EXHIBIT 99.2
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Advance/▇▇▇▇▇▇▇▇ Partnership:
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇
June 24, 2002
Ladies and Gentlemen:
Reference is hereby made to the term sheet and related letter
attached hereto as EXHIBIT 1 (together with the attachments thereto, the "Term
Sheet") regarding certain agreements among Time Warner Entertainment Company,
L.P., a Delaware limited partnership ("TWE"), and Advance/▇▇▇▇▇▇▇▇ Partnership,
a New York general partnership ("Advance/▇▇▇▇▇▇▇▇", and together with TWE and
Paragon Communications, a Colorado general partnership ("Paragon"), the
"Parties").
Capitalized terms used herein and not otherwise defined have
the meanings ascribed to them in the Term Sheet.
1. BINDING NATURE; DEFINITIVE AGREEMENTS.
(a) The Term Sheet sets forth the terms of the
transactions contemplated hereby and thereby. The Parties intend that the Term
Sheet will be superseded by definitive agreements which will contain provisions
incorporating the terms set forth in the Term Sheet, together with provisions
customary in the case of transactions of the type described herein and therein,
and such other provisions as are reasonable and appropriate in the context of
the transactions contemplated hereby and thereby to give effect thereto.
Notwithstanding the foregoing, the Parties expressly acknowledge and agree that
this Letter Agreement (including the Term Sheet) constitutes a binding agreement
among them, subject to the terms and conditions set forth in this Letter
Agreement (including the Term Sheet), until definitive documentation is executed
and delivered by such Parties.
(b) The Parties intend to execute such
definitive documentation by the Effective Date, such definitive documentation to
supersede any and all other prior agreements and undertakings (including this
Letter Agreement and the Term Sheet), both written and oral, among the Parties,
or any of them, with respect to the subject matter hereof and thereof. If such
definitive documentation is not executed and delivered with respect to any
matter contained in the Term Sheet by the Closing Date, then this Letter
Agreement and the Term Sheet shall be
deemed to be such definitive documentation with respect to such matter,
commencing on the date hereof.
2. EFFORTS.
Each Party hereto agrees to act in good faith and to
use all commercially reasonable efforts to complete in a timely manner the
related definitive agreements, instruments and filings in a manner that
appropriately gives effect to the terms set forth in the Term Sheet.
3. MISCELLANEOUS.
(a) REPRESENTATIONS AND WARRANTIES. Each Party
severally represents to each of the other Parties that (i) this Letter Agreement
(including the Term Sheet) has been duly authorized, executed and delivered by
such Party and constitutes the legal, valid and binding obligation of such Party
enforceable against such Party in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting the rights of creditors generally and by
general principles of equity and (ii) such Party has the power and authority to
enter into this Letter Agreement (including the Term Sheet) and to carry out its
obligations hereunder and thereunder.
(b) EXPENSES. Except as otherwise provided
herein or in the Term Sheet, all costs and expenses incurred in connection with
this Letter Agreement and the transactions contemplated hereby shall be paid by
the Party incurring such costs and expenses.
(c) ENTIRE AGREEMENT; NO THIRD-PARTY
BENEFICIARIES. This Letter Agreement (including the Term Sheet), constitutes the
entire agreement and, except as expressly set forth herein, supersedes any and
all other prior agreements and undertakings, both written and oral, among the
Parties, or any of them, with respect to the subject matter hereof. This Letter
Agreement (including the Term Sheet) shall be only for the benefit of the
Parties and is not intended for the benefit of any other party.
(d) ASSIGNMENT; SUCCESSORS. Neither this Letter
Agreement (including the Term Sheet) nor any of the rights, interests or
obligations hereunder or thereunder shall be assigned by any of the Parties
hereto, in whole or in part (whether by operation of law or otherwise), without
the prior written consent of each of the other Parties.
(e) AMENDMENT; WAIVER. This Letter Agreement
and/or the Term Sheet may be amended at any time pursuant to a writing executed
by each Party hereto. Any Party hereto may (i) extend the time for the
performance of any of the obligations or other acts of the others or (ii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a Party to any such extension or waiver shall be valid
only as against such Party and only if set forth in an instrument in writing
signed by such Party.
(f) GOVERNING LAW. This Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of New York applicable to
contracts executed in and to be performed entirely within that State, without
giving effect to the conflicts of laws principles thereof.
(g) COUNTERPARTS. This Letter Agreement may be
executed in counterparts, each of which shall be deemed an original and all of
which shall constitute one and the same instrument.
(h) EFFECTIVENESS. This Letter Agreement
(including the Term Sheet) shall not be effective as to or binding upon any
Party until executed and delivered by all of the Parties.
(i) NOTICES. Except as otherwise provided in
this Letter Agreement or the Term Sheet, all notices, requests, claims, demands,
waivers and other communications hereunder shall be in writing and shall be
deemed to have been duly given when delivered by hand, when delivered personally
or by courier, when received by facsimile transmission if promptly confirmed by
telephone, or three days after being deposited in the U.S. mail (registered or
certified mail, postage prepaid, return receipt requested), as follows:
If to TWE or Paragon:
▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇
▇▇▇▇▇
Attention: General Counsel
with a copy to:
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇
Attention: General Counsel
and:
▇▇▇▇, Weiss, Rifkind, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇, ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
If to Advance/▇▇▇▇▇▇▇▇:
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
with a copy to
▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇, ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
and
Dow, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇, ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
or to such other address, facsimile number or telephone number
as either party may, from time to time, designate in a written notice given in a
like manner.
[Remainder of Page Intentionally Left Blank]
If the foregoing is in accordance with your understanding
please indicate your agreement by signing below.
Very truly yours,
Time Warner Entertainment Company, L.P.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Senior Vice President
Paragon Communications
By: KBL Communications, Inc., its Managing
General Partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Senior Vice President
Accepted and agreed as of the date first above written:
Advance/▇▇▇▇▇▇▇▇ Partnership
By: /s/ ▇▇▇▇▇▇▇ ▇. Futera
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Name: ▇▇▇▇▇▇▇ ▇. Futera
Title: Senior Vice President
EXHIBIT 1
TWE-A/N TERM SHEET
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SELECTION DATE: On the date hereof A/N selects the Florida
Pool, which consists of the assets and
liabilities set forth on EXHIBIT A hereto
(the date hereof is sometimes referred to
herein as the "SELECTION DATE" and the
Florida Pool is referred to herein as the
"SELECTED BUSINESS").(1) The purpose of this
Term Sheet is to set forth certain
agreements reached by the parties with
respect to their ongoing relationship in
light of A/N's selection of the Florida
Pool. The parties agree that this Term Sheet
and the TWE-A/N Partnership Agreement (as
modified hereby), and not the Asset Pool
Notice (including the Employee Matters
Notice and the Intellectual Property Notice)
delivered by TWE on June 14, 2002, shall
govern the composition of the assets and
liabilities of the Florida Pool and the
ongoing rights and obligations of the
parties.
The parties will file with the appropriate
regulatory authorities or otherwise seek to
obtain (a) an HSR notification and request
for early termination of the HSR waiting
period, within ten days following the
Selection Date (the first day of the month
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1 (A) Except as otherwise expressly provided in connection with this
transaction, neither TWE-A/N, TWE, Advance/▇▇▇▇▇▇▇▇ nor any other person
makes any representation or warranty of any kind whatsoever, express or
implied, with respect to the business, assets, condition or prospects
(financial or otherwise) of, or any other matter involving, the assets,
businesses or liabilities of the Florida Pool and (B) all of the assets to
be transferred or licensed or the liabilities to be assumed or transferred
in connection with any distribution shall be assumed, licensed or
transferred on an "as is, where is basis," and all implied warranties of
merchantability, fitness for a specific purpose, non-infringement or
otherwise are hereby expressly disclaimed.
2
immediately following the date on which the
HSR waiting period expires or is terminated
is referred to herein as the "EFFECTIVE
DATE" and 12:01am on the Effective Date is
referred to herein as the "EFFECTIVE TIME")
and (b) applications for all required
franchise and FCC approvals and other
material third-party approvals, as soon as
reasonably practicable following the
Selection Date, but in any event no later
than 30 days following the Selection Date.
EFFECTIVE DATE: On or before the Effective Date, the parties
will use commercially reasonable efforts to
enter into an agreement (the "TRANSACTION
AGREEMENT," together with Amendment #1 and
Amendment #2 (each as defined below) and all
documents to be executed pursuant thereto,
the "TRANSACTION DOCUMENTS") which will
provide for, among other things, the
transfer of the Selected Business to the
Subsidiary (as defined below) on the terms
and subject to the conditions described
below. The Transaction Agreement shall
provide for (or in any event the parties
shall execute) appropriate instruments of
assignment and assumption and indemnities
(in the forms contemplated by Section 8 of
the existing TWE-A/N Partnership Agreement),
all on the terms and subject to the
conditions described below.
On the Effective Date, concurrently with
execution of the Transaction Agreement, the
TWE-A/N Partnership Agreement will be
amended ("AMENDMENT #1") to provide, in
addition to the other relevant provisions of
this Term Sheet, as
3
follows:
1. As of the Effective Time, A/N's interest
in TWE-A/N will be converted to a
partnership interest tracking the
performance of the Selected Business. The
Selected Business will not include any
interest in the Residual Business (as
defined below). (However, the Selected
Business will have contractual rights to
amounts owing (pursuant to the Partnership
Agreement, as modified hereby, or the
Transaction Documents, or, if no such
Transaction Documents are entered into, this
Term Sheet) from TWE, TWE-A/N, or any of
their respective affiliates (collectively,
the "TWE GROUP") to the Subsidiary, A/N or
any of their respective affiliates
(collectively, the "A/N GROUP").)
2. As of the Effective Time, the interests
of TWE and Paragon in TWE-A/N will be
converted to partnership interests tracking
the performance of the TWE-A/N businesses,
excluding the Selected Business (such
TWE-A/N businesses, collectively, the
"RESIDUAL BUSINESS"). The Residual Business
will not include any interest in the
Selected Business. (However, the Residual
Business will have contractual rights to
amounts owing (pursuant to the Partnership
Agreement, as modified hereby, or the
Transaction Documents, or, if no such
Transaction Documents are entered into, this
Term Sheet) from the A/N Group to the TWE
Group.)
3. TWE-A/N will establish a separate account
(the "I/C Account") to manage cash between
the Selected Business and TWE-A/N from the
Effective Time until the Debt Closing Time
(as defined below).
4. From the Effective Time through the Debt
Closing Time the I/C Account will be
credited(2) with the cash receipts of the
Selected Business and any contributions to
TWE-A/N by A/N, and debited with the cash
disbursements of the Selected Business
(including payments of Pre-Closing Operating
Costs
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2 For purposes hereof, "crediting" any amount to the account means reducing
the amount payable to TWE-A/N by the Selected Business and, to the extent
such amount exceeds the payable balance, increasing the amount receivable
from TWE-A/N by the Selected Business. "Debit" has the opposite meaning
(I.E., increasing payable/reducing receivable balance).
4
(defined below)) and any distributions from
TWE-A/N to A/N.
5. The I/C Account (both positive and
negative balances) will accrue interest at
TWE-A/N's senior bank rate (based on average
monthly balance).(3)
6. The provisions of Sections 8.1, 8.2 and
8.3 shall be deleted from the TWE-A/N
Partnership Agreement, and new restructuring
provisions will be added (see "EXIT" below).
7. As of the Effective Time, the Selected
Business and A/N will provide an indemnity
(which shall be without recourse to the
partners of A/N) to the TWE Group (i) for
all liabilities of the Selected Business
(including, for the avoidance of doubt, any
liabilities that arise during the period
between the Effective Time and the Closing
Date), (ii) for all liabilities under the
Transaction Documents (including obligations
to pay Pre-Closing Operating Costs and
Post-Closing Operating Costs) and (iii) for
any 8.2(c)(iii) Actions (defined below). The
persons in the A/N Group who are party to
the Parents Agreement (the "A/N Persons")
will provide a guaranty to the TWE Group for
(i) the Assumed Debt, which guaranty will
terminate upon repayment by A/N of the
Assumed Debt at the Debt Closing Date; and
(ii) all Pre-Closing Liabilities, which
guaranty will terminate when all of such
Pre-Closing Liabilities have been fully
discharged. "Pre-Closing Liabilities" means
those liabilities of the Selected Business
(other than the Assumed Debt) that are (x)
reflected on TWE-A/N's balance sheet as of
the Effective Date or (y) accrue during the
period beginning on the Effective Date and
ending on the Closing Date. At A/N's option,
such guaranty (other than the guarantee
described in clause (i) above) may be
provided by any wholly owned subsidiary of
either of the A/N Persons; PROVIDED, THAT,
such subsidiary holds substantial assets as
of the Effective Time and will continue to
hold substantial assets throughout the term
of the indemnity. A/N will also provide
reasonable assurances that any successors to
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3 If TWE-A/N has no senior bank debt, then the rate used will be the senior
bank rate in the TWE Group.
5
A/N or any of the guarantors referred to
above (or any entity receiving the proceeds
of a disposition of all or substantially all
of their respective assets) will assume such
indemnity.
8. As of the Effective Time, the Residual
Business and TWE will provide an indemnity
to the A/N Group (i) for all liabilities of
the Residual Business (including, for the
avoidance of doubt, any liabilities that
arise during the period between the
Effective Time and the Closing Date) and
(ii) for all liabilities under the
Transaction Documents. TWE will also provide
reasonable assurances that any successors to
such parties (or any entity receiving the
proceeds of a disposition of all or
substantially all of their respective
assets) will assume such indemnity.
9. For tax purposes, on the Effective Date
the Selected Business will be deemed to have
been distributed to A/N and A/N will be
deemed to have assumed the liabilities
allocated thereto, including the Assumed
Debt (as defined below).
DEBT CLOSING: The "DEBT CLOSING TIME" shall be 12:01 am on
the earliest practical date that is (i) the
first day of a month selected by A/N, (ii)
not prior to the Effective Date and (iii) in
any event not later than January 1, 2003;
and the "DEBT CLOSING Date" shall be the day
immediately preceding the day in which the
Debt Closing Time occurs. On the Debt
Closing Date, one or more members of the A/N
Group will enter into its own stand-alone
financing arrangements on terms negotiated
by A/N. TWE-A/N will provide information
with respect to the Selected Business
(including such information, with respect
thereto as A/N may reasonably request in
connection with its preparation of audited
financial statements for the Selected
Business) and otherwise use good faith
efforts to assist A/N in making such credit
arrangements, including amending the TWE-A/N
6
Partnership Agreement as reasonably
requested by the lender, so long as such
amendments would not adversely affect any of
the TWE Group (in TWE's sole judgment). The
TWE Group shall in no event be obligated for
any costs, expenses or fees in connection
with such financing arrangements. A/N shall
represent and covenant to the TWE Group that
as of the Debt Closing Date and at all
future times, the financing arrangements
entered into by A/N or any of its controlled
affiliates (including the Subsidiary) or by
the Selected Business are and will be
subject to the limitations contained in
Section 3.2(e) of the existing TWE-A/N
Partnership Agreement (substituting
references therein to the Partnership with
references to the Selected Business and the
Subsidiary), and that all financing
arrangements entered into by the A/N Group
(i) permit and will permit the payments
required by the Transaction Documents; and
(ii) are and will be nonrecourse to the TWE
Group. TWE shall represent and covenant to
the A/N Group that as of the Debt Closing
Date and at all future times, all financing
arrangements of TWE-A/N (excluding the
Subsidiary and the Selected Business) are
and will be subject to the limitations
contained in Section 3.2(e) of the existing
TWE-A/N Partnership Agreement and that all
financing arrangements entered into by the
TWE Group (i) permit and will permit the
payments required by the Transaction
Documents; and (ii) are and will be
nonrecourse to the A/N Group. No portion of
the costs, expenses or fees incurred by or
7
on behalf of TWE-A/N in connection with any
financing arrangements obtained by it after
date hereof will be allocated to A/N, except
that A/N will bear one-third of such costs,
expenses and fees for financings obtained
prior to the Debt Closing Date; provided
that A/N shall not bear more than an
aggregate amount of $1.5 Million (which, for
the avoidance of doubt, shall be borne
without duplication by reason of the reduced
deductions to Net Debt for cash and cash
equivalents (as described in footnote 4
below) with respect to costs, expenses and
fees paid prior to the Effective Date, and
otherwise through cash payments from the
Selected Business or the A/N Group to the
TWE Group for costs, expenses and fees paid
after the Effective Date). The A/N Group
shall provide TWE with at least 5 business
days' notice of the Debt Closing Date.
On the Debt Closing Date:
1. A/N will pay cash to TWE-A/N (for the
benefit of the Residual Business) in an
amount equal to all unpaid Contribution
Amounts and unpaid interest thereon through
the Debt Closing Date (as defined in clauses
(iii), (iv) and (v) of Section 4.1(b) of the
existing TWE-A/N Partnership Agreement) in
full satisfaction and discharge of such
obligations, and the A/N Notes held by
TWE-A/N to secure such obligations shall be
canceled.
2. TWE will pay cash to TWE-A/N (for the
benefit of the Residual Business) in an
amount equal to the accrued principal and
interest through the Debt Closing Date on
the TWE Note held by TWE-A/N in full
satisfaction and discharge of such
obligation and such TWE Note shall be
canceled.
3. One or more members of the A/N Group will
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assume (and then immediately satisfy and
discharge by paying cash to TWE-A/N's senior
lenders) a portion of TWE-A/N's debt to be
identified by TWE (the "ASSUMED DEBT") in an
amount equal to the sum of (a) one-third of
TWE-A/N's Net Debt(4) PLUS (b) $190
million(5) PLUS (c) the Restructuring
Indebtedness Amount (as defined in the
existing TWEAN Partnership Agreement, but
excluding for this purpose clause (iii) of
such definition), calculated as of the
Effective Date; PLUS (d) interest on the sum
of the amounts in clauses (a) through (c)
accruing from the Effective Date to and
including the Debt Closing Date, at the
TWE-A/N's senior bank rate(6) MINUS (e)
$51.5M in full satisfaction of the TWE
Group's indemnity obligations under Sections
8 and 9 of the 9/6/00 Road Runner letter
MINUS (f) interest on the amount in clause
(e) accruing from the date of TWEAN funding
of such indemnified liabilities in full
satisfaction of the TWE Group's obligations
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4 For these purposes, and as illustrated in the attached ILLUSTRATION A (it
being understood that the numbers indicated thereon are hypothetical), "Net
Debt" means the amount of TWE-A/N debt as of the Effective Date (including
all accrued and unpaid interest and principal under the TWE-A/N Note issued
to TWI in the Palm Desert transaction) MINUS (x) the accrued and unpaid
return and principal on the RR notes and RR preferred interests that are
assets of TWE-A/N as of the Effective Date and that were issued in
satisfaction of the funding liabilities described in Section 8 of the
9/6/00 RR letter MINUS (y) all cash and cash equivalents of TWE-A/N as of
the Effective Date (after giving effect to the cash to be received in steps
1 and 2 above), but excluding any cash receipts of the types described in
clauses (viii), (ix) or (xi) of Section 3.1 (a) of Exhibit A that are used
in, or are principally related to, any systems owned by TWEAN on the date
hereof (whether in the Florida Pool or the Residual Business) MINUS (z) the
amount (if any) by which the total fees, costs and expenses paid in cash by
TWE-A/N prior to the Effective Date in connection with any debt financing
arrangements incurred by it between the date hereof and the Debt Closing
Date exceeds $4.5Million. All RR and TCP notes and equity that are assets
of TWE-A/N and any cash and cash equivalents of TWE-A/N will be retained by
TWE-A/N for the benefit of the Residual Business.
5 This amount is in full settlement of all claims in respect of Restructuring
Indebtedness (other than preferred redemption prices and return), Excess
Tax Amount Indebtedness, "true-up" obligations being eliminated (as
described below in "A/N True-Up Rights"), all employee stock option
reimbursement amounts and TCP "cash" disputes. For the avoidance of doubt,
and notwithstanding anything in this Term Sheet to the contrary, A/N shall
have no liability for TWE-A/N's reimbursement obligations to TWE pursuant
to Section 3.1(h)(i)(A)(3) or Section 3.1(h)(iii) of the Partnership
Agreement after the Effective Date.
6 If TWE-A/N has no senior bank debt, then the rate used will be the senior
bank rate in the TWE Group.
9
under Section 4 of the 5/1/01 Road Runner
letter at the TWE-A/N's senior bank rate.(7)
4. Following the occurrence of steps 1, 2
and 3 above, A/N, TWE and Paragon shall have
the rights described in clause (1)(C) and
(2)(C) of Section 8.2(c)(iii) of the
existing TWE-A/N Partnership Agreement which
rights shall commence to the extent
permitted by law (any actions taken by the
A/N Group on or before Closing as a result
of or in reliance upon such clauses being
referred to as the "8.2(C)(III) ACTIONS").
5. All direct and indirect rights of the A/N
Group in connection with the Road Runner
venture shall be terminated, except as
described below under "Road Runner
Arrangements".
6. The payments to be made by A/N as
described above will be made on the basis of
TWE estimates, with a prompt post-closing
review and adjustment procedures conducted
in accordance with past practice, provided
that no such post-closing review and
adjustment procedure may be conducted with
respect to the amounts set forth in clauses
(b) or (e) of section 3 above.
7. For purposes of Section 8.4(b) of the
existing TWE-A/N Partnership Agreement, the
Indebtedness assumed by A/N shall be deemed
to equal the amount of Assumed Debt plus 1/3
of the cash and cash equivalents taken into
account in calculating "Net Debt."
8. TWE-A/N will pay cash to A/N (for the
benefit of the Selected Business) in an
amount equal to any positive balance in the
I/C Account, or A/N will pay cash to TWE-A/N
(for the benefit of the Residual Business)
in an amount equal to any negative balance
in the I/C Account. For this purpose, the
I/C Account will reflect any debits for
Pre-Closing Operating Costs due as of the
Debt Closing Time; provided that such debits
will be based on TWE estimates, with prompt
post-closing review and adjustment
procedures conducted in accordance with past
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7 If TWE-A/N has no senior bank debt, then the rate used will be the senior
bank rate in the TWE Group.
10
practice. Upon payment of the positive
balance by TWE-A/N or payment of the
negative balance by A/N, as the case may be,
the I/C Account will immediately terminate
and thereafter (i) TWE-A/N shall pay to A/N
any cash receipts of the Selected Business
received by TWE-A/N that should have been
paid to the Selected Business, (ii) A/N
shall be solely responsible for providing
cash and any other working capital needed by
the Selected Business including, without
limitation, for any amounts due and owing to
TWE or any of its affiliates as contemplated
by this Term Sheet and (iii) TWE-A/N shall
authorize the distribution of any cash
balance of the Selected Business that is
retained in a separate bank account of the
Selected Business (at a commercial bank
selected by A/N and reasonably acceptable to
TWC) to A/N within three days following
A/N's request therefor (which distribution
will be debited to such account of the
Selected Business).
CLOSING: Under the Transaction Agreement, the
conditions to closing ("CLOSING") of the
transactions contemplated by Amendment #2 to
the TWE-A/N Partnership Agreement described
below ("AMENDMENT #2") shall include, among
other things: (i) receipt of required local
franchise approvals for at least 70% of the
total subscribers in the Selected Business
as of the Effective Time; (ii) receipt of
all other required consents including any
required FCC approvals PROVIDED, THAT, the
Closing shall not occur prior to the Debt
Closing Date and all conditions other than
(x) those contained in the preceding clause
(i) and (y) any required FCC approvals (as
described in the preceding clause (ii))
shall (if not previously satisfied) be
deemed waived on December 31, 2002. The
Transaction Agreement will provide that if
consent or approval for the transfer of any
asset in the
11
Selected Business to the Subsidiary has not
been received by the Closing, then following
Closing (pending such consent) title to such
asset shall continue to be held by TWE-A/N
for the use and benefit of the Subsidiary as
a Beneficial Asset (it being understood that
TWE-A/N shall not have operational or
management duties with respect to such
asset, except to the extent required by law,
in which case all costs associated therewith
shall be paid by A/N). The Closing shall
take place on the last day of the month in
which the last of the Closing conditions is
satisfied (other than conditions to be
satisfied at the Closing). The parties will
cooperate and use reasonable efforts to
cause the Closing to occur as promptly as
practicable.
At Closing the TWE-A/N Partnership Agreement
will be amended to provide that A/N's
partnership interest tracking the
performance of the Selected Business will be
converted into a partnership interest (the
"SUBSIDIARY TRACKING INTEREST") tracking the
performance of the Subsidiary (as defined
below) and any assets held as Beneficial
Assets for the Subsidiary, and TWE's
interests in TWE-A/N will similarly be
converted into an interest tracking the
performance of the TWE-A/N business
excluding the Subsidiary and any assets held
as Beneficial Assets for the Subsidiary.
Also at the Closing, the following steps
shall occur pursuant to the Transaction
Agreement:
1. TWE-A/N will contribute to a newly formed
single purpose subsidiary (the "SUBSIDIARY")
all assets
12
in the Selected Business (as they exist at
Closing) (subject to arrangements described
above relating to assets where consent has
not been obtained).
2. The Subsidiary will assume from TWE-A/N
all liabilities in the Selected Business (as
described on EXHIBIT A). The Subsidiary will
be added as an additional indemnitor to the
indemnity provided by A/N on the Effective
Date, and as an additional indemnitee to the
indemnity provided by TWE on the Effective
Date
Pre-Closing Operating Costs: The Selected Business and the Subsidiary
will continue to pay cash to the TWE Group
in respect of all periods ending on or prior
to the Closing Date for all amounts due and
owing during such periods, in each case in
the ordinary course of business consistent
with past practice and the existing TWE-A/N
Partnership Agreement (including, without
limitation or duplication, under Section
3.1(h) of the TWE-A/N Partnership Agreement,
under the AOL High Speed Services Agreement
between AOL and TWC and for all Programming
Costs (as defined below) incurred prior to
Closing) (the "PRE-CLOSING OPERATING
COSTS").
Post-Closing Amendment #2 will provide that commencing on
Operating Costs: the Closing, the Subsidiary will pay to TWE
Cable the following amounts (each term as
defined below) in cash: (i) the Permanent
Services Costs; (ii) the Programming Costs;
(iii) the ISP Costs; (iv) the Hardware
Costs; (v) the Software Costs; (vi) the
13
Marketing Costs; (vii) the Consumer Research
Costs; (viii) the Ad Commissions; (ix)
subject to the written approval of A/N,
one-third of all legal expenses incurred by
TWE or TWE-A/N in connection with legal
"test cases" for the benefit of the cable
business; (x) subject to written approval by
A/N, one-third of the specific costs and
expenses to be reimbursed to TWE pursuant to
Section 3.1(h)(i)(B) of the existing TWE-A/N
Partnership Agreement; (xi) to the extent
not otherwise included in clauses (i)
through (x) above, and subject to the
written approval by A/N, the amount of any
direct TWE Group funding to or on behalf of
the Selected Business. All amounts described
in clauses (i) through (xi) above are
referred to in the aggregate as the
"POST-CLOSING OPERATING COSTS". Permanent
Service Costs shall be paid as described
under the section titled "Permanent Services
Costs" and all other Post-Closing Operating
Costs shall be paid promptly upon the
receipt from time to time by A/N of an
invoice from TWE Cable therefore.
MANAGEMENT:
Management of the Except as otherwise provided herein, prior
Subsidiary: to the Closing TWE will continue to manage
TWE-A/N (including the Selected Business) in
the ordinary course of business and in
accordance with the provisions of the
existing TWE-A/N Partnership Agreement
(including, without limitation, as to the
payment of liabilities related to the
Selected Business and Residual Business
consistent with past practice).
14
Amendment #2 will provide that, effective as
of Closing, A/N will manage the Subsidiary
and, to the extent permitted by law, any
assets held as Beneficial Assets for the
Subsidiary directly pursuant to a Management
Agreement with the Subsidiary (the
"MANAGEMENT AGREEMENT"), which will grant
A/N in such capacity, definitive authority
for overall supervision of the operations,
policies and decisions of the Subsidiary
including, but not limited to,
responsibility for day-to-day operations of
the Subsidiary (other than in regard to
Permanent Services, including programming,
which shall be managed as described below
under the heading "TWE Permanent Services");
PROVIDED, THAT the approval of TWE, as
Managing Partner acting on behalf of TWE-A/N
as equityholder of the Subsidiary, will be
required for the Subsidiary (or any of its
controlled affiliates) to take actions of
the type described in Section 3.2 of the
existing TWE-A/N Partnership Agreement (as
applied to the Subsidiary), except for the
following matters (the "PERMITTED MATTERS"):
clause (f) [debt limit for distributions],
clause (g) [agreements restricting
distributions], clause (h) [cable
dispositions], clause (i) [cable
acquisitions], clause (j) [other
acquisitions] (provided that clause (j)
shall be amended to require the party
intending to enter into a new line of
business described in clause (j) only to
give three months' notice to the other party
prior to entering into such business),
clause (k) [other dispositions] and clauses
(n) and (o) [strategic plans and
15
deviations].
TWE-A/N Executive Following Closing, the composition of the
Committee: TWE-A/N Executive Committee remains the same
as under the existing TWE-A/N Partnership
Agreement with voting rights proportionate
to Percentage Interests. The provisions of
Section 3 of the existing TWE-A/N
Partnership Agreement will be modified by
Amendment #2 so as to eliminate A/N's
involvement in the Residual Business;
PROVIDED, that the Executive Committee's
unanimous approval will still be required
for TWE-A/N to take actions of the type
described in Section 3.2 of the existing
TWE-A/N Partnership Agreement other than the
Permitted Matters; and PROVIDED, that the
Executive Committee's unanimous approval
will be required for TWE-A/N to dispose of
or encumber any interest in the Subsidiary
and for TWE-A/N to enter into any agreement
that would restrict distributions of cash
from the Subsidiary to A/N.
EXIT RIGHTS: As noted above, on the Effective Date the
provisions of Sections 8.1, 8.2 and 8.3 of
the TWE-A/N Partnership Agreement will be
deleted and such deletions will be reflected
in Amendment #1, and the parties will have
new restructuring rights as provided in the
following paragraph and in other relevant
provisions of this Term Sheet.
Following the Debt Closing Date, TWE and A/N
will each be permitted to cause a
restructuring of TWE-A/N at any time. At
such time as either TWE or A/N provides
notice of its election to cause a
16
restructuring, the continuing rights and
obligations of the parties described under
the heading "Other Business Opportunities"
shall terminate (and, for the avoidance of
doubt, as a result all of Article 10 of the
existing TWE-A/N Partnership Agreement shall
be terminated). Upon such a restructuring,
all of the assets in the Selected Business
(or, after Closing all of the equity
interests in the Subsidiary) will be
distributed promptly to A/N in complete
redemption of the Subsidiary Tracking
Interests (or any other interests in TWE-A/N
held by A/N prior to Closing), and all such
interests shall be cancelled, in all cases
subject to (a) applicable law and receipt of
all required consents not previously
received, (b) the assumption by the A/N
Group of all liabilities of the Selected
Business (or, after Closing all liabilities
of the Subsidiary) (as described in the
Transaction Documents) not previously
assumed, (c) the payment and satisfaction by
the A/N Group of all amounts not previously
paid but which are required to have been
paid by any of them at the Debt Closing or
the Closing, (d) the assumption by the TWE
Group of all liabilities of the Residual
Business (as described in the Transaction
Documents) not previously assumed, (e) the
payment and satisfaction by the TWE Group of
all amounts not previously paid but which
are required to have been paid by any of
them at the Debt Closing or the Closing.
17
MODIFICATIONS TO OTHER EXISTING
TWE-A/N PARTNERSHIP AGREEMENT
PROVISIONS:
TWE Transitional Services: Prior to the Closing, TWE Cable will
continue to make services available to the
Selected Business in the ordinary course of
business consistent with past practice and
the existing TWE-A/N Partnership Agreement
(including the AOL High Speed Services
Agreement between AOL and TWC), in exchange
for which the Selected Business will
continue to pay Pre-Closing Operating Costs
as described above; provided that the
Programming Services described below shall
commence as of the Debt Closing Date (and
for the avoidance of doubt Pre-Closing
Operating Costs shall include the obligation
to pay, without duplication, for Programming
Costs described below).
Selection of Permanent At or prior to October 1, 2002(8), A/N will
Services: notify TWE Cable in writing of those
categories of services specified on SCHEDULE
1 which A/N desires to continue following
Closing (any such selected service
category(9), a "PERMANENT SERVICE
CATEGORY"), it being understood that
programming must be included in such notice
as a Permanent Service Category and such
notification shall not split or combine any
services or categories of services listed
------------------------
8 With respect to services for the "Controller" category only, A/N may give
notice of termination at any time and such service will terminate six
months following such notice.
9 For the avoidance of doubt, a category is any line item on such schedule
that has a corresponding dollar charge opposite such line item.
18
on SCHEDULE 1. Where notice is to be
provided to A/N as described below, such
notice shall be given via fax to (or in the
case of Expedited Programming Circumstances,
telephone conference with) one of the
following individuals (or any successor to
such persons as specified by A/N): (a)
▇▇▇▇▇▇ ▇▇▇▇▇, (b) ▇▇▇▇▇ ▇▇▇▇▇ or (c) ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, in each case at such fax or
telephone numbers as A/N has provided to TWE
Cable prior to the date hereof (or such
other numbers as it shall direct in writing
after the date hereof).
TWE Permanent Services: From and after the Closing Date, until the
Subsidiary is distributed to A/N in full
redemption of the Subsidiary Tracking
Interest in a final restructuring (the
"PERMANENT SERVICES FINAL TERMINATION
DATE"), TWE Cable shall obtain, on behalf of
the Subsidiary, and the Subsidiary (and any
systems that the Subsidiary owns from time
to time) will participate in and be bound by
the following arrangements described below
(other than arrangements in any category
that A/N does not initially select as a
Permanent Service Category effective at
Closing), in each case only as and to the
extent such arrangements are made available
by TWE Cable to the Residual Business, such
participation is permitted under the terms
of any applicable third party arrangements
and then, only as otherwise described below,
including subject to any applicable
notice/authorization processes described
below. Following the Permanent Services
Final Termination Date, the Subsidiary will
no longer be entitled to so participate in
any such
19
arrangements entered into after such date
but shall remain bound by all arrangements
in existence prior to such date in
accordance with the terms thereof (in each
case to the extent permitted under the terms
of such arrangements).
Programming Services: TWE Cable will continue to manage
programming matters for the Subsidiary and
the Selected Business on the terms and
conditions set forth below.
EXISTING THIRD TWE shall continue to obtain, on behalf of
PARTY the Selected Business and, after Closing,
PROGRAMMING: the Subsidiary, and the Selected Business
and the Subsidiary will continue to
participate in (and will be bound by the
applicable terms of) all third party
programming arrangements made by TWE Cable
prior to the Debt Closing Date, in each case
to the extent permitted under the terms of
such arrangements and on the same basis on
which the Selected Business participated
therein prior to the Debt Closing Date,
including with respect to meeting launch and
other contractual commitments. For purposes
hereof, renewals and amendments to existing
third party programming arrangements made on
or after the Debt Closing Date that involve
material adverse changes to the categories
of parameters set forth on SCHEDULE 2 (the
"SPECIFIED CATEGORIES OF PROGRAMMING
Parameters") shall be treated as new third
party programming arrangements. If A/N
notifies TWE Cable that the Selected
Business or, after Closing, the Subsidiary
will not commit to participate in any such
renewal or amendment, the Selected Business
and,
20
after Closing, the Subsidiary shall cease to
be a party to such arrangement effective as
of the effective date of such renewal or
amendment; PROVIDED, HOWEVER, that the
Selected Business and, after Closing, the
Subsidiary shall be responsible for any and
all costs associated with its receipt of
programming prior to such effective date.
NEW THIRD PARTY On and after the Debt Closing Date, TWE
PROGRAMMING: Cable will cooperate and use commercially
reasonable efforts to include the Selected
Business' (and, after the Closing Date, the
Subsidiary's) systems in each new third
party programming arrangement being
considered by TWE Cable. With respect to any
such arrangement, TWE Cable must provide A/N
with advance written notice of the key
parameters of such arrangement in each of
the Specified Categories of Programming
Parameters. A/N will advise TWE Cable in
writing as promptly as possible (and in any
event within five business days of such
notice) that the Selected Business and,
after Closing, the Subsidiary will make
commitments for such arrangement, in which
case TWE Cable will use commercially
reasonable efforts to include the Selected
Business and, after Closing, the Subsidiary
in, and the Selected Business and the
Subsidiary will participate in and be bound
by, such arrangement on the final terms
negotiated by TWE Cable; provided that if
such final terms are outside the key
parameters last outlined to A/N, then before
consummating such arrangement A/N will be
given another two business days (subject to
the Expedited Programming Circumstances
referred to below) to
21
advise TWE Cable in writing that the
Selected Business and, after Closing, the
Subsidiary will participate in such final
arrangement. Notwithstanding the foregoing
proviso, the parties recognize that
exceptional circumstances ("EXPEDITED
PROGRAMMING CIRCUMSTANCES") sometimes occur
which require TWE Cable to make decisions
regarding entering into new third party
programming arrangements on a highly
expedited basis. In such Expedited
Programming Circumstances, A/N agrees that
so long as it is receiving the same notice
as executives of TWE Cable who must approve
such decision, at substantially the same
time, (i) A/N shall waive such two (2)
business days advance written notice so long
as TWE Cable contacts by telephone
conference any of the notice persons
referred to above under "Selection of
Permanent Services" to describe the changes
to the parameters previously described for
such arrangement and (ii) A/N agrees that
each of the people referred to in clause (i)
are authorized to bind the Selected Business
and the Subsidiary, as the case may be, to
such new third party programming. If A/N
fails to so advise TWE Cable within either
of the foregoing two or five business day
periods (or in Expedited Programming
Circumstances, upon contact specified
above), A/N will be deemed to have advised
TWE Cable that it has determined the
Selected Business and, after Closing, the
Subsidiary will participate in such
arrangement, in which case the Selected
Business and, after Closing, the Subsidiary
shall be committed to, and entitled to
participate in, such arrangement. If A/N
advises TWE Cable within either of the
foregoing two or five business day periods
that the Selected Business or, after
Closing, the Subsidiary will not participate
in such arrangement, then the Selected
Business and, after Closing, the Subsidiary
will not be committed to, or entitled to
22
participate in, such arrangement. On a
monthly basis the senior programming
executive of TWE Cable will meet with A/N in
person or by telephone to discuss the status
of any negotiations of third party
programming arrangements.
EXISTING TWE Cable will obtain, on behalf of the
AFFILIATED Selected Business and, after Closing, the
PROGRAMMING: Subsidiary, and the Selected Business and,
after Closing, the Subsidiary will continue
to participate in (and be bound by all
applicable terms of) all existing
programming arrangements entered into by TWE
Cable with its affiliates. If such
arrangement is renewed, or if the terms are
amended, in a manner adverse to the Selected
Business, or after Closing, the Subsidiary,
then such existing arrangement will cease to
apply to the Selected Business and, after
Closing, the Subsidiary and the renewed or
amended arrangement will be treated as a new
affiliated arrangement covered below. TWE
Cable shall notify A/N of any amendments to
such programming arrangements. Attached
hereto as SCHEDULE 3 is a list of all
national programming arrangements with
affiliates of TWE
23
Cable (i.e., controlled, controlled by or
under common control with) that is currently
in place.
NEW AFFILIATED TWE Cable will provide to the Selected
PROGRAMMING: Business and, after Closing, the Subsidiary
and the Selected Business and, after
Closing, the Subsidiary will participate in
all new programming arrangements entered
into by TWE Cable with any of its affiliates
as described below.
With respect to any such arrangement, TWE
Cable must provide A/N with advance notice
of the key parameters of such arrangement in
each of the Specified Categories of
Programming Parameters and, with respect to
any such arrangement entered into after the
Selection Date, TWE Cable must confirm to
A/N that the financial terms of such
arrangement are either (i) on most favored
nations terms based on TWE Cable's size or
(ii) comparable to those that would be
attainable in an arm's length negotiation
with an unaffiliated third party; provided
that with respect to Specified Categories of
Programming Parameters set forth in clause
(ii), A/N shall retain arbitration rights
currently provided in Section 3.4(b) of the
existing TWE-A/N Partnership Agreement to
arbitrate whether such terms are arms'
length. If such arrangement qualifies under
clause (i) above, A/N shall receive, on an
annual basis, the certification from a
senior AOLTW officer as to compliance with
such provision.
Programming Costs: The Selected Business and, after Closing,
the Subsidiary will pay TWE Cable for a pro
rata portion
24
(based on the aggregate number of
subscribers) of TWEAN's Total Programming
Payable(10) (which costs shall be payable on
a monthly basis) in connection with each
existing programming arrangement and each
future programming arrangement which is
provided to the Selected Business or the
Subsidiary or to which the Selected Business
or the Subsidiary is bound (each, the "PRO
RATA PROGRAMMING Charge"). Notwithstanding
the foregoing, in calculating the Pro Rata
Programming Charge with respect to
programming arrangements existing as of the
Debt Closing Date with respect to which
internal system-specific benchmarks have
been established (i.e. HBO, Cinemax,
Showtime/TMC) (each, a "BENCHMARK
ARRANGEMENT"), the Pro Rata Programming
Charge shall equal the (a) the Minimum
Contract Charge PLUS (b) the product of (i)
the number of subscribers in the Selected
Business or the Subsidiary, if any,
receiving the relevant programming service
in excess of the Subsidiary Benchmark times
(ii) the Incremental Contractual Rate. The
foregoing calculation is illustrated in
------------------------
10 For this purpose, "TWEAN'S PROGRAMMING PAYABLE" means the total amount of
TWEAN's payment obligations to TWE for programming as charged consistent
with Section 3.1(h) of the TWE-AN Partnership Agreement as modified by
current practice. The parties understand that current practice has modified
the treatment for programming deals to reflect compliance by individual
systems with certain contractual requirements and/or incentives relating to
(a) channel positioning (including adjacencies) or level or tier of service
on which a given programming service is carried (e.g., analog CPSTvs.
digital),(b) system-specific launch and/or carriage requirements or
incentives (e.g., an Orlando-based programmer paying a premium for a launch
commitment in that system) or (c) differences in programming rates based on
geographic location of a system (e.g., regional sports networks with higher
rates in "inner market"zones).
25
ILLUSTRATION B attached hereto (it being
understood that the numbers indicated
thereon are hypothetical).
"MINIMUM CONTRACT CHARGE" means, with
respect to any Benchmark Arrangement, an
amount equal to (a) the Base Contractual
Rate (as defined below) for such Benchmark
Arrangement multiplied by (b) the Subsidiary
Benchmark (as defined below).
"BASE CONTRACTUAL RATE" means, with respect
to any Benchmark Arrangement, the
then-current per-subscriber rate (including
any applicable surcharge(s)), up to the
number of subscribers that equals the Total
Benchmark under such Benchmark Arrangement.
"INCREMENTAL CONTRACTUAL RATE" means, with
respect to any Benchmark Arrangement, the
then-current per-subscriber rate(s) above
the number of subscribers that equals the
Total Benchmark (which may include a
per-subscriber rate of zero for some or all
of such subscribers) under such Benchmark
Arrangement.
"TOTAL BENCHMARK" means, with respect to any
Benchmark Arrangement, the aggregate number
of TWE Cable, the Selected Business and
Subsidiary subscribers that must, as of the
date of measurement, receive the relevant
programming service in order to obtain a
reduction in the per-subscriber fee.
"SUBSIDIARY BENCHMARK" means, with respect
to any
26
Benchmark Arrangement, an amount equal to
(a) the number of subscribers in the
Selected Business' systems as of May 31,
2001 that receive the relevant programming
service DIVIDED by the aggregate number of
subscribers in TWE Cable and Selected
Business systems that receive such
programming service as of May 31, 2001 times
(b) the relevant Total Benchmark. The
Subsidiary Benchmark shall be equitably
adjusted from time to time to reflect system
acquisitions and dispositions, occurring
after May 31, 2001, in a manner consistent
with the relevant Benchmark Arrangement. If
A/N elects, in accordance with this Term
Sheet, to notify TWE Cable that the
Subsidiary or Selected Business will not
commit to participate in any renewal or
amendment of any existing programming
arrangement, the Subsidiary and the Selected
Business shall be responsible for all costs
and expenses associated with the programming
services provided to the Subsidiary or the
Selected Business prior to the date on which
the Subsidiary and the Selected Business
actually cease to run, accept or participate
in such services. The Selected Business and
the Subsidiary will indemnify TWE Cable for
all losses caused by, arising out of, or
relating to any failure by the Selected
Business or the Subsidiary to perform its
obligations in respect of any programming
arrangement or commitment to which it is or
becomes bound in accordance with the
"Programming Services" section above.
27
All amounts required to be paid pursuant to
this section from time to time shall be
referred to in the aggregate as "PROGRAMMING
COSTS."
ISP Arrangements:
EXISTING THIRD TWE Cable will continue to obtain, on behalf
PARTY ISP: of the Subsidiary, and the Subsidiary will
continue to participate in and be bound by
the applicable terms of all existing third
party ISP arrangements made by TWE Cable, in
each case to the extent permitted under the
terms of such arrangements and on the same
basis on which the Selected Business
participated therein prior to the Closing.
NEW THIRD The Subsidiary will participate in all new
PARTY ISP: third party national ISP deals entered into
by TWE Cable as described below, unless A/N
does not accept any such arrangement, as
described below.
With respect to any such arrangement, TWE
Cable must provide A/N with advance written
notice of the key parameters of such
arrangement in each of the categories of
parameters described on SCHEDULE 4. A/N will
advise TWE Cable in writing as promptly as
possible (and in any event within five
business days of such notice) that TWE Cable
is authorized to commit the Subsidiary to
such arrangement, in which case the
Subsidiary will participate in and be bound
by such arrangement on the final terms
negotiated by TWE Cable; provided that if
such final terms are different from the key
parameters last outlined to A/N, then before
consummating such arrangement
28
A/N will be given another two business days
to advise TWE Cable in writing that it is
authorized to commit the Subsidiary to such
final arrangement. If A/N fails to so advise
TWE Cable within either of the foregoing two
or five business day periods, A/N will be
deemed to have advised TWE Cable that it is
so authorized, in which case the Subsidiary
shall be committed to, or entitled to
participate in, such arrangement. If A/N
advises TWE Cable within either of the
foregoing two or five business day periods
that the Subsidiary will not participate in
such arrangement, then the Subsidiary will
not be committed to, or entitled to
participate in, such arrangement.
ROAD RUNNER
ARRANGEMENTS:
EXISTING The existing Road Runner affiliation
AFFILIATION agreement will continue to apply to the
AGREEMENT(11) Subsidiary through May 1, 2011; PROVIDED,
THAT, A/N may, at any time after Closing
upon six-months notice to TWE-A/N cause the
termination of such agreement's application
to the systems in the Subsidiary. TWE-A/N
has the right to alter or eliminate the Road
Runner service so long as TWE-A/N provides
A/N with at least 12 months advance notice
prior to making any alterations that would
be materially adverse to the Road Runner
services provided to customers as a whole
(the actual
------------------------
11 For the avoidance of doubt, the existing Road Runner affiliation agreement
will survive (to the extent not previously terminated in accordance with
its terms (as modified by this Term Sheet) any restructuring described
under the heading "Exit Rights."
29
advance notice given by TWE-A/N being
referred to as the "SERVICE CHANGE NOTICE"
and the actual period of such advance notice
being referred to as the "SERVICE CHANGE
NOTICE Period"). Upon any such termination
of the affiliation agreement, TWE-A/N will
cause the RDC assets and other regional and
local HSD assets used by Road Runner to
provide high-speed data services that are
solely serving, and the right to hire BNS
technicians dedicated to, systems in the
Selected Business, as well as the Florida
RDC, to be transferred to the Subsidiary,
and TWE Cable and A/N will enter into
reasonable transaction arrangements relating
to those systems in the Selected Business
served by RDC assets that will not be
transferred to the Subsidiary, as well as
for those systems that are not in the
Selected Business which are served by the
RDC assets to be transferred to the
Subsidiary. Upon such termination of the
affiliation agreement, subject to the
negotiation by the parties of a reasonable
fee to be paid by A/N, A/N shall be granted
(a) the right to use any software developed
by Road Runner prior to the termination of
such affiliation which software supports the
assets to be transferred to the Subsidiary
as described in the preceding sentence and
(b) to the extent permitted by applicable
contracts and law, a right to use any third
party software which supports the assets
described in the preceding sentence, so long
as no additional costs are incurred by Road
Runner. It is understood and agreed that
such grant shall not include any obligation
to upgrade or maintain any such software
30
(unless and to the extent expressly agreed
by the parties at such time). A/N will
indemnify Road Runner for all losses caused
by, arising out of, or relating to A/N's use
of such third party software.
MISP The Subsidiary will continue to abide by all
OBLIGATIONS/ applicable ISP agreements, including without
ATDN: limitation all obligations to continue to
provide ATDN-type connectivity and, if
required pursuant to such arrangement,
source-based routing; provided that TWE
Cable hereby agrees that the Subsidiary
shall have no liability with respect to
third party ISPs (and TWE Cable shall
indemnify and hold harmless A/N and the
Subsidiary from any and all claims arising
out of the provision of ATDN services,
including but not limited to any failure of
performance) and A/N hereby agrees that the
Subsidiary will not share in the financial
rewards of such arrangements and will
promptly pay over any amounts received in
respect of such service to TWE Cable. If A/N
elects to terminate the Road Runner
affiliation agreement applicable to the
Subsidiary, and following such termination
A/N elects (on behalf of the Subsidiary) not
to continue to use and pay for ATDN
connectivity provided by Road Runner, then
it shall provide TWE Cable with adequate
advance notice (which in no event shall be
less than 12 months; provided that if such
notice is delivered within 13 months
following delivery of a Service Change
Notice, then the period required for such
advance notice shall be reduced from 12
months by the number of days (if any) by
which the Service
31
Change Notice Period is less than 13 months)
and will otherwise cooperate, at no cost to
A/N, so as to avoid any circuit based
liability for the TWE Group. If A/N elects
to receive ATDN service after such a
termination, then the cost to be charged to
the Subsidiary for ATDN connectivity by
members of the TWE Group will be as set
forth on SCHEDULE 7 attached hereto.(12)
TERMINATION Except for rights provided pursuant to the
OF JV: existing Road Runner affiliation agreement,
all of the A/N Group's direct and indirect
(including through TWE-A/N) rights,
interests (whether equity or debt) and
obligations in respect of the Road Runner
joint venture (or any of its assets,
including any rights to the Road Runner name
or trademarks or email domain address) will
cease as of the Debt Closing Date. All of
such interests will be for the benefit of
the Residual Business. Except as set forth
above, all of TWE Group's obligations to A/N
in respect of Road Runner (including in
respect of the long-term strategic plan or
marketing spending) will cease as of the
Debt Closing Date.
ISP Costs: The Subsidiary, will be obligated to
compensate (which for this purpose, includes
through the sharing or remittance of fees
collected by or on behalf of) TWE Cable or
its affiliates in respect of all ISP
arrangements in which the Subsidiary is
committed
------------------------
12 Construction of the fiber ring in Florida to be negotiated between TWE
Group and A/N.
32
as described above (or as may be agreed by
the parties in connection herewith or after
the date hereof), in each case pursuant to
the terms of such arrangements.
The Subsidiary will indemnify TWE Cable for
all losses caused by, arising out of, or
relating to any failure by the Subsidiary to
perform its obligations in respect of any
ISP arrangement to which it is or becomes
bound in accordance with the "ISP
Arrangements" section above. All amounts
required to be paid pursuant to this section
from time to time shall be referred to in
the aggregate as "ISP Costs."
Other Services:
HARDWARE: With respect to all basic hardware and
equipment of an "off-the-shelf" variety set
forth on SCHEDULE 5 hereto, TWE Cable, at
the request of A/N on behalf of the
Subsidiary, will purchase (or will make
arrangements for the Subsidiary to purchase
on the same terms available to TWE Cable)
such basic hardware and equipment pursuant
to TWE Cable's company wide contracts with
applicable vendors. With respect to set top
boxes, modems and other advanced hardware
and equipment set forth on SCHEDULE 5
hereto, TWE Cable, at the request of A/N on
behalf of the Subsidiary, will use
commercially reasonable efforts to purchase
or to make arrangements for the Subsidiary
to purchase such set top boxes, modems and
other advanced hardware and
33
equipment pursuant to TWE Cable's company
wide contracts with applicable vendors so
long as the A/N and the Subsidiary accepts
such set top boxes, modems and other
advanced hardware on the same terms and
specifications as those for TWE Cable. In
the event that the Subsidiary needs
deviations from the specifications of TWE
Cable, TWE Cable will make reasonable
efforts to work with A/N to seek the
application of discounts available to TWE
Cable under its company wide contracts with
applicable vendors to the equipment
requested by A/N which deviates from the
specifications of TWE Cable.
In an effort to ensure that A/N has the
opportunity to follow TWE Cable's guidelines
and specifications, a designated
representative of A/N will be allowed to
attend scheduled internal meetings and
briefings regarding vendor selection and
specifications, set top boxes, modems and
other hardware. TWE Cable will also offer
A/N the opportunity to meet with the Chief
Technology Officer or other senior executive
of TWE Cable on a monthly basis to review
technology strategies and tactics. A/N
agrees that if confidential or proprietary
information between divisions of AOL Time
Warner is being discussed, TWE Cable, in its
sole discretion, may ask A/N to leave the
meeting and A/N will comply with such
request. A/N also agrees that there are many
informal, unscheduled and impromptu
discussions and meetings within TWE Cable on
the aforementioned matters and that it
would not be practical to include A/N in
each of such
34
meetings.
The Subsidiary will be obligated to
reimburse TWE Cable for TWE Cable's cost of
all hardware purchased on behalf of the
Subsidiary as described above. The
Subsidiary will indemnify TWE Cable for all
losses caused by, arising out of, or
relating to any failure by the Subsidiary to
perform its obligations in respect of any
hardware purchasing arrangements which it
accepts as described above. All amounts
required to be paid from time to time
pursuant to this paragraph shall be referred
to in the aggregate as the "HARDWARE COSTS."
ENGINEERING: If and to the extent (a) the Subsidiary
participates in TWE Cable's purchase of any
hardware, (b) such hardware requires
technical engineering services from TWE
Cable, (c) the Subsidiary uses the same
system architecture as TWE Cable and does
not require modification to interface with
any systems or applications (including
billing systems) and (d) the Subsidiary
accepts the hardware and technical
engineering on the same terms as those for
TWE Cable (other than the minimum deviations
required solely to allow for delivery of
local data and brand (the "PERMITTED
DEVIATIONS")), then TWE Cable will provide
technical engineering services for any
hardware purchased on behalf of the Selected
Business from time to time (as described
above) on the same terms as received by TWE
Cable consistent with past practice
regarding the prioritization of services to
all systems. If the Subsidiary demands to
35
change the hardware, then TWE Cable, upon 90
days' written notice to A/N, will have no
further obligations of technical engineering
with respect to such hardware.
36
SOFTWARE: If, and to the extent, (a) the Subsidiary
participates in TWE Cable's purchase of any
hardware, (b) such hardware requires
separate software, (c) the Subsidiary
purchases engineering services from TWE
Cable, (d) the Subsidiary uses the same
system architecture as TWE Cable and does
not require modification to interface with
any systems or applications (such as billing
systems), and (e) the Subsidiary accepts the
hardware and software on the same terms
(other than for Permitted Deviations) as
those for TWE Cable, then TWE Cable will use
reasonable efforts to license such software
to the Subsidiary on the same terms as those
received by TWE Cable (or will make
arrangements for the Subsidiary to license
such software from the provider of such
software on the same terms available to TWE
Cable). If TWE Cable owns software rights,
it will use reasonable efforts to negotiate
a license to the Subsidiary on reasonable
terms. If the Subsidiary demands to change
the hardware or software, then TWE Cable,
upon 90 days' written notice to A/N, will
have no further obligation with respect to
such hardware or software.
Software applications related to specific
applications and products will be handled as
described below under "Development
Projects."
The Subsidiary will be obligated to
reimburse TWE Cable for TWE Cable's cost of
all software purchased or licensed on behalf
of the Selected Business and Subsidiary as
described above. The
37
Subsidiary will indemnify TWE Cable for all
losses caused by, arising out of, or
relating to any failure by the Subsidiary to
perform its obligations in respect of any
software arrangements which it accepts as
described above. All amounts required to be
paid from time to time pursuant to this
paragraph shall be referred to in the
aggregate as the "SOFTWARE COSTS."
MARKETING: The Subsidiary and TWE Cable will cooperate
with respect to marketing campaigns launched
by TWE Cable as described below.
TWE Cable will notify A/N of all marketing
campaigns launched by TWE Cable after the
Closing. The Subsidiary will participate in
all such campaigns unless A/N opts-out of
such arrangement in writing within 15
business days of such notice. The Subsidiary
will be obligated to reimburse TWE Cable for
its pro rata portion of TWE Cable's costs
(including development costs) of each such
campaign in which the Subsidiary
participates as described above; provided
that the Subsidiary will also be obligated
to reimburse and indemnify TWE cable for all
costs associated with re-branding and will
provide their own media. All such
obligations to TWE Cable from time to time
in the aggregate are referred to as the
"MARKETING COSTS."
CONSUMER The Subsidiary and TWE Cable will cooperate
RESEARCH: with respect to consumer research projects
as described below.
The Subsidiary will participate in all such
consumer research projects unless A/N
opts-out of such
38
arrangement on six-months notice(13), in
which case the Subsidiary will not be
entitled to share in the results of any TWE
Cable research projects conducted
thereafter. The Subsidiary will be obligated
to reimburse TWE Cable for the Subsidiary's
pro rata share of TWE Cable's costs of all
research projects conducted prior to the
expiration of the six-month period after
which A/N elected not to participate as
described above. All such obligations to TWE
Cable from time to time in the aggregate are
referred to as the "CONSUMER RESEARCH
COSTS."
MDU SERVICES: TWE Cable will continue to provide to the
Subsidiary and the Subsidiary will continue
to participate in (and be bound by all
applicable terms of) all national MDU
arrangements entered into by TWE Cable with
respect to buildings in a DMA of the
Subsidiary's systems; PROVIDED THAT TWE
Cable notifies A/N in writing (with copies
to each of the Subsidiary's division
presidents) of the terms of any such new MDU
arrangement (including renewals and
amendments to the key parameters of such
arrangements) entered into after the
Effective Date and A/N opts-in to such
arrangement in writing within five business
days of such notice to A/N.
Permanent Service Costs: Following the Closing Date until the
Permanent Services Final Termination Date,
the Subsidiary will
------------------------
13 The Subsidiary will be able to opt-in to customer satisfaction surveys on a
project-by-project basis.
39
pay TWE Cable, monthly in arrears, cash in
the amounts set forth on SCHEDULE 1 hereto
opposite each Permanent Service Category, as
increased by all Applicable Adjustments(14)
from time to time (such charges, the
"PERMANENT SERVICES COSTS")(15), in each
case regardless of the quantity or quality
of actual services available or utilized;
PROVIDED, HOWEVER, that (a)(x) following the
Closing, A/N upon at least six months'
notice to TWE Cable, or (y) commencing after
the first year following Closing, upon at
least six months notice to A/N which may be
given prior to the end of such first year,
TWE Cable, can terminate all (but not less
than all) of any of the services (in each
case other than any of the programming and
"off the shelf" hardware services set forth
on SCHEDULE 5), comprising a Permanent
Service Category whereupon TWE Cable will
have no obligation to the A/N Group with
respect to any services in such category
from and after the date that is six months
following such notice (or such later date as
specified in such notice) (the "PERMANENT
SERVICES PARTIAL TERMINATION DATE"); (b)
from and after the Permanent Services
Partial Termination
------------------------
14 For these purposes, "APPLICABLE ADJUSTMENTS" means (i) a CPI increase of
such charges on the Closing Date (to reflect CPI increase from the term
sheet date) (ii) a further CPI increase of such charges on each anniversary
of the Closing and (iii) an additional adjustment on each anniversary of
the Closing to account for changes in the relative number of cable
television subscribers to the TWE Group and the Subsidiary, provided that
the adjustment set forth in clause (iii) shall only be made if the number
of cable television subscribers to either the TWE Group or the Subsidiary
increases or decreases by more than 200,000 from the previous year.
15 On any Permanent Services Final Termination Date or Partial Termination
Date all accrued and unpaid Permanent Services Cost shall immediately
accelerate and become due and payable.
40
Date, the amount set forth on such schedule
opposite the category of services so
terminated will not be charged to the A/N
Group following such date; (c) any such
termination of the MISP category will be
deemed to be an election by A/N not to
authorize any commitment of, and to waive
all rights of participation by, the
Subsidiary in any future ISP arrangements
negotiated by TWE Cable; (d) any termination
of the purchasing services category (a
component of the Engineering category) will
be deemed to terminate all hardware
purchasing obligations of TWE Cable; (e) any
termination of the Engineering category (or
of any of the new technology services or the
engineering services that comprise such
category) will be deemed to terminate all
hardware purchasing obligations of TWE Cable
with respect to the categories listed in
items 1, 2 and 3, and item 4 (other than
clause (b) or (c) thereof) of SCHEDULE 5;
(e) any termination of the Residential
Shared Services Category will be deemed to
terminate all MDU obligations of TWE Cable;
(f) any termination of the Marketing
category will be deemed to terminate all
marketing obligations of TWE Cable; and (g)
any termination of the consumer research
category will be deemed to terminate all
consumer research obligations of TWE Cable.
Nothing contained in the foregoing shall be
deemed to terminate any party's obligations
in respect of periods prior to the date of
termination.
Advertising: From and after the Effective Date, if TWE
Cable, as sales representative, sells any
advertising on the
41
systems in the Selected Business (at rates
established by the Selected Business, and
only if the Selected Business accepts such
advertising), the Selected Business will pay
TWE Cable as a commission for such service
20% of such advertising revenue plus all
direct costs incurred by TWE Cable in such
transactions without duplication of any
amounts paid under Section 3.1(h) of the
existing TWE-A/N Partnership Agreement for
such service. All such commissions owed to
TWE Cable from time to time in the aggregate
are referred to as the "AD COMMISSIONS".
Following the date hereof, the Selected
Business will run all advertising, as
described on SCHEDULE 6 (it being understood
that such description includes only
estimated amounts) that is sold for cash
prior to the Effective Time in accordance
with the terms of such sale; PROVIDED that
all cash received for such advertising shall
be included in the amount of cash and cash
equivalents used to reduce "Net Debt" as
described above; PROVIDED FURTHER that
following the Effective Time the Selected
Business and, following Closing, the
Subsidiary will be entitled to cash
subsequently received for advertising on its
systems; and PROVIDED, FURTHER, that such
advertising for any TWE Group members may be
used to promote any products or services
(including, without limitation, of any other
TWE Group member) unless they promote AOL
service offerings other than AOL's
high-speed cable modem data services.
Branding: At, or as soon as possible after Closing,
A/N will
42
operate the Subsidiary under its own name
(which will not incorporate any of the TWE
Cable brands), and the Residual Business
will operate under its own name (which will
not incorporate any of the Subsidiary's
brands). Any litigation, compromises or
regulatory activity (including lobbying) by
the Subsidiary will be conducted by A/N in
its own name and will not be attributed to
TWE-A/N or its affiliates. Any litigation,
compromises or regulatory activity
(including lobbying) by the Residual
Business will not be attributed to the
Subsidiary or A/N without its written
consent.
Development Projects: TWE Cable and A/N intend to periodically
discuss in good faith new product
development and any mutually beneficial
opportunities to share in the costs and
benefits related thereto.
Other Business Activities: Following the Selection Date, the existing
TWE-A/N Partnership Agreement will be
modified to delete Section 10 (Other
Business Activities); PROVIDED, that,
subject to the provisions under "Exit
Rights" described above, Section 10.1 will
continue to apply in favor of the Subsidiary
with respect to System Opportunities that
are entirely in the Subsidiary's DMA and in
favor of the TWE Group with respect to
System Opportunities that are entirely in
the DMA of the TWE Group, in each case
excluding "bundled" opportunities that
include subscribers outside of an applicable
DMA; PROVIDED, FURTHER that (a) in
considering any such bundled opportunity,
the parties
43
will in good faith consider whether a
mutually beneficial arrangement involving
the other party should be explored with
respect to such opportunity; (b) the
acquisition of an MSO (or all or
substantially all of the systems of an MSO)
by the TWE Group or the Subsidiary Group
will not be considered a "System
Opportunity" for such purposes; and (c)
Section 10.2(a) (to the extent of any equity
for carriage deals) will continue to apply
in favor of the Subsidiary, treating all
cable systems owned by TWE-A/N as "other TWE
Systems" and all cable systems owned by the
Subsidiary as "Partnership Systems." In
addition, Sections 4 and 5 [Future Foreign
Cable Investments and Treatment of Foreign
Cable Investments] of the Letter Agreement
dated April 1, 1995 between A/N and TWE will
be deleted.
Employee Matters: The Subsidiary will not be permitted, or
have the power, to become an employer or to
establish benefit plans or arrangements. The
Subsidiary will not assume any benefit plans
or related assets or liabilities (E.G.,
pension) at the Closing. Instead, all of
those assets and liabilities for the
Selected Employees will be transferred to
the A/N Group directly at Closing.(16) All
costs and benefits for past and future
------------------------
16 The projected benefit obligation ("PBO") of all participants in the TWE-A/N
Pension Plan (the "PENSION PLAN") will be determined as of the Closing, and
at Closing the A/N Group will assume the PBO, and all other pension
obligations, in respect of the Selected Employees. The fair value of the
assets of the Pension Plan as of the Closing shall be divided between the
Selected Business and the Residual Business at Closing so that the ratio of
the fair value of the assets of the Pension Plan allocated to the
44
employment arrangements of current or former
Selected Employees, and the administration
thereof, will be the sole responsibility of
A/N; and all costs and benefits for past and
future employment arrangements of current or
former employees of the Residual Business,
and the administration thereof, will be the
sole responsibility of the Residual
Business.
Except as otherwise provided in this term
sheet, from and after Closing, none of the
TWE Group or their respective ERISA
affiliates (including for this purpose the
Subsidiary) will be responsible for any
------------------------
Selected Business to the fair value of the total assets of the Pension Plan
is the same ratio as the PBO of the Pension Plan with respect to the
Selected Employees to the total PBO of all participants in the Pension
Plan; provided, that neither the Residual Business nor the Selected
Business will be allocated either more of the Pension Plan assets than is
permitted under Section 414(l) of the Internal Revenue Code or less than
the amount of Pension Plan assets required by that section. In the event
that the proviso in the preceding sentence results in either Business being
allocated, as of the Closing, an amount of Pension Plan assets different
than the amount of Pension Plan assets (the "PBO ASSET SHARE") it would
have been allocated but for such proviso: (i) if the assets so allocated to
the Selected Business on the Closing are less than its PBO Asset Share on
the Closing, a positive adjustment as between the A/N Group and the TWE
Group, in an amount equal to the shortfall, shall be made in favor of the
A/N Group as of the Closing and (ii) if the assets so allocated to the
Selected Business on the Closing are greater than its PBO Asset Share on
the Closing, a positive adjustment as between the A/N Group and the TWE
Group, in an amount equal to the excess, shall be made in favor of the TWE
Group as of the Closing; any required adjustment in favor of the TWE Group
shall be satisfied through the assumption and immediate discharge of
additional debt of the TWE Group by the A/N Group (similar to Assumed Debt
discharged at the Debt Closing Date) and any required adjustment in favor
of the A/N Group shall be satisfied through the payment of cash, in each
case without any special adjustment for taxes. All determinations are to be
made by the Pension Plan's current actuaries, subject to review by A/N's
actuaries. The Pension Plan assets allocated to the Selected Business shall
be transferred to A/N's tax-qualified pension plan at Closing, or as soon
thereafter as practicable (adjusted for subsequent investment experience,
benefit payments, etc...).
45
costs or liabilities (including, without
limitation, under any bonus, severance,
change of control, retirement, pension,
health, bonus or other benefits
arrangements) to or in respect of any
current or former Selected Employees; and
none of the A/N Group or their respective
ERISA affiliates will be responsible for any
costs or liabilities (including, without
limitation, under any bonus, severance,
change of control, retirement, pension,
health, bonus or other benefits
arrangements) to or in respect of any
current or former employees of the Residual
Business.
From the Selection Date until the first
anniversary of the Closing Date, none of the
members of the TWE Group which are engaged
in the operation of cable television systems
(the "TWE CABLE GROUP") including, for
purposes hereof, all employees of the AOL
Time Warner Interactive Group, will hire or
solicit Selected Employees (other than for
the benefit of the Selected Business prior
to Closing), and none of the members of the
A/N Group which are engaged in the operation
of cable television systems (the "A/N CABLE
GROUP") will hire or solicit employees of
the TWE Cable Group, including, for purposes
hereof, all employees of the AOL Time Warner
Video Interactive Group. Promptly after the
date hereof, the parties intend to negotiate
in good faith an appropriate employee
matters agreement to facilitate an orderly
transfer of employment, the transfers
contemplated hereby and a smooth transition
to follow-on benefit programs. The parties
intend
46
as part of such agreement, without cost to
the TWE Group: (i) to provide for the
transfer to an A/N 401(k) plan of the 401(k)
plan accounts of employees inthe Florida
Pook in a way that complies with law and
that will allow a continuing investment
option with respect to AOLTW securities (at
least to the extent those accounts are
invested in such securities at the time of
transfer); and (ii) to transfer the deferred
compensation program (including related
accounts) presently maintained for selected
executives in the Florida Pool so as to
allow that program to continue for those
selected executives without interruption.
A/N Information Rights: A/N will have access to all information
regarding the Selected Business, its
operations and employees. A/N will also be
entitled to receive internal memoranda from
TWC's corporate staff to the division
presidents of the Selected Business through
the Closing Date. A/N shall have no rights
with respect to the Residual Business for
the period after the Effective Date;
provided that A/N shall have the right to
copies of contracts that bind the A/N Group.
In addition, A/N's rights regarding tax
information, reports (including Form K-1s)
and returns for the Residual Business
following the Effective Date will be
eliminated (to reflect the fact that at the
Effective Date A/N will be treated as having
withdrawn from TWE-A/N for tax purposes).
Provision will be made for the parties to
cooperate with respect to tax audits and
other tax matters after Closing.
47
A/N True-Up Right: Other than the consent decree true-up in
paragraph 7 of the true-up letter, the
true-up rights of A/N regarding affiliated
transactions will be eliminated effective
immediately. Accordingly, Section 3.4
(except as contemplated above under the
heading "New Affiliated Programming") and
Section 8.6 of the existing TWE-A/N
Partnership Agreement are hereby being
deleted (as are all "Value Diminution"
provisions, which are being deleted as part
of the elimination of the existing Sections
8.1, 8.2 and 8.3, as described above under
"Exit Rights"). Existing true-up claims, if
any, have been resolved by the parties as
part of these negotiations.
Partnership Allocations Amendment #1 will provide that TWE-A/N's
and Distributions: books will be closed on the day immediately
preceding the Effective Date, and it will
amend the provisions regarding the
allocation of tax items (Section 5) as
appropriate to reflect terms expressed in
this term sheet (i.e. allocations to follow
tracking economics).
Amendment #1 will provide that after the
Effective Date, distributions
("Pre-Effective Date Tax Distributions")
will be made to the Partners in accordance
with the existing Partnership Agreement,
which shall equal the tax distributions that
would be made to the Partners pursuant to
the existing Partnership Agreement with
respect to the period ending on the day
immediately preceding the Effective Date
(other than with respect to taxes arising as
a result of transactions contemplated by the
Transaction Documents that would have been
48
reflected in the calculation of
Restructuring Indebtedness and/or Excess Tax
Amount Indebtedness). Such distributions
paid to A/N will be debited to the I/C
Account.
During the period beginning on the Effective
Date and ending on the Debt Closing Date,
TWE-A/N will make distributions to A/N (in
addition to A/N's share of the Pre-Effective
Date Tax Distributions) with respect to
income taxes arising from taxable income
generated by the Selected Business for the
period beginning on the Effective Date and
ending on the Debt Closing Date (other than
with respect to taxes arising as a result of
transactions contemplated by the Transaction
Documents that would have been reflected in
the calculation of Restructuring
Indebtedness and/or Excess Tax Amount
Indebtedness). Such distributions will also
be debited to the I/C Account.
For the avoidance of doubt it is expressly
understood that TWE-A/N shall be permitted
from and after the Effective Date to make
such distributions to TWE or Paragon as TWE
or Paragon, respectively, requests in its
sole judgment (other than distributions from
or of the Selected Business prior to Closing
or of the Subsidiary after Closing).
Indemnification: Section 13 of the existing TWE-A/N
Partnership Agreement will be supplemented
to provide for an indemnity by the
Subsidiary and A/N in favor of TWE-A/N and
its affiliates substantially similar to the
indemnity in Section 13.1 and A/N will
provide
49
an indemnity for actions by the Subsidiary
that are not expressly authorized by TWE-A/N
substantially similar to the indemnity in
Section 13.2. Moreover, the existing
indemnities will be modified so that A/N and
the Subsidiary will not be required to
indemnify TWE or TWE-A/N with respect to the
Residual Business and so that the
Subsidiary, as well as A/N, will expressly
benefit from the indemnities from TWE-A/N
and TWE in respect of the Residual Business.
Transfer Restrictions: Until a final restructuring pursuant to the
Exit Rights provisions described above, TWE
and A/N will remain subject to the transfer
restrictions in the existing TWE-A/N
Partnership Agreement and Parents Agreement.
ROFO: Section 8.4 and Section 8.5 of the existing
TWE-A/N Partnership Agreement will become
applicable to the Subsidiary as well as A/N
(treating the Effective Date as the
distribution date of the A/N Asset Pool for
purposes of Section 8); provided that
Section 8.4 will be modified so that the
restrictions on A/N's ability to contribute
its Asset Pool to a Contribution Entity
shall expire on 1/1/05 (i.e. the "later of"
provision in (x) shall be eliminated).
The existing TWEAN Partnership Agreement
shall be amended to add a new Section 8.6,
which shall give to AOLTW an additional
right of first offer (the "Section 8.6
ROFO") (which, for the avoidance of doubt,
shall continue to apply following a final
Restructuring unless waived in accordance
with its
50
terms), as follows: During the 30-day period
immediately following each of the 1st, 7th,
13th, and 19th anniversaries of the
Advance/▇▇▇▇▇▇▇▇ Put Event (as defined in
Section 9 of the existing TWEAN Partnership
Agreement), A/N may, if it wishes to sell
any Transfer Assets (as defined in Section
8.5 of the existing TWEAN Partnership
Agreement) in a transaction otherwise
subject to the ROFO in such Section 8.5,
trigger a special sale process described
below (the "Special Sale Process") by
delivering a notice to TWE (a "Special Sale
Notice"). The Special Sale Notice shall
specify all of the information required
under Section 8.5(b) (other than clause (i)
thereof) of the existing TWEAN Partnership
Agreement to be specified in an Offer Notice
(including without limitation the types of
currency and whether the sale is to be
taxable or tax deferred), and the types of
currency and other terms permitted to be
specified therein shall be limited to the
types permitted to be specified under
Section 8.5(b). Within 60 days following the
delivery by A/N of the Special Sale Notice
to TWE, an appraiser engaged in accordance
with the provisions described in Section
9(h) of the existing TWEAN Partnership
Agreement (the "Appraiser") shall determine
the Transfer Asset Price, which means the
fair market value, as of the date of
valuation, of the Transfer Assets (including
any Beneficial Assets or Subsidiary
Beneficial Assets included therein) assuming
a private market sale of the Transfer Assets
as an ongoing business to an unrelated third
party. The
51
determination of the Transfer Asset Price
shall also take into account the types of
currency (and terms of payment, if
applicable) specified by A/N in the Special
Sale Notice and whether such sale
transaction is to be taxable or tax
deferred. The parties shall be entitled to
the same entitlements and obligations with
respect to information shared with the
Appraiser as are specified in the last
sentence of Section 9(d)(i) of the existing
TWEAN Partnership Agreement. A/N also agrees
to cooperate with the Appraiser's request
for information regarding the Transfer
Assets to the same extent as required of TWE
by Section 9(d)(iii) of the existing TWEAN
Partnership Agreement (and to provide copies
to TWE to the same extent as required
thereunder to A/N). Within 60 days
engagement of the Appraiser, the Appraiser
shall determine the Transfer Asset Price.
Upon receipt of such determination, A/N
shall have the right to terminate the
Special Sale Process, in which event the
Transfer Assets shall not be sold pursuant
to the Section 8.6 ROFO, and A/N shall pay
100% of the fees and costs of the Appraiser
(notwithstanding Section 9.1(h)). If A/N
does not terminate the Special Sale Process,
then upon the expiration of the foregoing
20-day period, TWE will have the right to
purchase the Transfer Assets in accordance
with the procedures set forth in Section 8.5
of the existing TWEAN Partnership Agreement
that would be applicable, treating the date
of determination as the date of delivery of
the Offer Notice thereunder and the Transfer
Asset Price as the
52
price specified in the Offer Notice
(together with the other terms of specified
in the Special Sale Notice) as the offer
specified in the Offer Notice (the "Deemed
Offer"); provided that solely for this
purpose TWE shall be deemed not to be
entitled to make a counter-offer as
contemplated by Section 8.5(c) and all
corresponding references to such shall be
treated as if TWE had not made a
counter-offer in this Special Sale Process;
provided further that solely for this
purpose A/N shall not be obligated to comply
with Section 8.5(d) and such Deemed Offer
shall be considered a "Pre-Bid Offer Notice"
for purposes of this Special Sale Process.
For the avoidance of doubt, if TWE does not
accept, within the time period set forth in
Section 8.5(c), the Deemed Offer, then A/N
may not, within 180 days of such
non-acceptance, dispose of the Transfer
Assets except in compliance with this
Special Sale Process; PROVIDED, that if A/N
does not sign definitive agreements for the
sale of the Transfer Assets within 180 days
of such-non-acceptance, then the provisions
of Section 8.5 in the existing TWE-A/N
Partnership Agreement shall be applicable to
any such disposition (i.e. A/N would be
required to send an Offer Notice and trigger
the existing ROFO) until the time periods
for triggering the Special Sale Process
again become applicable, in which case A/N
could, if it wished, trigger such process
with a new Special Sale Notice. For the
avvoidance of doubt, any disputes arising
under this Section 8.6 ROFO of the types
covered by Section 8.5(g) of the existing
TWEAN Partnership
53
Agreement shall be resolved through dispute
resolution mechanisms similar to those in
Section 8.5(g) of the existing TWEAN
Partnership Agreement.
A/N Put Right: The existing TWE-A/N Partnership Agreement
will be modified to delete Section 9 (i.e.
A/N's put right will be eliminated).
REGULATORY COMPLIANCE: The parties agree to effectuate this
transaction in compliance with local
franchises, FCC regulations and other
applicable laws and regulations. The parties
also acknowledge and agree that the Selected
Business and the Subsidiary will continue to
operate in compliance with the consent
decrees and other regulations applicable to
TWE Cable and its affiliates. A/N will
continue to be provided with reports
submitted by the TWE Group with respect to
consent decrees (redacted as necessary with
respect to matters not applicable to the
Selected Business) and will be notified
sufficiently in advance of any new consent
decrees applicable to TWE Cable and its
affiliates so that A/N may protect its
interest and, if it chooses, exercise and
complete its restructuring rights so as not
to be subject to such new consent decrees.