Time Warner Cable 2007 Annual Report Download - page 24

federal authorities. Finally, providers of point-to-point and similar transport services are generally required to
contribute to various state and federal regulatory funds, including the Federal Universal Service Fund.
The 2006 Transactions with Adelphia and Comcast
The following provides a more detailed description of the Transactions and contains summaries of the terms of
the material agreements that were entered into in connection with the Transactions. This description does not
purport to be complete and is subject to, and is qualified in its entirety by reference to, the applicable agreements.
Agreements with Adelphia
As described in more detail below, under separate agreements (as amended, the “TW NY Purchase
Agreement” and “Comcast Purchase Agreement,” respectively, and, collectively, the “Purchase Agreements”),
TW NY and Comcast purchased substantially all of the cable assets of Adelphia. The Purchase Agreements were
entered into after Adelphia filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States
Bankruptcy Code (the “Bankruptcy Code”). This section provides additional details regarding the Purchase
Agreements, the Adelphia Acquisition and Comcast’s acquisition of certain of Adelphia’s assets (the “Comcast
Adelphia acquisition”), along with certain other agreements TWC and certain of its subsidiaries 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 Adelphia. The TW NY Purchase Agreement provided that TW NY would
purchase certain assets and assume certain liabilities from Adelphia. On June 21, 2006, Adelphia 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 Adelphia acquisition would be effected
in accordance with the provisions of sections 105, 363 and 365 of the Bankruptcy Code. The Adelphia Acquisition
closed on July 31, 2006 (the “Adelphia Closing”), immediately after the Redemptions. The 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 (some of these systems were transferred by TWC to
Comcast as part of the Exchange). As consideration for the assets purchased from Adelphia, TW NY assumed
certain liabilities as specified in the TW NY Purchase Agreement, paid to Adelphia approximately $8.9 billion in
cash, after giving effect to certain purchase price adjustments discussed below, and delivered 149,765,147 shares of
TWC Class A common stock to Adelphia. This represented approximately 17.3% of 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 Adelphia Acquisition.
Approximately 6 million shares of TWC Class A common stock and approximately $360 million in cash were
deposited into escrow to secure Adelphia’s obligations in respect of any post-closing adjustments to the purchase
price and its indemnification obligations for, among other things, breaches of its representations, warranties and
covenants contained in the TW NY Purchase Agreement. All of the shares and substantially all of the cash have
been released from escrow except for an amount of cash retained to satisfy claims against the escrow asserted on or
prior to July 31, 2007.
The TW NY Purchase Agreement required TWC, at the Adelphia Closing, to amend and restate its By-laws to
restrict TWC and its subsidiaries from entering into transactions with or for the benefit of Time Warner and its
affiliates other than TWC and its subsidiaries (the “Time Warner Group”), subject to specified exceptions.
Additionally, prior to August 1, 2011 (five years following the Adelphia Closing), TWC’s restated certificate of
incorporation and By-laws do not allow for an amendment to the provisions of its By-laws restricting these
transactions without the consent of a majority of the holders of TWC Class A common stock, other than any
member of the Time Warner Group. Additionally, under the TW NY Purchase Agreement, TWC agreed that it will
not enter into any short-form merger prior to August 1, 2008 (two years after the Adelphia Closing).
Parent Agreement. Pursuant to the Parent Agreement among Adelphia, TW NY and TWC, dated as of
April 20, 2005, TWC, among other things, guaranteed the obligations of TW NY to Adelphia under the TW NY
Purchase Agreement.
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