Time Warner Cable 2006 Annual Report Download - page 30

into after Adelphia filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the
“Bankruptcy Code”). This section provides additional details regarding the Purchase Agreements and TW NY’s and
Comcast’s underlying acquisition of Adelphia’s assets (the “TW NY Adelphia Acquisition” and the “Comcast
Adelphia Acquisition,” respectively), along with certain other agreements TWC entered into with Comcast.
The TW NY Purchase Agreement. On April 20, 2005, TW NY, one of TWC’s subsidiaries, entered into the
TW NY Purchase Agreement with ACC. The TW NY Purchase Agreement provided that TW NY would purchase
certain assets and assume certain liabilities from Adelphia. On June 21, 2006, ACC and TW NY entered into
Amendment No. 2 to the TW NY Purchase Agreement (the “TW NYAmendment”). Under the terms of the TW NY
Amendment, the assets TW NY acquired from Adelphia and the consideration to be paid to Adelphia remained
unchanged. However, the TW NYAmendment provided that the TW NYAdelphia Acquisition would be effected in
accordance with the provisions of sections 105, 363 and 365 of the Bankruptcy Code and, as a result, Adelphia’s
creditors were not required to approve a plan of reorganization under chapter 11 of the Bankruptcy Code prior to the
consummation of the TW NY Adelphia Acquisition. The TW NY Adelphia Acquisition closed on July 31, 2006,
immediately after the Redemptions. The TW NY Adelphia Acquisition included cable systems located in the
following areas: West Palm Beach, Florida; Cleveland and Akron, Ohio; Los Angeles, California; and suburbs of
the District of Columbia. As consideration for the assets purchased from Adelphia, TW NY assumed certain
liabilities as specified in the TW NY Purchase Agreement and paid to ACC approximately $8.9 billion in cash
(including approximately $360 million paid into escrow), after giving effect to certain purchase price adjustments
discussed below, and delivered 149,765,147 shares of TWC Class A common stock to ACC and 6,148,283 shares of
TWC Class A common stock into escrow. This represents approximately 17.3% of the TWC Class A common stock
outstanding (including shares issued into escrow), and approximately 16% of TWC’s total outstanding common
stock as of the closing of the TW NY Adelphia Acquisition.
The purchase price is subject to customary adjustments to reflect changes in Adelphia’s net liabilities and
subscribers as well as any shortfall in Adelphia’s capital expenditure spending relative to its budget during the
interim period (the “Interim Period”) between the execution of the TW NY Purchase Agreement and the closing of
the transactions contemplated by the TW NY Purchase Agreement (the “Adelphia Closing”). The approximately
$360 million in cash and 6 million shares of TWC Class A common stock that were deposited into escrow are
securing Adelphia’s obligations in respect of any post-closing adjustments to the purchase price and its indem-
nification obligations for, among other things, breaches of its representations, warranties and covenants contained
in the TW NY Purchase Agreement. One-third of the escrow, beginning with the cash amounts, was to be released
on January 31, 2007 (six months after the Adelphia Closing) with the remaining amounts to be released on July 31,
2007 (12 months after the Adelphia Closing), in each case except to the extent of amounts paid prior to such date or
that would be expected to be necessary to satisfy claims asserted on or prior to such date. On January 31, 2007, the
escrow agent released to Adelphia approximately $172 million in cash, representing one-third of the aggregate
value of the escrow.
The parties to the TW NY Purchase Agreement made customary representations and warranties. ACC’s
representations and warranties survive for twelve months after the Adelphia Closing and, to the extent any claims
are made prior to such date, until such claims are resolved. The debtors in Adelphia’s bankruptcy proceedings
(excluding, except to the extent provided in the TW NY Purchase Agreement, the joint ventures described in
“— The Comcast Purchase Agreement” below), are jointly and severally liable for breaches or violations by ACC
of its representations, warranties and covenants. The representations and warranties of TW NY contained in the TW
NY Purchase Agreement expired at the Adelphia Closing.
The TW NY Purchase Agreement included customary and certain other covenants made by Adelphia and TW
NY, including covenants that require Adelphia to deliver financial statements for the systems purchased sufficient to
fulfill TWC’s obligations to provide such financial statements in connection with the distribution of TWC Class A
common stock by ACC to certain of Adelphia’s creditors.
The TW NY Purchase Agreement requires ACC to indemnify TW NY and each of its affiliates (including
TWC), their respective directors, officers, shareholders, agents and other individuals (the “TW Indemnified
Parties”) for losses and expenses stemming from the breach of any representation or warranty, covenant and certain
other items. Subject to very limited exceptions, the TW Indemnified Parties are only able to seek reimbursement for
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