follows:
(i) Licensee's conduct of the Business will comply in all
respects with all applicable federal, state and local laws,
ordinances and rules;
(ii) Licensee will not use the Name in any manner which is not
specifically authorized by this Agreement; and
(iii) Licensee has the right to enter into and fully perform this
Agreement, and to do so will not violate or conflict with
any material term or provision of its charter or by-laws or
of any agreement, instrument, statute, rule, regulation,
order or decree to which it is a party or by which it is
bound.
9. Indemnification
---------------
Licensor and Licensee shall indemnify and hold each other and each
other's directors, officers and employees harmless from and against any and all
liability, loss, damage or injury, including reasonable attorney's fees, arising
out of a breach, or an allegation which
-8-
<PAGE>
<PAGE>
if true would constitute a breach, of any representation and warranty set forth
herein, provided that the party seeking to enforce such indemnity shall provide
to the indemnifying party prompt notice of any claim giving rise to such
indemnity and the opportunity to defend the same with counsel of its own
choosing.
10. Sub-Licenses and Assignment
---------------------------
(a) Licensee shall have the right to sub-license its subsidiary
companies that are at least 50% owned, directly or indirectly, including without
limitation, Time Warner Telecom Inc., a Delaware corporation, to use the Name
under the same terms and conditions as set forth herein so long as such
sub-licensee remains at least a 50% owned subsidiary of Licensee and, provided
that each such sub-licensee agrees in writing to be bound by the terms of this
Agreement. In the event Licensee is reconstituted (either by merger, exchange,
contribution of assets or otherwise) as a Delaware corporation (the
"Reconstitution"), such corporation shall succeed to the rights and obligations
of Licensee hereunder and all references to Licensee herein shall be deemed
references to such reconstituted corporation.
(b) Except for any sub-license granted pursuant to Paragraph 10(a)
above, neither this Agreement nor any rights hereunder shall be assigned,
sub-licensed or transferred by Licensee, in whole or in part, without the prior
express written consent of Licensor, and any purported assignment or transfer in
violation of this provision shall be void and of no effect.
11. Notices
-------
(a) All notices to be given under this Agreement shall be in writing
and shall be delivered to the party to whom the notice is given (i) by hand or
courier, (ii) by registered
-9-
<PAGE>
<PAGE>
or certified mail, postage prepaid, or (iii) by fax (with a copy as provided in
(i) or (ii) above) at the address or fax number given below or to such other
address or fax number as may be advised by prior notice in writing to the other
party from time to time.
Licensor: Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019
Attention: General Counsel
Telephone No. (212) 484-7580
Fax. No. (212) 956-7281
Licensee: Time Warner Telecom LLC
5700 S. Quebec Street
Greenwood Village, CO 80111
Attention: Chief Executive Officer
Telephone No. (303) 566-1000
Fax. No. (303) 566-1011
(b) Notice given under this Agreement shall be deemed duly given (i)
if delivered by hand or courier, on the date of such delivery, (ii) if sent by
registered or certified mail, five (5) business days after dispatch, and (iii)
if sent by fax, when the copy is delivered pursuant to Paragraph 11(a) above.
12. Miscellaneous
-------------
(a) Nothing contained in this Agreement shall be construed to
constitute Licensor to be a partner or joint venturer with, or an agent for,
Licensee and vice versa. Licensee shall not have any authority to, nor shall
Licensee, obligate or bind the Licensor in any manner whatsoever and vice versa.
(b) This Agreement shall be governed by and construed and enforced in
accordance with the substantive laws of the State of New York, without reference
to its laws
-10-
<PAGE>
<PAGE>
governing conflicts of laws.
(c) This Agreement cannot be canceled, modified, amended or waived, in
part or in full, except by an instrument in writing signed by both parties.
(d) The headings of the paragraphs hereof are for convenience only and
shall not be deemed to limit or in any way affect the scope, meaning or intent
of this Agreement or any provision hereof.
(e) Should any paragraph or provision of this Agreement be held to be
void, invalid or inoperative as a result of any judicial or administrative
proceeding or decree, such decision shall not affect any other paragraph or
provision hereof, and the remainder of this Agreement shall be effective as
though such void, invalid or inoperative paragraph or provision had not been
contained herein.
(f) The failure of any party to enforce at any time any provision of
this Agreement, or to enforce any rights, or to make any elections hereunder,
shall not be deemed a waiver of such provisions, rights or elections. Any waiver
of any breach of this Agreement or of the terms or conditions hereof shall not
be deemed a waiver or any repetition of such breach or in any way affect any
other term or condition hereof.
(g) This Agreement contains the entire understanding between the
parties with respect to the transactions contemplated hereby, and supersedes all
prior writings or agreements, written or oral, with respect to the subject
matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly
-11-
<PAGE>
<PAGE>
executed and delivered by their respective officers, each of whom is duly
authorized as of the date set forth on page one hereof.
TIME WARNER INC.
By:
________________________________
Name:
Title:
TIME WARNER TELECOM LLC
By:
________________________________
Name:
Title:
Agreed, pursuant to
Paragraph 10(a) hereof:
TIME WARNER TELECOM INC.
By: _________________________
<PAGE>
<PAGE>
SCHEDULE 1
SUBSIDIARIES OF TIME WARNER TELECOM LLC
Set forth below are the names of certain subsidiaries, at least 50% owned,
directly or indirectly, of Time Warner Telecom Inc. as of , 1998.
Certain subsidiaries which when considered in the aggregate would not
constitute a significant subsidiary are omitted from the list below.
<TABLE>
<CAPTION>
State or Other
Jurisdiction of
Incorporation or
Organization of
Subsidiary Formation D/B/A's
- ---------- ---------------- -------
<S> <C> <C>
Time Warner Telecom Inc. Delaware
Time Warner Telecom Holdings Inc. Delaware
Time Warner AxS of Alabama, L.P. Delaware Time Warner AxS of Alabama Limited
Partnership (AL)
Time Warner Telecom (AL)
Time Warner AxS of California, L.P. Delaware Time Warner Telecom (CA)
MetroComm AxS, L.P. Delaware
Time Warner AxS of Florida, L.P. Delaware Time Warner AxS of Florida, L.P., Ltd. (FL)
Time Warner Communications
Time Warner Telecom
Time Warner Telecom of New York, L.P. Delaware Time Warner Communications of New York City (NY)
Time Warner Communications of Rochester
Time Warner Telecom (NY)
Time Warner AxS of Pennsylvania, L.P. Delaware Time Warner Telecom (PA)
</TABLE>
<PAGE>
<PAGE>
2
<TABLE>
<CAPTION>
State or Other
Jurisdiction of
Incorporation or
Organization of
Subsidiary Formation D/B/A's
- ---------- ---------------- -------
<S> <C> <C>
Time Warner Telecom of Texas, L.P. Delaware Time Warner Communications (TX)
Time Warner Telecom (TX)
Time Warner Communications of Hawaii, L.P. Delaware Oceanic Communications (HI)
Time Warner Telecom (HI)
Time Warner Communications of Indiana, L.P. Delaware Time Warner Telecom (IN)
Time Warner Communications of Milwaukee, L.P. Delaware Time Warner Communications of
Milwaukee, Limited Partnership (WI)
Time Warner Telecom (WI)
Time Warner Communications of North Carolina, L.P. Delaware Time Warner Communications of North Carolina
Limited Partnership (NC)
Time Warner Telecom (NC)
Time Warner Communications of Ohio, L.P. Delaware Time Warner Telecom (OH)
Time Warner AxS of Columbus, L.P., Limited
Partnership (CT)
Time Warner Communications of Greater
Cincinnati (KY)
Time Warner Telecom (KY)
Time Warner Communications of Greater
Cincinnati (OH)
Time Warner Communications of The Mid-South, L.P. Delaware Time Warner Telecom (MS)
Time Warner Telecom (TN)
</TABLE>
<PAGE>
<PAGE>
EXHIBIT 12
TIME WARNER TELECOM LLC
RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
HISTORICAL PRO FORMA
------------------------------------------------------- ---------
1993 1994 1995 1996 1997 1997(1)
------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS:
Net loss............................ $(9,392) $(37,178) $(51,105) $(86,116) $(70,656) $(112,176)
Interest expense.................... 12 3 25 55 1,544 43,064
Portion of rents representative of
an interest factor................ 25 444 1,050 1,374 1,793 1,793
Undistributed losses of less than
50% owned companies............... -- -- 30 40 27 27
------- -------- -------- -------- -------- ---------
Total earnings.......................... (9,355) (36,731) (50,000) (84,647) (67,292) (67,292)
------- -------- -------- -------- -------- ---------
FIXED CHARGES:
Interest expense.................... 12 3 25 55 1,544 43,064
Capitalized interest................ 1,680
Portion of rents representative of
an interest factor................ 25 444 1,050 1,374 1,793 1,793
------- -------- -------- -------- -------- ---------
Total fixed charges............. 37 447 1,075 1,429 3,337 46,537
------- -------- -------- -------- -------- ---------
Deficiency in the coverage of
fixed charges by earnings
before fixed charges.......... $(9,392) $(37,178) $(51,075) $(86,076) $(70,629) $(113,829)
------- -------- -------- -------- -------- ---------
------- -------- -------- -------- -------- ---------
<CAPTION>
THREE MONTHS ENDED
----------------------------------
HISTORICAL PRO FORMA
--------------------- ---------
MARCH 31, MARCH 31, MARCH 31,
1997 1998 1998(1)
--------- --------- ---------
<S> <C> <C> <C>
EARNINGS:
Net loss............................ $(19,651 ) $(21,788 ) $(32,168 )
Interest expense.................... -- 2,011 12,391
Portion of rents representative of
an interest factor................ 416 218 218
Undistributed losses of less than
50% owned companies............... 10 -- --
--------- --------- ---------
Total earnings.......................... (19,225 ) (19,559 ) (19,559 )
--------- --------- ---------
FIXED CHARGES:
Interest expense.................... -- 2,011 12,391
Capitalized interest................ 420
Portion of rents representative of
an interest factor................ 416 218 218
--------- --------- ---------
Total fixed charges............. 416 2,229 13,029
--------- --------- ---------
Deficiency in the coverage of
fixed charges by earnings
before fixed charges.......... $(19,641 ) $(21,788 ) $(32,588 )
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------
(1) 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. The pro forma information presented above should be read
in conjunction with the 'Selected Combined Financial and Other Operating
Data' appearing elsewhere in the Prospectus filed as a part of this
Registration Statement.
i
<PAGE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF TIME WARNER TELECOM LLC
Set forth below are the names of certain subsidiaries, at least 50% owned,
directly or indirectly, of Time Warner Telecom LLC as of , 1998. Certain
subsidiaries which when considered in the aggregate would not constitute a
significant subsidiary are omitted from the list below.
<TABLE>
<CAPTION>
State or Other
Jurisdiction of
Incorporation or
Organization of
Subsidiary Formation D/B/A's
__________ ________________ _______
<S> <C> <C>
Time Warner Telecom Inc. Delaware
Time Warner Telecom Holdings Inc. Delaware
Time Warner AxS of Alabama, L.P. Delaware Time Warner AxS of Alabama Limited
Partnership (AL)
Time Warner Telecom (AL)
Time Warner AxS of California, L.P. Delaware Time Warner Telecom (CA)
MetroComm AxS, L.P. Delaware
Time Warner AxS of Florida, L.P. Delaware Time Warner AxS of Florida, L.P., Ltd.
(FL)
Time Warner Communications
Time Warner Telecom
Time Warner Telecom of New York, L.P. Delaware Time Warner Communications of New York
City (NY)
Time Warner Communications of Rochester
Time Warner Telecom (NY)
Time Warner AxS of Pennsylvania, L.P. Delaware Time Warner Telecom (PA)
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
State or Other
Jurisdiction of
Incorporation or
Organization of
Subsidiary Formation D/B/A's
- ---------- ---------------- -------
<S> <C> <C>
Time Warner Telecom of Texas, L.P. Delaware Time Warner Communications (TX)
Time Warner Telecom (TX)
Time Warner Communications of Hawaii, Delaware Oceanic Communications (HI)
L.P. Time Warner Telecom (HI)
Time Warner Communications of Delaware Time Warner Telecom (IN)
Indiana, L.P.
Time Warner Communications of Delaware Time Warner Communications of
Milwaukee, L.P. Milwaukee, Limited Partnership (WI)
Time Warner Telecom (WI)
Time Warner Communications of North Delaware Time Warner Communications of North
Carolina, L.P. Carolina Limited Partnership (NC)
Time Warner Telecom (NC)
Time Warner Communications of Ohio, Delaware Time Warner Telecom (OH)
L.P. Time Warner AxS of Columbus, L.P.,
Limited Partnership (CT)
Time Warner Communications of Greater
Cincinnati (KY)
Time Warner Telecom (KY)
Time Warner Communications of Greater
Cincinnati (OH)
Time Warner Communications of The Delaware Time Warner Telecom (MS)
Mid-South, L.P. Time Warner Telecom (TN)
</TABLE>
<PAGE>
<PAGE>
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. 2 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
July 1, 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
July 1, 1998
<PAGE>
<PAGE>
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 stead, in any and all
capacities, to sign a Registration Statement of Time Warner Telecom LLC, a
Delaware limited liability company (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 debt securities of the Company
with power where appropriate to affix thereto any 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 or her 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
1st day of July, 1998.
/s/ Spencer B. Hays
____________________
Spencer B. Hays
<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
-------------------------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________
----------------------------------------
THE CHASE MANHATTAN BANK
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
NEW YORK 13-4994650
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
270 PARK AVENUE
NEW YORK, NEW YORK 10017
(Address of principal executive offices) (Zip Code)
</TABLE>
William H. McDavid
General Counsel
270 Park Avenue
New York, New York 10017
Tel: (212) 270-2611
(Name, address and telephone number of agent for service)
---------------------------------------------
TIME WARNER TELECOM LLC
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
DELAWARE APPLIED FOR
(State other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
5700 S. QUEBEC STREET
GREENWOOD VILLAGE, COLORADO 80111
(Address of principal executive Offices) (Zip Code)
</TABLE>
TIME WARNER TELECOM INC.
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 84-1452416
(State other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
5700 S. QUEBEC STREET 80111
GREENWOOD VILLAGE, COLORADO (Zip Code)
(Address of principal executive offices)
</TABLE>
-----------------------------------------
SENIOR NOTES DUE 2008
(Title of the indenture securities)
-----------------------------------------
<PAGE>
<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, State House, Albany, New York
12110.
Board of Governors of the Federal Reserve System, Washington,
D.C., 20551
Federal Reserve Bank of New York, District No. 2, 33 Liberty
Street, New York, N.Y.
Federal Deposit Insurance Corporation, Washington, D.C., 20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
<PAGE>
<PAGE>
- 3 -
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of
Eligibility.
1. A copy of the Articles of Association of the Trustee as now in
effect, including the Organization Certificate and the Certificates of Amendment
dated February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982,
February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1
filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July 14, 1996, in
connection with the merger of Chemical Bank and The Chase Manhattan Bank
(National Association), Chemical Bank, the surviving corporation, was renamed
The Chase Manhattan Bank).
3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference. On July 14, 1996, in connection
with the merger of Chemical Bank and The Chase Manhattan Bank (National
Association), Chemical Bank, the surviving corporation, was renamed The Chase
Manhattan Bank).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of eligibility
to be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York, on the 23rd day of JUNE, 1998.
THE CHASE MANHATTAN BANK
By /s/ R. Lorenzen
______________________________________
/s/ R. Lorenzen
Senior Trust Officer
<PAGE>
<PAGE>
Exhibit 7 to Form T-1
Bank Call Notice
RESERVE DISTRICT NO. 2
CONSOLIDATED REPORT OF CONDITION OF
The Chase Manhattan Bank
of 270 Park Avenue, New York, New York 10017
and Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System,
at the close of business March 31, 1998, in accordance
with a call made by the Federal Reserve Bank of this District
pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
ASSETS IN MILLIONS
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and
currency and coin ................................................... $12,037
Interest-bearing balances ............................................ 4,054
Securities: .............................................................
Held to maturity securities............................................... 2,340
Available for sale securities............................................. 50,134
Federal funds sold and securities purchased under
agreements to resell ................................................. 24,982
Loans and lease financing receivables:
Loans and leases, net of unearned income $127,958
Less: Allowance for loan and lease losses 2,797
Less: Allocated transfer risk reserve ......... 0
--------
Loans and leases, net of unearned income,
allowance, and reserve ................................................ 125,161
Trading Assets ............................................................ 61,820
Premises and fixed assets (including capitalized
leases)................................................................ 2,961
Other real estate owned ................................................... 347
Investments in unconsolidated subsidiaries and
associated companies................................................... 242
Customers' liability to this bank on acceptances
outstanding ........................................................... 1,380
Intangible assets ......................................................... 1,549
Other assets ............................................................... 11,727
---------
TOTAL ASSETS .............................................................. $298,734
=========
</TABLE>
- 4 -
<PAGE>
<PAGE>
<TABLE>
<S> <C>
LIABILITIES
Deposits
In domestic offices ..................................................... $96,682
Noninterest-bearing .....................................$38,074
Interest-bearing ........................................ 58,608
------
In foreign offices, Edge and Agreement,
subsidiaries and IBF's .................................................. 72,630
Noninterest-bearing .....................................$ 3,289
Interest-bearing ....................................... 69,341
Federal funds purchased and securities sold under agree-
ments to repurchase ......................................................... 42,735
Demand notes issued to the U.S. Treasury ........................ 872
Trading liabilities ......................................................... 45,545
Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):
With a remaining maturity of one year or less ........................... 4,454
With a remaining maturity of more than one year .
through three years............................................... 231
With a remaining maturity of more than three years....................... 106
Bank's liability on acceptances executed and outstanding 1,380
Subordinated notes and debentures ........................................... 5,708
Other liabilities ........................................................... 11,295
TOTAL LIABILITIES ........................................................... 281,638
--------
EQUITY CAPITAL
Perpetual preferred stock and related surplus ............................... 0
Common stock ................................................................ 1,211
Surplus (exclude all surplus related to preferred stock).................... 10,291
Undivided profits and capital reserves ...................................... 5,579
Net unrealized holding gains (losses)
on available-for-sale securities ............................................ (1)
Cumulative foreign currency translation adjustments ......................... 16
TOTAL EQUITY CAPITAL ........................................................ 17,096
--------
TOTAL LIABILITIES AND EQUITY CAPITAL ........................................ $298,734
========
</TABLE>
I, Joseph L. Sclafani, E.V.P. & Controller of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and is true
to the best of my knowledge and belief.
JOSEPH L. SCLAFANI
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us, and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the appropriate Federal regulatory authority and is true and correct.
WALTER V. SHIPLEY )
THOMAS G. LABRECQUE ) DIRECTORS
WILLIAM B. HARRISON, JR. )
-5-
<PAGE>
