Time Warner Cable 2006 Annual Report Download - page 37

• any change to the provisions of the TWC Certificate of Incorporation that would affect the right of the TWC
Class A common stock to vote as a class in connection with any of the events discussed above.
Matters Affecting the Relationship between Time Warner and TWC
Indebtedness Approval Right. Under the Shareholder Agreement, until such time as the indebtedness of
TWC is no longer attributable to Time Warner, in Time Warner’s reasonable judgment, TWC, its subsidiaries and
entities that it manages may not, without the consent of Time Warner, create, incur or guarantee any indebtedness
(except for the issuance of commercial paper or borrowings under TWC’s current revolving credit facility up to the
limit of that credit facility, to which Time Warner has consented), including preferred equity, or rental obligations if
its ratio of indebtedness plus six times its annual rental expense to EBITDA (as EBITDA is defined in the
Shareholder Agreement) plus rental expense, or “EBITDAR,” then exceeds or would exceed 3:1.
Time Warner Standstill. Under the Shareholder Agreement, Time Warner has agreed that prior to August 1,
2009 (three years following the closing of the Adelphia Acquisition), Time Warner will not make or announce a
tender offer or exchange offer for TWC Class A common stock without the approval of a majority of the
independent directors of TWC; and prior to August 1, 2016 (10 years following the closing of the Adelphia
Acquisition), Time Warner will not enter into any business combination with TWC, including a short-form merger,
without the approval of a majority of the independent directors of TWC. Under the Adelphia Acquisition
agreement, TWC has agreed that for a period of two years following the closing of the Adelphia Acquisition it
will not enter into any short-form merger and that for a period of 18 months following the closing of the Adelphia
Acquisition it will not issue equity securities to any person (other than, subject to satisfying certain requirements,
Time Warner and its affiliates) that have a higher vote per share than the TWC Class A common stock.
Transactions between Time Warner and TWC. The TWC By-Laws provide that Time Warner may only enter
into transactions with TWC and its subsidiaries, including TWE, that are on terms that, at the time of entering into
such transaction, are substantially as favorable to TWC or its subsidiaries as they would be able to receive in a
comparable arm’s-length transaction with a third party. Any such transaction involving reasonably anticipated
payments or other consideration of $50 million or greater also requires the prior approval of a majority of the
independent directors of TWC. The TWC By-Laws also prohibit TWC from entering into any transaction having
the intended effect of benefiting Time Warner and any of its affiliates (other than TWC and its subsidiaries) at the
expense of TWC or any of its subsidiaries in a manner that would deprive TWC or any of its subsidiaries of the
benefit it would have otherwise obtained if the transaction were to have been effected on arm’s-length terms.
Time Warner Registration Rights Agreement between TWC and Time Warner. At the closing of the TWE
Restructuring, Time Warner and TWC entered into a registration rights agreement (the “Registration Rights
Agreement”) relating to Time Warner’s shares of TWC common stock. Subject to several exceptions, including
TWC’s right to defer a demand registration under some circumstances, Time Warner may, under that agreement,
require that TWC take commercially reasonable steps to register for public resale under the Securities Act all shares
of common stock that Time Warner requests to be registered. Time Warner may demand an unlimited number of
registrations. In addition, Time Warner has been granted “piggyback” registration rights subject to customary
restrictions and TWC is permitted to piggyback on Time Warner’s registrations. TWC has also agreed that, in
connection with a registration and sale by Time Warner under the Registration Rights Agreement, it will indemnify
Time Warner and bear all fees, costs and expenses, except underwriting discounts and selling commissions.
Item 1A. Risk Factors.
Risks Related to Competition
TWC faces a wide range of competition, which could affect its future results of operations.
TWC’s industry is and will continue to be highly competitive. Some of TWC’s principal competitors — in
particular, direct broadcast satellite operators and incumbent local telephone companies — either offer or are
making significant capital investments that will allow them to offer services that provide directly comparable
features and functions to those TWC offers, and they are aggressively seeking to offer them in bundles similar to
TWC’s.
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