-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UOdDobhBpH9a7Apx8YHck0nJWwHnzP4zPL+jxgkMjR3ArCp5QHTUhaN2dLUcppON CHfgURtdi56Ct4Bzf908AQ== 0001021387-97-000026.txt : 19971106 0001021387-97-000026.hdr.sgml : 19971106 ACCESSION NUMBER: 0001021387-97-000026 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971027 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19971105 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIME WARNER INC/ CENTRAL INDEX KEY: 0001021387 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 133527249 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-12259 FILM NUMBER: 97708378 BUSINESS ADDRESS: STREET 1: TIME & LIFE BLDG ROCKFELLER CENTER STREET 2: 75 ROCKEFELLER PLAZA CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2124848000 MAIL ADDRESS: STREET 1: TW INC STREET 2: 75 ROCKEFELLER PLAZA CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: TW INC DATE OF NAME CHANGE: 19960822 8-K 1 TWEAN SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): October 27, 1997 TIME WARNER INC. (Exact name of registrant as specified in its charter) Delaware 1-12259 13-3527249 (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File Number) Identification No.) 75 Rockefeller Plaza, New York, NY 10019 (Address of principal executive offices) (zip code) (212) 484-8000 (Registrant's telephone number, including area code) Not Applicable (Former name or former address, if changed since last report) Item 5. Other Events. Time Warner Inc. ("Time Warner") and Time Warner Entertainment Company, L.P. ("TWE"), a partnership in which Time Warner and certain of its wholly owned subsidiaries own general and limited partnership interests representing 74.49% of each of the pro rata priority capital ("Series A Capital") and residual equity capital ("Residual Capital") and 100% of each of the senior priority capital ("Senior Capital") and junior priority capital ("Series B Capital") have completed, or have entered into, the transactions described below: (i) On October 27, 1997, a wholly owned subsidiary of Time Warner entered into an agreement (the "Transfer Agreement") with the Time Warner Entertainment-Advance/Newhouse Partnership (the "TWE-Advance/Newhouse Partnership") and each of its partners, pur- suant to which, (a) (i) a wholly owned subsidiary of Time Warner will contribute cable television systems serving approximately 640,000 subscribers formerly held by Cablevision Industries Corporation and related companies ("CVI", now known as TWI Cable Inc., or "TWI Cable", a wholly owned subsidiary of Time Warner) (the "CVI Transferred Systems") into Paragon Communications ("Paragon", an entity currently owned by subsidiaries of Time Warner, with 50% beneficially owned in the aggregate by TWE and the TWE-Advance/Newhouse Partnership) in exchange for partnership interests therein, (ii) Paragon will assume approximately $1.021 billion of indebtedness from CVI, and (iii) Paragon, in turn, will contribute the CVI Transferred Systems, subject to $985 million of the assumed indebtedness, to the TWE-Advance/Newhouse Partnership in exchange for a 1.15% common partnership interest and a $147 million preferred partnership interest therein (collectively, the "CVI Transfers"), (b) Paragon will contribute certain of its own cable television systems serving approximately 27,000 subscribers, subject to $36 million of the assumed indebtedness, to the TWE-Advance/Newhouse Partnership, in exchange for an additional .04% common partnership interest and a $5 million preferred partnership interest therein (the "Time Warner/ Paragon Transferred Systems") and (c) (i) TWE will exchange substantially all of its beneficial interest in Paragon for an equivalent share of Paragon's cable television systems serving approximately 515,000 subscribers and (ii) TWE, in turn, will similarly transfer such systems (and certain related assets) to the TWE-Advance/Newhouse Partnership in exchange for the TWE-Advance/ Newhouse Partnership's beneficial interest in Paragon and in satisfaction of certain pre-existing obligations to the TWE-Advance/Newhouse Partnership (the "TWE/Paragon Transferred Systems", and when taken together with the Time Warner/Paragon Transferred Systems, the "Paragon Transfers"). As a result of the Paragon Transfers, substantially all of the pre-existing beneficial ownership interests in Paragon owned by TWE and the TWE-Advance/ Newhouse Partnership will be redeemed by Paragon, which, in effect, will result in wholly owned subsidiaries of Time Warner owning substantially all of the remaining cable television systems of Paragon. In addition, in connection with the TWE-A/N Transfers, Advance/Newhouse will contribute an approximate $76 million note receivable to the TWE-Advance/Newhouse Partnership in order to maintain its 33.3% common equity interest therein. The CVI Transfers and the Paragon Transfers are referred to herein as the "TWE-A/N Transfers". The TWE-A/N Transfers are not subject to bondholder approval. However, the TWE-A/N Transfers are subject to the receipt of franchise and other required regulatory consents and the aggregate consideration is subject to adjustment pursuant to the terms of the Transfer Agreement. (ii) On October 10, 1996, Time Warner acquired the remaining 80% interest in Turner Broadcasting System, Inc. ("TBS") that it did not already own (the "TBS Transaction"). As a result of this transaction, a new parent company with the name "Time Warner Inc." replaced the old parent company of the same name (now known as Time Warner Companies, Inc., "TW Companies"), and TW Companies and TBS became separate, wholly owned subsidiaries of the new parent company. References herein to "Time Warner" refer to TW Companies prior to October 10, 1996 and Time Warner Inc. thereafter. As part of the TBS Transaction, each of TW Companies and TBS became separate, wholly owned subsidiaries of Time Warner, which combines, for financial reporting purposes, the consolidated net assets and operating results of TW Companies and TBS. Each issued and outstanding share of each class of capital stock of TW Companies was converted into one share of a substantially identical class of capital stock of Time Warner. In connection with the TBS Transaction, Time Warner issued (i) approximately 179.8 million shares of common stock (including 57 million shares of a special class of non-redeemable common stock having 1/100th of a vote per share on certain limited matters ("Series LMCN-V Common Stock") to affiliates of Liberty Media Corporation ("LMC"), a subsidiary of Tele-Communications, Inc.) and (ii) approximately 14 million stock options. Time Warner also assumed approximately $2.8 billion of indebtedness. (iii) on April 11, 1996, Time Warner issued 1.6 million shares of 10-1/4% exchangeable preferred stock for approximately $1.55 billion of net proceeds. Such proceeds were used by Time Warner to redeem all $250 million principal amount of its outstanding 8.75% Debentures due 2017 (the "8.75% Debentures") for approximately $265 million (including redemption premiums and accrued interest thereon) and to reduce indebtedness of TWI Cable under its five-year revolving credit facility (the "1995 Credit Agreement") by approximately $1.3 billion. This issuance and the use of the proceeds therefrom to reduce outstanding indebtedness of Time Warner are referred to herein as the "Preferred Stock Refinancing". As part of the TBS Transaction, these privately- placed preferred shares were converted into registered shares of Series M exchangeable preferred stock with substantially identical terms ("Series M Preferred Stock"); and (iv) on February 1, 1996, Time Warner redeemed all $1.2 billion principal amount of 8.75% Convertible Subordinated Debentures due 2015 (the "8.75% Convertible Debentures") for $1.28 billion, including redemption premiums and accrued interest thereon (the "February 1996 Redemption"). The February 1996 Redemption was financed with (1) $557 million of net proceeds raised in December 1995 from the issuance of Time Warner-obligated mandatorily redeemable preferred securities of a subsidiary ("Preferred Trust Securities") and (2) proceeds raised from the $750 million issuance in January 1996 of (i) $400 million principal amount of 6.85% debentures due 2026, which are redeemable at the option of the holders thereof in 2003, (ii) $200 million principal amount of 8.3% discount debentures due 2036, which do not pay cash interest until 2016, (iii) $166 million principal amount of 7.48% debentures due 2008 and (iv) $150 million principal amount of 8.05% debentures due 2016 (collectively referred to herein as the "January 1996 Debentures"). The issuance of the Preferred Trust Securities and the January 1996 Debentures, together with the February 1996 Redemption, are collectively referred to herein as the "Convertible Debt Refinancing". The Preferred Stock Refinancing and the Convertible Debt Refinancing are referred to herein as the "Debt Refinancings" and the TWE-A/N Transfers, the TBS Transaction and the Debt Refinancings are referred to herein as the "Transactions". Item 7. Financial Statements and Exhibits (a) Pro Forma Consolidated Condensed Financial Statements The following pro forma consolidated condensed financial statements of Time Warner and the Time Warner Entertainment Group (the "Entertainment Group"), principally consisting of TWE, as of and for the six months ended June 30, 1997 give effect to the TWE-A/N Transfers as if such transaction occurred at such date, with respect to the balance sheet, and at the beginning of such period, with respect to the statement of operations. The TBS Transaction and the Debt Refinancings are already reflected in the historical financial statements of Time Warner as of and for the six months ended June 30, 1997. The pro forma consolidated condensed statements of operations of Time Warner and the Entertainment Group for the year ended December 31, 1996 give effect to the TWE-A/N Transfers and, with respect to Time Warner only, the TBS Transaction and the Debt Refinancings, as if the transactions occurred at the beginning of such period. The pro forma consolidated condensed financial statements should be read in conjunction with the historical financial statements of Time Warner and TWE, including the notes thereto, which are contained in the Time Warner Quarterly Report on Form 10-Q for the six months ended June 30, 1997 and the Time Warner Annual Report on Form 10-K for the year ended December 31, 1996, as well as the historical financial statements of TBS for the nine months ended September 30, 1996, which are incorporated herein by reference from TBS's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1996. The pro forma consolidated condensed financial statements are presented for informational purposes only and are not necessarily indicative of the financial position or operating results that would have occurred if the Transactions had been consummated as of the dates indicated, nor are they necessarily indicative of future financial conditions or operating results. TWE-A/N Transfers In April 1995, TWE and the Advance/Newhouse Partnership ("Advance/ Newhouse") formed the TWE-Advance/Newhouse Partnership. Upon formation of the TWE-Advance/Newhouse Partnership, TWE, which is the managing partner, owned a 66.7% common partnership interest in the TWE-Advance/ Newhouse Partnership and Advance/Newhouse owned a 33.3% common partnership interest. TWE consolidates the TWE-Advance/Newhouse Partnership. As such, the common partnership interest owned by Advance/Newhouse and the common and preferred partnership interests that will be owned by Paragon as a result of the TWE-A/N Transfers are reflected in the Entertainment Group's pro forma financial statements as minority interest. Subject to receipt of franchise and other required regulatory consents, Time Warner has agreed to transfer certain cable television systems serving an aggregate of approximately 667,000 subscribers to the TWE-Advance/Newhouse Partnership, subject to approximately $1.021 billion of debt, thereby reducing the financial leverage of Time Warner and increasing the under-leveraged capitalization of the TWE-Advance/Newhouse Partnership and consequently, TWE. In addition, as discussed more fully below, as part of the TWE-A/N Transfers, TWE and the TWE-Advance/Newhouse Partnership will exchange substantially all of their respective beneficial interests in Paragon (and certain related assets) for an equivalent share of Paragon's cable television systems, serving approximately 515,000 subscribers. Pro forma adjustments for the CVI Transfers reflect the contribution by Time Warner, through Paragon, of cable television systems serving approximately 640,000 subscribers formerly held by CVI to the TWE-Advance/ Newhouse Partnership, subject to approximately $985 million of debt in exchange for a 1.15% common partnership interest and a $147 million preferred partnership interest therein to be held by Paragon. Pro forma adjustments for the Paragon Transfers reflect (i) the contribution by Paragon of certain of its own cable television systems serving approximately 27,000 subscribers, subject to approximately $36 million of debt, to the TWE-Advance/Newhouse Partnership in exchange for an additional .04% common partnership interest and a $5 million preferred partnership interest therein, (ii) (a) the exchange by TWE of substantially all of its beneficial interest in Paragon for an equivalent share of Paragon's cable television systems serving approximately 515,000 subscribers and (b) the transfer by TWE, in turn, of such systems (and certain related assets) to the TWE-Advance/Newhouse Partnership in exchange for the TWE-Advance/Newhouse Partnership's beneficial interest in Paragon and in satisfaction of certain pre-existing obligations to the TWE-Advance/Newhouse Partnership and (iii) the consolidation of Paragon by Time Warner (and the related deconsolidation of Paragon by TWE) as a result of the redemption by Paragon of substantially all of the pre-existing beneficial ownership interests therein owned by TWE and the TWE-Advance/Newhouse Partnership which, in effect, will result in wholly owned subsidiaries of Time Warner owning substantially all of the remaining cable television systems of Paragon. Because the fair value of the consideration to be received from the TWE-Advance/Newhouse Partnership approximates the carrying value of the net assets of the CVI Transferred Systems and the Time Warner/Paragon Transferred Systems, Time Warner is not expected to recognize a gain or loss on the transaction and the net assets to be received by the TWE-Advance/Newhouse Partnership will be recorded at Time Warner's historical cost basis of accounting. Similarly, TWE will not recognize a gain or loss on its transfer of the TWE/Paragon Transferred Systems (and such net assets will be recorded by the TWE-Advance/Newhouse Partnership at TWE's historical cost basis of accounting), since such entities belong to a common consolidated control group. In order to maintain its 33.3% common partnership interest in the TWE-Advance/Newhouse Partnership, Advance/Newhouse will make a capital contribution in the form of a $76 million note, payable to the partnership no later than the fourth anniversary of the closing date of the transaction. Such contribution has no material effect on the accompanying pro forma financial statements and accordingly, has not been given pro forma effect therein. Upon consummation of the TWE-A/N Transfers, the TWE-Advance/Newhouse Partnership will be owned approximately 65.5% by TWE, 33.3% by Advance/Newhouse and 1.2% by Paragon. In addition, Paragon will own an approximate $152 million preferred partnership interest in the TWE- Advance/Newhouse Partnership, which will entitle it to receive priority allocations of partnership income and distributions therefrom. Under the terms of the partnership agreement, partnership income is generally allocated first to the preferred partnership interest at a rate of 10-1/4% per annum, and then to the partners in proportion to their respective common equity interests. Distributions on such preferred interests are payable each quarter in cash, to the extent available, in accordance with the terms of the partnership agreement. The preferred partnership interests are required to be redeemed by the TWE-Advance/ Newhouse Partnership in three equal annual installments beginning on the sixth anniversary of the TWE-A/N Transfer closing. TWE will continue to consolidate the TWE-Advance/Newhouse Partnership and Paragon will account for its interest therein under the equity method of accounting. TBS Transaction Pro forma adjustments for the TBS Transaction reflect (1) the issuance of approximately 179.8 million shares of common stock, including 57 million shares of Series LMCN-V Common Stock which were received by affiliates of LMC, (2) the issuance of approximately 14 million stock options, (3) the assumption of approximately $2.8 billion of indebtedness and (4) the payment of approximately $95 million for transaction costs and other related liabilities of Time Warner and TBS. The TBS Transaction has been accounted for by the purchase method of accounting for business combinations and, accordingly, the cost to acquire TBS of approximately $6.2 billion has been preliminarily allocated to the net assets acquired in proportion to estimates of their respective fair values. Debt Refinancings Pro forma adjustments for the Debt Refinancings in the year ended December 31, 1996 reflect proceeds of (1) $1.55 billion received from the issuance of preferred stock as part of the Preferred Stock Refinancing and (2) approximately $750 million received from the issuance of the January 1996 Debentures, which have a weighted average interest rate of 7.3%, and the use of (1) $721 million of such proceeds, together with $557 million of net proceeds received from the issuance of the Preferred Trust Securities (8-7/8% yield) in December 1995, to finance the Convertible Debt Refinancing ($1.226 billion principal amount, plus redemption premiums and accrued interest thereon of $52 million), (2) $265 million to redeem all of Time Warner's outstanding 8.75% Debentures ($250 million principal amount, plus redemption premiums and accrued interest thereon of $15 million) and (3) approximately $1.285 billion to reduce outstanding indebtedness of TWI Cable under the 1995 Credit Agreement. TIME WARNER INC. PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET June 30, 1997 (millions, unaudited) Time Time Warner CVI Paragon Warner Historical Transfers(a) Transfers(b) Pro Forma A S S E T S Cash and equivalents $ 470 $ $ 166 $ 636 Other current assets 3,974 (8) 9 3,975 Total current assets 4,444 (8) 175 4,611 Noncurrent inventories 1,757 - - 1,757 Investments in and amounts due to and from Entertainment Group 6,050 635 22 6,707 Other investments 1,903 - (967) 936 Property, plant and equipment, net 2,032 (213) 216 2,035 Cable television and sports franchises 4,089 (1,084) 569 3,574 Goodwill 12,332 (341) (12) 11,979 Other assets 2,048 (2) 5 2,051 Total assets $34,655 $(1,013) $ 8 $33,650 LIABILITIES AND SHAREHOLDERS' EQUITY Total current liabilities $ 3,709 $ (24) $ 41 $ 3,726 Long-term debt 12,711 (985) (36) 11,690 Borrowings against future stock option proceeds 402 - - 402 Deferred income taxes 4,057 - - 4,057 Other liabilities 1,641 (4) 3 1,640 Company-obligated mandatorily redeemable preferred securities of subsidiaries holding solely subordinated notes and debentures of subsidiaries of the Company (1) 949 - - 949 Series M exchangeable preferred stock 1,763 - - 1,763 Shareholders' equity: Preferred stock 4 - - 4 Series LMCN-V common stock 1 - - 1 Common stock 5 - - 5 Paid-in capital 12,447 - - 12,447 Accumulated deficit (3,034) - - (3,034) Total shareholders' equity 9,423 - - 9,423 Total liabilities and shareholders' equity $34,655 $(1,013) $ 8 $33,650 _______________ (1) Includes $374 million of preferred securities that are redeemable for cash or, at Time Warner's option, approximately 18.1 million shares of Hasbro, Inc. common stock owned by Time Warner. See accompanying notes. TIME WARNER INC. PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS Six Months Ended June 30, 1997 (millions, except per share amounts; unaudited) Time Time Warner CVI Paragon Warner Historical Transfers(c) Transfers(d) Pro Forma Revenues $6,227 $(130) $ 100 $ 6,197 Cost of revenues* 3,453 (91) 89 3,451 Selling, general and administrative* 2,235 (18) 19 2,236 Operating expenses 5,688 (109) 108 5,687 Business segment operating income (loss) 539 (21) (8) 510 Equity in pretax income (loss) of Entertainment Group 426 (5) 3 424 Interest and other, net (595) 34 5 (556) Corporate expenses (43) - - (43) Income before income taxes 327 8 - 335 Income tax provision (245) (3) - (248) Income before extraordinary item 82 5 - 87 Preferred dividend requirements (157) - - (157) Income (loss) before extraordinary item applicable to common shares $ (75) $ 5 $ - $ (70) Loss before extraordinary item per common share $ (.13) $ (.13) Average common shares 559.9 559.9 _______________ * Includes depreciation and amortization expense of: $ 615 $ (47) $ 19 $ 587 See accompanying notes. TIME WARNER INC. PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS Year Ended December 31, 1996 (millions, except per share amounts; unaudited) TBS Transaction Time Warner TBS Pro Forma Debt Historical Historical(e) Adjustments(f) Refinancings(g) Revenues $10,064 $2,735 $ - $ - Cost of revenues* 5,922 1,887 150 - Selling, general and administrative* 3,176 725 - - Operating expenses 9,098 2,612 150 - Business segment operating income (loss) 966 123 (150) - Equity in pretax income (loss) of Entertainment Group 290 - - - Interest and other, net (1,174) (143) 11 38 Corporate expenses (78) (22) - - Income (loss) before income taxes 4 (42) (139) 38 Income tax (provision) benefit (160) 22 11 (16) Income (loss) before extraordinary item (156) (20) (128) 22 Preferred dividend requirements (257) - - (51) Income (loss) before extraordinary item applicable to common shares $ (413) $ (20) $(128) $ (29) Loss before extraordinary item per common share $(0.95) Average common shares 431.2 _______________ * Includes depreciation and amortization expense of: $ 988 $ 141 $ 116 $ - (Cont'd) Subtotal TWE-A/N Time Warner CVI Paragon Transfers Pro Forma Transfers(c) Transfers(d) Pro Forma Revenues $12,799 $(238) $200 $12,761 Cost of revenues* 7,959 (175) 172 7,956 Selling, general and administrative* 3,901 (39) 41 3,903 Operating expenses 11,860 (214) 213 11,859 Business segment operating income (loss) 939 (24) (13) 902 Equity in pretax income (loss) of Entertainment Group 290 (16) (7) 267 Interest and other, net (1,268) 62 20 (1,186) Corporate expenses (100) - - (100) Income (loss) before income taxes (139) 22 - (117) Income tax (provision) benefit (143) (9) - (152) Income (loss) before extraordinary item (282) 13 - (269) Preferred dividend requirements (308) - - (308) Income (loss) before extraordinary item applicable to common shares $ (590) $ 13 $ - $(577) Loss before extraordinary item per common share $(1.04) $(1.02) Average common shares 567.3 567.3 _______________ * Includes depreciation and amortization expense of: $1,245 $ (95) $ 36 $1,186 See accompanying notes. TIME WARNER INC. NOTES TO PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (a) Pro forma adjustments to record the CVI Transfers at June 30, 1997 reflect (1) a $635 million increase in Time Warner's investment in and amounts due to and from the Entertainment Group as a result of the receipt by Paragon of a 1.15% common partnership interest and $147 million preferred partnership interest in the TWE-Advance/Newhouse Partnership and (2) the elimination of $635 million of net assets relating to Time Warner's historical cost basis in the net assets to be transferred at June 30, 1997, including $985 million of long-term indebtedness that will be assumed by the TWE-Advance/Newhouse Partnership. (b) Pro forma adjustments to record the Paragon Transfers reflect (1) a $22 million increase in Time Warner's invest- ment in and amounts due to and from the Entertainment Group as a result of the receipt by Paragon of a .04% common partnership interest and $5 million preferred partnership interest in the TWE-Advance/Newhouse Partnership, (2) the elimination of $22 million of net assets relating to Time Warner's historical cost basis in the net assets to be transferred at June 30, 1997, including (i) $46 million of cable television franchises and (ii) $12 million of goodwill, offset by (iii) $36 million of long-term indebtedness that will be assumed by the TWE-Advance/Newhouse Partnership and (3) the consolidation of Paragon by Time Warner as a result of the redemption by Paragon of substantially all of TWE's and the TWE-Advance/Newhouse Partnership's pre- existing 50% beneficial ownership interests therein which, in effect, will result in wholly owned subsidiaries of Time Warner owning substantially all of the remaining cable television systems of Paragon. Pro forma adjustments to consolidate Paragon reflect (1) the consolidation of $392 million of net assets, including $40 million of cable television franchises, relating to the historical financial position at June 30, 1997 of the remaining cable television systems of Paragon that will not be transferred to the TWE-Advance/Newhouse Partnership and (2) a $967 million decrease in other investments as a result of the elimination of Time Warner's historical investment in Paragon, of which $575 million has been reclassified to cable television franchises. (c) Pro forma adjustments to record the CVI Transfers for the six months ended June 30, 1997 and the year ended December 31, 1996 reflect (1) the elimination of $11 million and $39 million of pretax losses, respectively, relating to the net assets to be transferred, (2) a $5 million and $16 million reduction in Time Warner's equity in the pretax income of the Entertainment Group, respectively, representing the aggregate effect on TWE's operating results from the CVI Transfers, as more fully described in the notes to the Entertainment Group pro forma consolidated condensed financial statements contained elsewhere herein, (3) a decrease in interest and other, net, of $2 million in the six months ended June 30, 1997 and an increase of $1 million in the year ended December 31, 1996, relating to Paragon's equity in the net income of the TWE-Advance/ Newhouse Partnership, including distributions received on Paragon's $147 million preferred partnership interest therein and (4) an increase of $3 million and $9 million in income tax expense, respectively, provided at a 41% tax rate. (d) Pro forma adjustments to record the Paragon Transfers for the six months ended June 30, 1997 and the year ended December 31, 1996 reflect (1) the consolidation of the operating results of Paragon, (2) a $3 million increase and a $7 million reduction in Time Warner's equity in the pretax income of the Entertainment Group, respectively, representing the aggregate effect on TWE's operating results from the Paragon Transfers, as more fully described in the notes to the Entertainment Group pro forma consolidated condensed financial statements contained elsewhere herein and (3) a $1 million and $2 million reduction in interest expense, respectively, as a result of the assump- tion by the TWE-Advance/Newhouse Partnership of $36 million of long-term indebtedness. Pro forma adjustments to consolidate the operating results of Paragon for the six months ended June 30, 1997 and the year ended December 31, 1996 include (i) an increase in operating income of $18 million and $37 million, respectively, relating to the operations of the remaining cable television systems of Paragon that will not be transferred to the TWE-Advance/Newhouse Partnership, (ii) a reduction of $4 million and $18 million, respectively, in interest and other, net, principally relating to gains on the sale of certain assets formerly owned by Paragon and (iii) a reduction of $26 million and $50 million in the historical operating results of Time Warner, respectively, resulting from the elimination of Time Warner's equity in the net income of Paragon. (e) Reflects the historical operating results of TBS for the nine-month, pre-acquisition period ended September 30, 1996, including certain reclassifications to conform to Time Warner's financial statement presentation. (f) Pro forma adjustments to record the TBS Transaction for the nine-month, pre-acquisition period ended September 30, 1996 reflect (1) the exclusion of $9 million of merger costs directly related to the TBS Transaction expensed by TBS in such period, (2) an increase of $150 million in cost of revenues consisting of (i) a $7 million reduction of TBS's historical amortization of pre-existing goodwill, (ii) a $152 million increase in amortization with respect to the excess cost to acquire TBS that has been allocated to (a) goodwill in the amount of $6.746 billion and amortized on a straight-line basis over a forty-year period and (b) other intangible assets in the amount of $698 million and amortized on a straight-line basis over a weighted average period of approximately 20 years, (iii) a $29 million decrease in the amortization of film libraries resulting from a change in their estimated useful lives and (iv) a $34 million increase in the amortization of capitalized film exploitation costs to conform TBS's accounting policy to Time Warner's accounting policy, (3) an increase of $5 million in interest expense on the $95 million of additional indebtedness for the payment of transaction costs and other related liabilities of Time Warner and TBS, (4) a decrease of $7 million in interest and other, net due to the elimination of TW Companies's historical equity accounting for its investment in TBS and (5) a decrease of $11 million in income tax expense as a result of income taxes provided at a 41% tax rate. (g) Pro forma adjustments to record the Debt Refinancings for the year ended December 31, 1996 reflect an increase in noncash preferred dividend requirements of $51 million relating to the payment of Series M Preferred Stock dividends, at a rate of 10-1/4% per annum, payable quarterly. For purposes of Time Warner's pro forma consolidated condensed statement of operations, such dividend requirements have been assumed to have been satisfied in-kind, through the issuance of additional shares of Series M Preferred Stock with an aggregate liquidation preference equal to the amount of such dividends. Pro forma adjustments to record the Debt Refinancings for the year ended December 31, 1996 also reflect interest savings of $38 million resulting from (1) the issuance of the January 1996 Debentures for approximately $750 million of proceeds and the use of $721 million of such proceeds, together with $557 million of available cash and equivalents related to the issuance of the Preferred Trust Securities, to redeem $1.226 billion principal amount of 8.75% Convertible Debentures for an aggregate redemption price of $1.278 billion, including redemption premiums and accrued interest thereon of $52 million and (2) the issuance of 1.6 million shares of Series M Preferred Stock for approximately $1.55 billion of net proceeds and the use of (i) $265 million of such proceeds to redeem all $250 million principal amount of Time Warner's outstanding 8.75% Debentures (plus redemption premiums and accrued interest thereon of $15 million) and (ii) the remaining $1.285 billion of such proceeds to reduce outstanding indebtedness of TWI Cable under the 1995 Credit Agreement. All pro forma adjustments to record the Debt Refinancings for the year ended December 31, 1996 reflect the incremental increase (decrease) in Time Warner's interest expense from each refinancing that had closed during the period, as set forth below (in millions). * Issuance by Time Warner of $750 million of January 1996 Debentures in connection with the Convertible Debt Refinancing, at a weighted average interest rate of 7.3% $ 2 * Redemption of $1.226 billion principal amount of 8.75% Convertible Debentures (9) * Redemption of $250 million principal amount of 8.75% Debentures (8) * Repayment of $1.285 billion of TWI Cable indebtedness under the 1995 Credit Agreement (23) Net decrease in interest expense $(38) Income taxes of $16 million have been provided at a 41% tax rate on the aggregate net reduction in interest expense. TIME WARNER ENTERTAINMENT GROUP PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET June 30, 1997 (millions, unaudited) Entertainment Entertainment Group CVI Paragon Group Historical Transfers(a) Transfers(b) Pro Forma A S S E T S Cash and equivalents $ 293 $ - $(166) $ 127 Other current assets 3,266 8 (9) 3,265 Total current assets 3,559 8 (175) 3,392 Noncurrent inventories 2,126 - - 2,126 Loan receivable from Time Warner 400 - - 400 Property, plant and equipment, net 6,269 213 (216) 6,266 Cable television franchises 2,977 1,084 6 4,067 Goodwill 3,936 341 12 4,289 Other assets 990 2 (5) 987 Total assets $20,257 $1,648 $(378) $21,527 LIABILITIES AND PARTNERS' CAPITAL Total current liabilities $ 3,649 $ 24 $ (41) $ 3,632 Long-term debt 5,781 985 36 6,802 Other long-term liabilities 1,203 4 (3) 1,204 Minority interests 1,137 635 (370) 1,402 Preferred stock of a subsidiary holding solely a mortgage note of its parent 240 - - 240 Time Warner General Partners' Senior Capital 1,605 - - 1,605 Partners' capital 6,642 - - 6,642 Total liabilities and partners' capital $20,257 $1,648 $(378) $21,527 See accompanying notes. TIME WARNER ENTERTAINMENT GROUP PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS Six Months Ended June 30, 1997 (millions, unaudited) Entertainment Entertainment Group CVI Paragon Group Historical Transfers(c) Transfers(d) Pro Forma Revenues $5,333 $ 130 $(100) $5,363 Cost of revenues* 3,445 91 (89) 3,447 Selling, general and administrative* 1,233 18 (19) 1,232 Operating expenses 4,678 109 (108) 4,679 Business segment operating income 655 21 8 684 Interest and other, net (11) (30) (5) (46) Minority interest (164) 4 - (160) Corporate expenses (36) - - (36) Income (loss) before income taxes 444 (5) 3 442 Income tax provision (37) - - (37) Net income (loss) $ 407 $ (5) $ 3 $ 405 _______________ * Includes depreciation and amortization expense of: $ 661 $ 47 $ (19) $ 689 See accompanying notes. TIME WARNER ENTERTAINMENT GROUP PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS Year Ended December 31, 1996 (millions, unaudited) Entertainment Entertainment Group CVI Paragon Group Historical Transfers(c) Transfers(d) Pro Forma Revenues $10,861 $238 $(200) $10,899 Cost of revenues* 7,436 175 (172) 7,439 Selling, general and administrative* 2,335 39 (41) 2,333 Operating expenses 9,771 214 (213) 9,772 Business segment operating income 1,090 24 13 1,127 Interest and other, net (524) (59) (20) (603) Minority interest (207) 19 - (188) Corporate expenses (69) - - (69) Income (loss) before income taxes 290 (16) (7) 267 Income tax provision (70) - - (70) Income (loss) before extraordinary item $ 220 $ (16) $ (7) $ 197 _______________ *Includes depreciation and amortization expense of: $1,244 $ 95 $ (36) $1,303 See accompanying notes. TIME WARNER INC. NOTES TO THE ENTERTAINMENT GROUP PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (a) Pro forma adjustments to record the CVI Transfers at June 30, 1997 reflect (1) the recording of $635 million of net assets to be acquired by the TWE-Advance/Newhouse Partnership from Paragon at Time Warner's historical cost basis of accounting, including $985 million of indebtedness that will be assumed in the transaction and (2) a $635 million increase in minority interest resulting from the issuance by the TWE-Advance/ Newhouse Partnership of a 1.15% common partnership interest and a $147 million preferred partnership interest to Paragon. (b) Pro forma adjustments to record the Paragon Transfers at June 30, 1997 reflect (1) the recording of $22 million of net assets to be acquired by the TWE-Advance/Newhouse Partnership from Paragon at Time Warner's historical cost basis of accounting, including (i) $46 million of cable television franchises and (ii) $12 million of goodwill, offset by (iii) $36 million of indebtedness that will be assumed in the transaction, (2) a $22 million increase in minority interest resulting from the issuance by the TWE-Advance/Newhouse Partnership of a .04% common partnership interest and a $5 million preferred partnership interest to Paragon and (3) the deconsolidation of Paragon by TWE as a result of the redemption by Paragon of substantially all of TWE's and the TWE-Advance/Newhouse Partnership's pre-existing 50% beneficial ownership interests therein which, in effect, will result in wholly owned subsidiaries of Time Warner owning substantially all of the remaining cable television systems of Paragon. Pro forma adjustments to deconsolidate Paragon reflect (1) the deconsolidation of $392 million of net assets, including $40 million of cable television franchises, relating to the historical financial position at June 30, 1997 of the remaining cable television systems of Paragon that will not be transferred to the TWE-Advance/Newhouse Partnership and (2) a $392 million decrease in minority interest relating to the elimination of Time Warner's historical investment in Paragon. TWE's contribution of the TWE/Paragon Transferred Systems to the TWE-Advance/Newhouse Partnership in exchange for the TWE-Advance/Newhouse Partnership's beneficial interest in Paragon and in satisfaction of certain pre-existing obligations to the TWE-Advance/Newhouse Partnership has no effect on the pro forma consolidated condensed balance sheet of TWE and accordingly, has not been given pro forma effect to therein. (c) Pro forma adjustments to record the CVI Transfers for the six months ended June 30, 1997 and the year ended December 31, 1996 reflect (1) the recording of $11 million and $39 million of pretax losses, respectively, relating to the net assets to be acquired by the TWE-Advance/Newhouse Partnership, (2) a $2 million and $4 million decrease in interest and other, net, respectively, resulting from a 37.5 basis point decrease in the pro forma interest rates applicable to borrowings by the TWE- Advance/Newhouse Partnership under the New Credit Agreement in comparison to the pro forma interest rates applicable to borrowings by TWI Cable under the same credit agreement and (3) a $4 million and $19 million decrease in minority interest expense, respectively, representing the net effect of (i) Advance/Newhouse's minority interest in the incremental net losses and preferred dividend requirements of the TWE- Advance/Newhouse Partnership which are partially offset by (ii) Paragon's minority interest in the aggregate net income of the TWE-Advance/Newhouse Partnership, including distributions on its $147 million preferred partnership interest therein at an annual rate of 10-1/4%. (d) Pro forma adjustments to record the Paragon Transfers for the six months ended June 30, 1997 and the year ended December 31, 1996 reflect (1) the deconsolidation of the operating results of Paragon, (2) a $1 million and $2 million increase in interest and other, net, respectively, as a result of the assumption by the TWE-Advance/Newhouse Partnership of $36 million of long-term indebtedness of TWI Cable. Pro forma adjustments to deconsolidate the operating results of Paragon for the six months ended June 30, 1997 and the year ended December 31, 1996 include (i) a reduction of $18 million and $37 million in the historical operating income of Paragon, respect- ively, relating to the operations of the remaining cable television systems of Paragon that will not be transferred to the TWE-Advance/ Newhouse Partnership, (ii) an increase of $4 million and $18 million, respectively, in interest and other, net, principally relating to the elimination of a gain on the sale of an investment formerly owned by Paragon and (iii) a $26 million and $50 million increase in operating income relating to the elimination of Time Warner's historical minority interest in the net income of Paragon. TWE's contribution of the TWE/Paragon Transferred Systems to the TWE-Advance/Newhouse Partnership in exchange for the TWE-Advance/Newhouse Partnership's beneficial interest in Paragon and in satisfaction of certain pre-existing obligations to the TWE-Advance/Newhouse Partnership has no effect on the pro forma consolidated condensed statements of operations of TWE and accordingly, has not been given pro forma effect to therein. (b) Financial statements of businesses acquired: (i) Turner Broadcasting System, Inc. (the documents listed in this paragraph (i) being referred to as the "Financial Statements of Turner Broadcasting System, Inc."): (A) Unaudited Consolidated Condensed Financial Statements as of September 30, 1996 and for each of the nine months ended September 30, 1996 and 1995; and (B) Consolidated Financial Statements as of December 31, 1995 and 1994 and for each of the years ended December 31, 1995, 1994 and 1993, including the report thereon of Price Waterhouse LLP. (ii) Cablevision Industries Corporation and subsidiaries (the documents listed in this paragraph (ii) being referred to as the "Financial Statements of Cablevision Industries Corporation"): (A) Consolidated Financial Statements as of and for the year ended December 31, 1995, including the report thereon of Ernst & Young LLP; and (B) Consolidated Financial Statements as of December 31, 1994 and for each of the years ended December 31, 1994 and 1993, including the report thereon of Arthur Andersen LLP. (c) Pro forma Consolidated Condensed Financial Statements: (i) Time Warner Inc.: (A) Pro Forma Consolidated Condensed Balance Sheet as of June 30, 1997; (B) Pro Forma Consolidated Condensed Statements of Operations for the six months ended June 30, 1997 and the year ended December 31, 1996; and (C) Notes to Pro Forma Consolidated Condensed Financial Statements. (ii) Entertainment Group: (A) Pro Forma Consolidated Condensed Balance Sheet as of June 30, 1997; (B) Pro Forma Consolidated Condensed Statement of Operations for the six months ended June 30, 1997 and the year ended December 31, 1996; and (C) Notes to Pro Forma Consolidated Condensed Financial Statements. (d) Exhibits: (i) Exhibit 23.(a): Consent of Price Waterhouse LLP. (ii) Exhibit 23.(b): Consent of Ernst & Young LLP. (iii) Exhibit 23.(c): Consent of Arthur Andersen LLP. (iv) Exhibit 99.(a): Financial Statements of Turner Broadcasting System, Inc. (incorporated by reference from pages 31 to 53 of the Annual Report to Shareholders incorporated by reference into the Annual Report on Form 10-K for the year ended December 31, 1995 of Turner Broadcasting System, Inc. and from pages 2 to 9 of the Quarterly Report on Form 10-Q for the nine months ended September 30, 1996 of Turner Broadcasting System, Inc.). (v) Exhibit 99.(b): Financial Statements of Cablevision Industries Corporation (incorporated by reference from pages 23 to 39 of the Annual Report on Form 10-K for the year ended December 31, 1995 of Cablevision Industries Corporation). (vi) Exhibit 99.(c): Amended and Restated Transaction Agreement dated as of October 27, 1997 among Advance Publications, Inc., Newhouse Broadcasting Corporation, Advance/Newhouse Partnership, Time Warner Entertainment Company, L.P., TW Holding Co. and Time Warner Entertainment-Advance/Newhouse Partnership. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on November 5, 1997. TIME WARNER INC. By: /s/ Richard J. Bressler Name: Richard J. Bressler Title: Senior Vice President and Chief Financial Officer EXHIBIT INDEX Exhibit Sequential No. Description of Exhibits Page Number 23.(a) Consent of Price Waterhouse LLP, Independent Accountants. 23.(b) Consent of Ernst & Young LLP, Independent Accountants. 23.(c) Consent of Arthur Andersen LLP, Independent Public Accountants. 99.(a) Financial Statements of Turner Broadcasting System, Inc. (incorporated by reference from pages 31 to 53 of the Annual Report to Shareholders incorporated by reference into the Annual Report on Form 10-K for the year ended December 31, 1995 of Turner Broadcasting System, Inc. and from pages 2 to 9 of the Quarterly Report on Form 10-Q for the nine months ended September 30, 1996 of Turner Broadcasting System, Inc.) * 99.(b) Financial Statements of Cablevision Industries Corporation (incorporated by reference from pages 23 to 39 of the Annual Report on Form 10-K for the year ended December 31, 1995 of Cablevision Industries Corporation). * 99.(c) Amended and Restated Transaction Agreement, dated as of October 27, 1997 among Advance Publications, Inc., Newhouse Broadcasting Corporation, Advance/Newhouse Partnership, Time Warner Entertainment Company, L.P., TW Holding Co. and Time Warner Entertainment-Advance Newhouse Partnership. _______________ * Incorporated by reference. EX-23.(A) 2 EXHIBIT 23.(a) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference of our report dated February 5, 1996, which appears on page 53 of Turner Broadcasting System, Inc.'s 1995 Annual Report to Shareholders, which is incorporated by reference in Turner Broadcasting System, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1995 and which report has been incorporated by reference in the Current Report on Form 8-K of Time Warner Inc. dated October 27, 1997, in each of the following: 1. Registration Statement No. 333-11471 on Form S-4 for Time Warner Inc. (formerly named TW Inc.); 2. Post-Effective Amendment No. 1 to Registration Statement on Form S-4 (Registration No. 333-11471) filed on Form S-8 of Time Warner Inc.; 3. Post-Effective Amendment No. 2 to Registration Statement on Form S-4 (Registration No. 333-11471) filed on Form S-8 of Time Warner Inc.; 4. Post-Effective Amendment No. 3 to Registration Statement on Form S-4 (Registration No. 333-11471) filed on Form S-8 of Time Warner Inc.; 5. Post-Effective Amendment No. 4 to Registration Statement on Form S-4 (Registration No. 333-11471) filed on Form S-8 of Time Warner Inc.; 6. Post-Effective Amendment No. 5 to Registration Statement on Form S-4 (Registration No. 333-11471) filed on Form S-8 of Time Warner Inc.; 7. Registration Statement on Form S-8 and Post-Effective Amendment No. 1 (Registration No. 333-14053) of Time Warner Inc.; 8. Registration Statement on Form S-3 (Registration No. 333-14611) of Time Warner Inc.; 9. Registration Statement on Form S-8 (Registration No. 333-27265) of Time Warner Inc.; 10. Registration Statement on Form S-3 (Registration No. 333-32813) of Time Warner Inc. and Time Warner Companies, Inc.; 11. Registration Statement on Form S-3 (Registration No. 333-37827) of Time Warner Inc. (and Registration No. 333-37827-01 of Time Warner Companies, Inc. and prospectus also relates and constitutes a post-effective amendment to Registration No. 333-32813); and 12. Registration Statement on Form S-8 (Registration No. 33-61497) of Time Warner Companies, Inc. PRICE WATERHOUSE LLP Atlanta, Georgia November 3, 1997 EX-23.(B) 3 EXHIBIT 23.(b) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We consent to the incorporation by reference of our report dated March 8, 1996, with respect to the consolidated financial statements and schedule of Cablevision Industries Corporation and Subsidiaries ("Cablevision") included in Cablevision's Annual Report on Form 10-K for the year ended December 31, 1995, incorporated by reference in the Current Report on Form 8-K of Time Warner Inc. dated October 27, 1997, in each of the following: 1. Registration Statement No. 333-11471 on Form S-4 for Time Warner Inc. (formerly named TW Inc.); 2. Post-Effective Amendment No. 1 to Registration Statement No. 333-11471 on Form S-4 filed on Form S-8 of Time Warner Inc.; 3. Post-Effective Amendment No. 2 to Registration Statement No. 333-11471 on Form S-4 filed on Form S-8 of Time Warner Inc.; 4. Post-Effective Amendment No. 3 to Registration Statement No. 333-11471 on Form S-4 filed on Form S-8 of Time Warner Inc.; 5. Post-Effective Amendment No. 4 to Registration Statement No. 333-11471 on Form S-4 filed on Form S-8 of Time Warner Inc.; 6. Post-Effective Amendment No. 5 to Registration Statement No. 333-11471 on Form S-4 filed on Form S-8 of Time Warner Inc.; 7. Post-Effective Amendment No. 1 to Registration Statement No. 333-14053 on Form S-8 of Time Warner Inc.; 8. Registration Statement No. 333-14611 on Form S-3 of Time Warner Inc.; 9. Registration Statement No. 333-27265 on Form S-8 of Time Warner Inc.; 10. Registration Statement No. 333-32813 on Form S-3 of Time Warner Inc. and Time Warner Companies, Inc.; 11. Registration Statement No. 333-37827 on Form S-3 of Time Warner Inc. (and Registration No. 333-37827-01 of Time Warner Companies, Inc.) (prospectus also relates and constitutes a post-effective amendment to Registration No. 333-32813); and 12. Registration Statement No. 33-61497 on Form S-8 of Time Warner Companies, Inc. ERNST & YOUNG LLP New York, New York November 3, 1997 EX-23.(C) 4 EXHIBIT 23.(c) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our reports dated March 1, 1995, with respect to Cablevision Industries Corporation's Form 10-K for the year ended December 31, 1994, and to all references to our Firm included in each of the following: 1. Registration Statement No. 333-11471 on Form S-4 for Time Warner Inc. (formerly named TW Inc.); 2. Post-Effective Amendment No. 1 to Registration Statement on Form S-4 (Registration No. 333-11471) filed on Form S-8 of Time Warner Inc.; 3. Post-Effective Amendment No. 2 to Registration Statement on Form S-4 (Registration No. 333-11471) filed on Form S-8 of Time Warner Inc.; 4. Post-Effective Amendment No. 3 to Registration Statement on Form S-4 (Registration No. 333-11471) filed on Form S-8 of Time Warner Inc.; 5. Post-Effective Amendment No. 4 to Registration Statement on Form S-4 (Registration No. 333-11471) filed on Form S-8 of Time Warner Inc.; 6. Post-Effective Amendment No. 5 to Registration Statement on Form S-4 (Registration No. 333-11471) filed on Form S-8 of Time Warner Inc.; 7. Registration Statement on Form S-8 and Post-Effective Amendment No. 1 (Registration No. 333-14053) of Time Warner Inc.; 8. Registration Statement on Form S-3 (Registration No. 333-14611) of Time Warner Inc.; 9. Registration Statement on Form S-8 (Registration No. 333-27265) of Time Warner Inc.; 10. Registration Statement on Form S-3 (Registration No. 333-32813) of Time Warner Inc. and Time Warner Companies, Inc.; 11. Registration Statement on Form S-3 (Registration No. 333-37827) of Time Warner Inc. (and Registration No. 333-37827-01 of Time Warner Companies, Inc. and prospectus also relates and constitutes a post-effective amendment to Registration No. 333-32813); and 12. Registration Statement on Form S-8 (Registration No. 33-61497) of Time Warner Companies, Inc. ARTHUR ANDERSEN LLP Stamford, Connecticut November 3, 1997 EX-99.(C) 5 EXHIBIT 99.(c) AMENDED AND RESTATED TRANSACTION AGREEMENT AMENDED AND RESTATED TRANSACTION AGREEMENT, dated as of October 27, 1997 (this "Agreement"), among ADVANCE PUBLICATIONS, INC., a New York corporation ("Advance"), NEWHOUSE BROADCASTING CORPORATION, a New York corporation ("Newhouse"), ADVANCE/NEWHOUSE PARTNERSHIP, a New York general partnership ("Advance/Newhouse"), TIME WARNER ENTERTAINMENT COMPANY, L.P., a Delaware limited partnership ("TWE"), TW HOLDING CO., a New York general partnership ("TW Holding Co."), and TIME WARNER ENTERTAINMENT-ADVANCE/NEWHOUSE PARTNERSHIP, a New York general partnership (the "Partnership"). WHEREAS, Advance/Newhouse and TWE entered into a Partnership Agreement, dated as of September 9, 1994, as amended, pursuant to which they formed the Partnership (the "Partnership Agreement"); WHEREAS, Advance, Newhouse, Advance/Newhouse, TWE and the Partnership entered into a Contribution Agreement, dated as of September 9, 1994, as amended (the "Contribution Agreement"), pursuant to which each of Advance/Newhouse and TWE contributed certain specified assets to the Partnership; WHEREAS, the Partnership Agreement provides that if TWE or any of its Affiliates acquires or invests in any System Opportunity (as defined in the Partnership Agreement), TWE or such Affiliate shall use reasonable best efforts to transfer or assign to the Partnership as promptly as practicable the economic benefits of those cable television systems comprising such System Opportunity that are within a Preferred Cluster Area (as defined in the Partnership Agreement) (in a manner and at a time intended to preserve any deferral of tax on such acquisition and otherwise minimize the taxes payable in connection with such transaction) at a price, payable in tax efficient consideration equal to the fair market value of the System Opportunity transferred or assigned to the Partnership; WHEREAS, Time Warner Inc., a Delaware corporation and an affiliate of TWE ("TWX"), has acquired several such System Opportunities; WHEREAS, prior to the Closing (as defined below) certain of such System Opportunities (or portions thereof) will be transferred by subsidiaries of TWX to TW Holding Co.; WHEREAS, the parties hereto executed a Transaction Agreement, dated as of August 15, 1996 (the "Original Transaction Agreement"), setting forth the terms on which such System Opportunities (or portions thereof) were to be transferred by TW Holding Co. to the Partnership; WHEREAS, the Original Transaction Agreement also provided for the transfer by TWE to the Partnership of certain cable television systems and related assets (i) in satisfaction of its obligations to the Partnership in respect of the Designated Paragon Interest (as defined in the Contribution Agreement) and (ii) in satisfaction of certain of its outstanding obligations to the Partnership under Section 2 of the Letter Agreement, dated April 1, 1995, among Advance, Newhouse, Advance/Newhouse and TWE (the "April 1995 Letter"); and WHEREAS, the parties now wish to amend and restate the Original Transaction Agreement in its entirety. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows: 1. Contribution of Designated CVI Systems. (a) Subject to the conditions set forth in Section 4, at the Closing (as defined below), (i) TW Holding Co. shall contribute, assign, convey, transfer and deliver to the Partnership its right, title and interest in and to the cable television systems described on Schedule 1 hereto (the "Designated CVI Systems"), and (ii) the Partnership shall assume, and agree to pay and discharge, as and when they become due, or otherwise take subject to, the indebtedness and other liabilities associated with the Designated CVI Systems that are described on Schedule 2 hereto (the "Assumed CVI Liabilities"). (b) At the Closing, (i) TW Holding Co. shall deliver instruments executed by it and in form and substance reasonably satisfactory to the Partnership contributing, assigning, conveying, transferring and delivering to the Partnership its right, title and interest in and to the Designated CVI Systems and (ii) the Partnership shall deliver instruments executed by it and in form and substance reasonably satisfactory to TW Holding Co. by which it shall assume and agree to pay and discharge the Assumed CVI Liabilities. (c) In exchange for the contributions contemplated by Section 1(a), TW Holding Co. shall receive (i) Common Partnership Units (as defined in the Partnership Agreement) having a value equal to 50% of the Net CVI Contribution and (ii) TW Holding Co. Preferred Partnership Units (as defined in the Partnership Agreement, as amended by the First Amendment (as defined below)) having a value equal to 50% of the Net CVI Contribution. For purposes of the foregoing, "Net CVI Contribution" means the excess of (i) the Designated CVI System Value determined in accordance with Section 9 over (ii) the Assumed CVI Indebtedness. 2. Contribution of Designated Paragon Systems. (a) Subject to the conditions set forth in Section 4, at the Closing, TWE shall contribute, assign, convey, transfer and deliver to the Partnership (i) an undivided percentage interest (determined in the manner described below) in its right, title and interest in and to the cable television systems described on Schedule 3 hereto (the "Designated Paragon Systems") free of any indebtedness for money borrowed and (ii) its right, title and interest in and to 8,832 Primestar subscribers in the localities described on Schedule 4 hereto (the "Designated Primestar Subscribers"). The undivided percentage interest in the Designated Paragon Systems to be contributed to the Partnership by TWE pursuant to this paragraph shall equal a fraction, the numerator of which shall be the excess of (x) the TWE Pre-Existing Subscriber Obligation (as defined below) as of June 30, 1996 over (y) one-half the number of Designated Primestar Subscribers contributed to the Partnership pursuant to clause (ii) of this Section 2(a), and the denominator of which shall be the total number of subscribers served by all Designated Paragon Systems as of June 30, 1996. "TWE Pre-Existing Subscriber Obligation" means, as of any date, a number of cable tele- vision subscribers equal to the sum of (1) 25% of the total number of subscribers served by cable television systems owned by Paragon as of such date and (2) 238,500 subscribers, increased (in the case of this clause (2) only) by the average rate of subscriber growth applicable to TWE's cable television systems (other than Partnership cable television systems) from July 1, 1994 through such date (without giving effect to acquisitions, dispositions, trades and other extraordinary transactions during such period). The equivalent number of subscribers represented by the undivided interest in the Designated Paragon Systems contributed to the Partnership by TWE pursuant to this Section 2(a) is referred to herein as the "TWE Paragon Subscribers." (b) Subject to the conditions set forth in Section 4, at the Closing, TW Holding Co. shall contribute, assign, convey, transfer and deliver to the Partnership an undivided percentage interest (determined in the manner described below) in its right, title and interest in and to the Designated Paragon Systems, and the Partnership shall assume, and agree to pay and discharge, as and when they become due, or otherwise take subject to, the indebtedness and other liabilities associated with the Designated Paragon Systems that are described on Schedule 5 hereto (the "Assumed Paragon Liabilities"). The undivided percentage interest in the Designated Paragon Systems to be contributed to the Partnership by TW Holding Co. shall equal 100% less the undivided percentage interest in the Designated Paragon Systems contributed to the Partnership by TWE pursuant to Section 2(a). The equivalent number of subscribers represented by the undivided interest in the Designated Paragon Systems contributed to the Partnership by TW Holding Co. pursuant to this Section 2(b) is referred to herein as the "Excess Paragon Subscribers." (c) At the Closing, (i) TWE shall deliver instruments executed by it and in form and substance reasonably satisfactory to the Partnership contributing, assigning, conveying, transferring and delivering to the Partnership its right, title and interest in and to the TWE Paragon Subscribers and the Designated Primestar Subscribers in accordance with Section 2(a), (ii) TW Holding Co. shall deliver instruments executed by it and in form and substance reasonably satisfactory to the Partnership contributing, assigning, conveying, transferring and delivering its right, title and interest in and to the Excess Paragon Subscribers in accordance with Section 2(b) and (iii) the Partnership shall deliver instruments executed by it and in form and substance reasonably satisfactory to TW Holding Co. by which it shall assume and agree to pay and discharge the Assumed Paragon Liabilities. (d) The Contribution to the Partnership by TWE of its right, title and interest in and to the TWE Paragon Subscribers and the Designated Primestar Subscribers pursuant to Section 2(a) shall be made in full satisfaction of (i) all of its obligations in respect of the Designated Paragon Interest under the (x) Contribution Agreement, (y) the Letter Agreement, dated September 9, 1994, relating thereto and (z) paragraph 17 of the April 1995 Letter and (ii) all of its obligations under paragraph 2 of the April 1995 Letter with respect to the assets described in paragraph 1 of Schedule A thereto, in each case from and after July 1, 1996. In exchange for contributing to the Partnership its right, title and interest in and to the Excess Paragon Subscribers pursuant to Section 2(b), TW Holding Co. shall receive (i) Common Partnership Units having a value equal to 50% of the Net Paragon Contribution and (ii) TW Holding Co. Preferred Partnership Units having a value equal to 50% of the Net Paragon Contribution. For purposes of the foregoing, "Net Paragon Contribution" means the excess of (i) the Excess Paragon Subscriber Value determined in accordance with Section 9 over (ii) the Assumed Paragon Indebtedness. 3. Beneficial Assets and Subsidiary Beneficial Assets. If any consent or approval is required in connection with the contribution to the Partnership pursuant to this Agreement of any cable television system (or the franchise pursuant to which such cable television system is operated) and such consent or approval is not obtained prior to the Closing, then in lieu of contributing (and pending the actual contribution of) such cable television systems to the Partnership, TW Holding Co. or TWE, as applicable, will hold such cable television systems (or cause such cable television systems to be held) for the use and benefit of the Partnership. Such cable television systems shall be treated as Beneficial Assets (as defined in the Contribution Agreement) or Subsidiary Beneficial Assets (as defined in the Contribution Agreement) in either case in accordance with Section 5.8 of the Partnership Agreement and Section 6.7 of the Contribution Agreement. In accordance with Section 6.7 of the Contribution Agreement, following the Effective Date, TW Holding Co. and TWE shall continue to use their reasonable best efforts to obtain any consent or approval necessary to effectuate the contribution to the Partnership of any Beneficial Asset or Subsidiary Beneficial Asset not contributed to the Partnership on the Effective Date, and shall take all reasonable actions to effectuate the contribution of such Beneficial Asset or Subsidiary Beneficial Asset after such consent or approval is obtained; provided, however, that no cable television franchise comprising a Beneficial Asset or Subsidiary Beneficial Asset shall be required to be contributed to the Partnership until consents or approvals shall have been obtained with respect to the contribution of all cable television franchises in the same cable television system as such franchise. The parties acknowledge and agree that with respect to those Designated Paragon Systems that are proposed to be contributed to a joint venture with TeleCommunications, Inc. (or one of its affiliates) in accordance with the Letter of Intent, dated September 2, 1997, TW Holding Co. and/or TWE may seek to obtain necessary consents and approvals for the transfers contemplated by such Letter of Intent at the same time as the transfers contemplated hereby. 4. Closing Conditions. The obligations of TW Holding Co., TWE and the Partnership to effect the transactions contemplated by this Agreement, shall be subject to the satisfaction at or prior to the Closing of the following conditions, the imposition of which are solely for the benefit of such parties and any one or more of which may be waived by such parties in their discretion: (a) each of TWE, Advance/Newhouse and TW Holding Co. shall have executed and delivered an amendment to the Partnership Agreement substantially in the form of Exhibit A (the "First Amendment"); (b) the waiting periods (and any extensions thereof), if any, applicable to the transactions contemplated by this Agreement under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") shall have been terminated or shall have expired (it being understood that as soon as practicable after the execution of this Agreement, the parties will complete and file, or cause to be completed and filed, any notification and report required to be filed under the HSR Act and each such filing shall request early termination of the waiting period imposed by the HSR Act); and (c) no temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the transactions contemplated hereby shall be in effect. 5. Advance/Newhouse Contribution. Subject to the consummation of the transfer or beneficial assignment of the Designated CVI Systems and the Excess Paragon Subscribers to the Partnership, on or prior to the fourth anniversary of the Effective Date (but in no event prior to the date that is six months following the Effective Date), Advance/Newhouse shall contribute to the Partnership cash in an amount equal to the Advance/Newhouse Contribution Amount, plus interest thereon at the Interest Rate compounded (to the extent not paid) on a quarterly basis, from July 1, 1996 until the date such contribution is made in full. For the purposes of the foregoing, (i) "Advance/Newhouse Contribution Amount" means an amount equal to 50% of the value of the Common Partnership Units received by TW Holding Co. in exchange for its contribution of the Designated CVI Systems and the Excess Paragon Subscribers and (ii) "Interest Rate" shall mean the average interest rate applicable from time to time to borrowings by the Partnership under the senior revolving credit facility of the Partnership. At the Closing, Advance/Newhouse shall execute and deliver to the Partnership a promissory note (the "Advance/Newhouse Note") substantially in the form of Exhibit B hereto having a principal amount equal to the Advance/Newhouse Contribution Amount, as security for its obligation to contribute to the Partnership the Advance/Newhouse Contribution Amount, plus interest as provided in this Section 5. Advance/Newhouse shall take any and all actions and execute and deliver all documents or agreements reasonably requested by the Partnership to enable the Partnership to perfect its security interest in the Advance/Newhouse Note. Advance/Newhouse and the Partnership acknowledge and agree that the Advance/Newhouse Note shall not be deemed an asset of the Partnership unless and until the Partnership seeks to realize upon its security interest therein. In exchange for its agreement to contribute the Advance/Newhouse Contribution Amount, Advance/Newhouse shall receive Common Partnership Units having a value equal to the Advance/Newhouse Contribution Amount. 6. Time and Place of Closing. Subject to the satisfaction (or waiver) of each of the conditions set forth in Section 4, the closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York, New York 10019 (or such other place as the parties may mutually agree), at 10:00 a.m. (New York City time) on February 12, 1998 or such earlier date as TWE may determine (upon 2 business days' notice to Advance/Newhouse), or such later date as the parties may mutually agree in writing. The date on which the Closing occurs is referred to herein as the "Effective Date". 7. Effect of Contributions. Upon the consummation of the contribution or beneficial assignment to the Partnership of the Designated CVI Systems and the Designated Paragon Systems in accordance with the terms and conditions of this Agreement, each of TWE (and its Affiliates) and the Partnership shall be deemed to have satisfied all of its obligations pursuant to Section 10.1 of the Partnership Agreement with respect to the businesses and assets of TWI Cable Inc. (formerly known as Cablevision Industries Corporation) and its affiliated companies and KBLCOM Incorporated and its affiliated companies. 8. Representations and Warranties; Indemnification. Subject to the Closing having occurred, each of TWX and TW Holding Co. (i) shall use commercially reasonable efforts, at the Partnership's expense, to enforce its rights with respect to the representations and warranties set forth in the CVI Supplemental Agreement (as defined below) as such representations and warranties relate to the Designated CVI Systems, including by way of seeking indemnification in accordance with the terms of the CVI Supplemental Agreement, and (ii) shall grant to the Partnership the benefits, if any, obtained as a result of the enforcement of such rights. For the purposes of the foregoing, "CVI Supplemental Agreement" shall mean the Supplemental Agreement, dated as of February 6, 1995, among Cablevision Industries Corporation, Cablevision Management Corporation of Philadelphia, Cablevision Properties, Inc., Cablevision Industries Limited Partnership, Cablevision Industries of Saratoga Associates, Cablevision Industries of Tennessee L.P., Cablevision of Fairhaven/Acushnet, Cablevision Industries of Middle Florida, Inc., Cablevision Industries of Florida, Inc., Cablevision Industries of Delaware, Inc., ARA Cablevision, Inc., Alan Gerry, TWX and TW CVI Acquisition Corp. 9. Valuation of Designated CVI Systems and Excess Paragon Subscribers. (a) Designated CVI Systems. The gross value of the Designated CVI Systems (the "Designated CVI System Value") shall equal (i) the Annualized Operating Cash Flow (as defined below) of the Designated CVI Systems multiplied by the CVI Multiple (as defined below), plus (ii) all capital expenditures made in respect of the Designated CVI Systems between January 4, 1996 and June 30, 1996, minus (iii) $25,629,000. The Designated CVI System Value shall be subject to adjustment pursuant to Section 10(a). (b) Excess Paragon Subscribers. The gross value of the Excess Paragon Subscribers (the "Excess Paragon Subscriber Value") shall equal (i) the Annualized Operating Cash Flow of the Designated Paragon Systems, multiplied by (ii) the Paragon Multiple (as defined below), multiplied by (iii) a fraction, the numerator of which shall be the number of subscribers comprising the Excess Paragon Subscribers and the denominator of which shall be the total number of subscribers served by all Designated Paragon Systems, in each case as of June 30, 1996. (c) Valuation Terms. As used in this Section 9, the following terms shall have the meanings set forth below: "Annualized Operating Cash Flow" means, with respect to any cable television systems, an amount equal to two times the Operating Cash Flow for such cable television systems for the six months ended June 30, 1996. "CVI Multiple" means the Total Adjusted CVI Acquisition Price divided by the Annualized Operating Cash Flow for all of the cable television systems owned by CVI and its wholly owned subsidiaries. "Operating Cash Flow" means total revenues less total operating, selling, general and administrative expenses, determined in accordance with generally accepted accounting principles, generated at the cable system level, exclusive of any corporate or divisional overhead costs. For this purpose, divisional overhead costs shall include the cost of regional offices to the extent that such offices perform divisional functions. "Paragon Multiple" means (i) the sum of (x) the Total Adjusted CVI Acquisition Price, plus (y) the Total Adjusted Summit Acquisition Price, divided by (ii) the sum of (x) the Annualized Operating Cash Flow for all of the cable television systems owned by CVI and its wholly owned subsidiaries, plus (y) the Annualized Operating Cash Flow for the cable television systems owned by Summit Communications Group, Inc. and its wholly owned subsidiaries. "Total Adjusted CVI Acquisition Price" shall equal $2,670,636,000. "Total Adjusted Summit Acquisition Price" shall equal $379,385,000. (d) Procedure; Dispute Resolution. Within 60 days following the Effective Date, TW Holding Co. shall deliver to the Partnership, Advance/Newhouse and TWE a certificate (the "Valuation Certificate"), signed by an appropriate officer of TW Holding Co. after due inquiry by such officer, but without any personal liability to such officer, setting forth the Designated CVI System Value, the Net CVI Contribution, the Excess Paragon Subscriber Value and the Net Paragon Contribution and the calculation thereof in accordance with Section 1(c), Section 2(d), Section 10(a), Section 10(b) and this Section 9. At the request of Advance/Newhouse or TWE, TW Holding Co. shall provide the requesting party with prompt and complete access to all working papers and relevant supporting documentation as well as appropriate TWX, TW Holding Co. or TWE personnel, in each case reasonably necessary in connection with such party's review of the information set forth in the Valuation Certificate. If either Advance/Newhouse or TWE shall conclude that the Valuation Certificate is not accurate, then Advance/Newhouse or TWE, as appropriate (the "Disputing Party"), within 90 days of receipt of such Valuation Certificate, shall furnish TW Holding Co. with a written statement of any discrepancy or discrepancies believed to exist (the "Discrepancy Certificate"). The Disputing Party and TW Holding Co. shall attempt jointly to resolve any discrepancy set forth in the Discrepancy Certificate within 30 days after receipt thereof, which resolution, if achieved, shall be binding upon all parties to this Agreement and not subject to dispute or review. If the Disputing Party and TW Holding Co. cannot resolve the discrepancy to their mutual satisfaction within such 30-day period, the Disputing Party and TW Holding Co. shall, within 10 days following the expiration of such 30-day period, jointly designate a nationally known independent certified public accounting firm to review the Valuation Certificate, together with the Discrepancy Certificate, and any other relevant documents. If the Disputing Party and TW Holding Co. do not agree upon a nationally known independent certified public accounting firm in accordance with the preceding sentence within such 10-day period, then such review shall be performed by a nationally known independent certified public accounting firm selected by two other nationally known certified public accounting firms, one selected by the Disputing Party and one selected by TW Holding Co.; provided that if one party fails to notify the other party of its selection within 5 days following receipt from the other party of its selection, the accounting firm so selected shall perform such review. The cost of retaining such independent public accounting firm shall be borne one-half by the Disputing Party and one-half by TW Holding Co. Such firm shall report its conclusions and such report shall be conclusive and binding on all parties to this Agreement and not subject to dispute or review. The Designated CVI System Value, the Net CVI Contribution, the Advance/Newhouse Contribution Amount, the Assumed CVI Liabilities, the Excess Paragon Subscriber Value, the Net Paragon Contribution and the Assumed Paragon Liabilities shall be adjusted, if necessary, to reflect any such resolution. 10. Closing Adjustments. (a) July 1, 1996 Adjustments. (i) TW Holding Co. Adjustment Amount. At the Closing, TW Holding Co. shall deliver to the Partnership a certificate setting forth the estimated TW Holding Co. Adjustment Amount (as defined below), which shall be determined in good faith by TW Holding Co. If the estimated TW Holding Co. Adjustment Amount is greater than zero, then the Designated CVI System Value shall be reduced by an amount equal to such estimated TW Holding Co. Adjustment Amount. If the estimated TW Holding Co. Adjustment Amount is less than zero, then the Designated CVI System Value shall be increased by an amount equal to the absolute value of such TW Holding Co. Adjustment Amount. The Valuation Certificate delivered by TW Holding Co. pursuant to Section 9(d) shall set forth the final TW Holding Co. Adjustment Amount and, to the extent necessary, the Designated CVI System Value, the Net CVI Contribution, the Advance/Newhouse Contribution Amount and the Assumed CVI Liabilities shall be adjusted to reflect difference between the final TW Holding Co. Adjustment Amount and the estimated TW Holding Co. Adjustment Amount. (ii) TWE Adjustment Amount. At the Closing, TWE shall deliver to the Partnership a certificate setting forth the estimated TWE Adjustment Amount (as defined below), which shall be determined in good faith by TWE. If the estimated TWE Adjustment Amount is greater than zero, then at the Closing TWE shall contribute to the Partnership an amount in cash equal to such estimated TWE Adjustment Amount. If the estimated TWE Adjustment Amount is less than zero, then at the Closing the Partnership shall assume from TWE indebtedness for money borrowed in an amount equal to the absolute value of such TWE Adjustment Amount. No later than 60 days following the Closing, TWE shall deliver to the Partnership a certificate setting forth the final TWE Adjustment Amount (the "TWE Closing Adjustments Certificate"). If the final TWE Adjustment Amount is greater than the estimated TWE Adjustment Amount, then TWE shall promptly contribute to the Partnership an amount in cash equal to the final TWE Adjustment Amount minus the estimated TWE Adjustment Amount. If the final TWE Adjustment Amount is less than the estimated TWE Adjustment Amount, then the Partnership shall promptly pay to TWE an amount in cash equal to the estimated TWE Adjustment Amount minus the final TWE Adjustment Amount. The foregoing adjustments are intended to place the Partnership and its Partners in substantially the same after-tax economic position with respect to the Designated CVI Systems, the Designated Paragon Systems and the Designated Primestar Subscribers that it would have been in had the Effective Date occurred on July 1, 1996. For purposes of the foregoing, (i) "TW Holding Co. Adjustment Amount" means (A) the Cash Flow (as defined below) generated by the Designated CVI Systems and the Excess Paragon Subscribers during the period from July 1, 1996 to the Effective Date, less (B) interest on the Assumed CVI Indebtedness and the Assumed Paragon Indebtedness accruing from July 1, 1996 to the Effective Date (calculated at an interest rate equal to the interest rate that would have been applicable to such Assumed CVI Indebtedness and Assumed Paragon Indebtedness had such amounts been indebtedness of the Partnership under the senior bank credit facility of the Partnership in effect during such period), less (C) the Priority Return (as defined in the First Amendment) that would have accrued on the TW Holding Co. Preferred Partnership Units from July 1, 1996 to the Effective Date had the TW Holding Co. Preferred Partnership Units issued on the Effective Date been outstanding throughout such period, less (D) an amount equal to the income taxes that would be payable on the net income relating to the Cash Flow described in clause (A), calculated at the Special Effective Tax Rate (as defined in the First Amendment) assuming for such purposes that such net income were reduced by the amount of interest described in clause (B) and the amount of the Priority Return described in clause (C); (ii) "TWE Adjustment Amount" means (A) the Cash Flow generated by the TWE Paragon Subscribers and the Designated Primestar Subscribers during the period from July 1, 1996 to the Effective Date, minus (B) an amount equal to the income taxes that would be payable on the net income relating to the Cash Flow described in clause (A), calculated at the Special Effective Tax Rate; and (iii) "Cash Flow" means, with respect to any period, (A) total revenues less total operating, selling, general and administrative expenses, determined in accordance with generally accepted accounting principles (excluding expenses that do not result in the accrual of current liabilities), generated at the cable system level, including an allocation of the management fees payable to TWE (calculated in a manner consistent with the manner in which such management fees would have been calculated under Section 3.1(h) of the Partnership Agreement had such systems been owned by the Partnership during such period) minus (B) capital expenditures, plus or minus (C) changes in working capital from the beginning of such period to the end of such period (assuming for such purposes that working capital as of June 30, 1996 is zero). For purposes of the foregoing, the Cash Flow generated by the Excess Paragon Subscribers and the TWE Paragon Subscribers, respectively, shall bear the same proportion to the total Cash Flow generated by the Designated Paragon Systems as the number of subscribers comprising the Excess Paragon Subscribers and the TWE Paragon Subscribers, respectively, bear to the total number of subscribers served by all Designated Paragon Systems. The adjustments made pursuant to this Section 10 are already reflected in the capital account balances of the partners of the Partnership and, accordingly, no additional adjustments to the partners' capital account balances shall be made in respect of such adjustments. Notwithstanding anything to the contrary contained in the Contribution Agreement, the Free Cash Flow Amount payable by TWE to the Partnership in respect of the assets described in paragraph 1 of Schedule A to the April 1995 Letter for the period from April 1, 1995 through June 30, 1996 shall not take into account changes in working capital. (b) Dispute Resolution. At the request of Advance/Newhouse, TWE shall provide Advance/Newhouse with prompt and complete access to all working papers and relevant supporting documentation as well as appropriate TWE personnel, in each case reasonably necessary in connection with Advance/Newhouse's review of the information set forth in the TWE Closing Adjustments Certificate. If Advance/Newhouse shall conclude that the TWE Closing Adjustments Certificate is not accurate, then Advance/Newhouse, within 90 days of receipt of such Closing Adjustments Certificate, shall furnish TWE with a written statement of any discrepancy or discrepancies believed to exist (the "Dispute Certificate"). Advance/Newhouse and TWE shall attempt jointly to resolve any discrepancy set forth in the Dispute Certificate within 30 days after receipt thereof which resolution, if achieved, shall be binding upon all parties to this Agreement and not subject to dispute or review. If Advance/Newhouse and TWE cannot resolve the discrepancy to their mutual satisfaction within such 30-day period, Advance/Newhouse or TWE shall, within 10 days following the expiration of such 30-day period, jointly designate a nationally known independent certified public accounting firm to review the TWE Closing Adjustments Certificate, together with the Dispute Certificate and any other relevant documents. If Advance/Newhouse and TWE do not agree upon a nationally known independent certified public accounting firm in accordance with the preceding sentence within such 10-day period, then such review shall be performed by a nationally known independent certified public accounting firm selected by two other nationally known independent certified public accounting firms, one selected by Advance/Newhouse and one selected by TWE; provided that if one party fails to notify the other party of its selection within 5 days following receipt from the other party of its selection, the accounting firm so selected shall perform such review. The cost of retaining such accounting firm shall be borne one-half by Advance/Newhouse and one-half by TWE. Such accounting firm shall report its conclusions and such report shall be conclusive and binding on all parties to this Agreement and not subject to dispute or review and, if necessary, the parties shall take all such action necessary to implement such conclusions. 11. Other Agreements. (a) Revised Long Term Strategic Plan. Within 60 days following the Effective Date, TWE shall present to Advance/Newhouse for its approval a revised Long Term Strategic Plan as contemplated by Section 3.3(a) of the Partnership Agreement, which plan shall give effect to the acquisition by the Partnership of the Designated CVI Systems, the Designated Paragon Systems and the Designated Primestar Subscribers. (b) Post-Closing Accounting Report. Within 90 days following the Effective Date, TWE shall provide to the Advance/Newhouse Accountants a complete report on the following matters: (i) Accounting for the Designated Paragon Interest for the period from April 1, 1995 through June 30, 1996. (ii) Revised accounting for the assets described in paragraph 1 of Schedule A to the April 1995 Letter for the period from April 1, 1995 through June 30, 1996 based upon a pro rata allocation of the Designated Paragon Systems. (iii) Accounting for all Partnership Primestar activity during the period from October 1, 1995 through June 30, 1996, and the Primestar activity within the TWE Systems and the Advance/Newhouse Systems (each, as defined in the Contribution Agreement) for the period from April 1, 1995 through September 30, 1995. Such report shall include a complete and correct listing of all Partnership Primestar territories (whether or not any subscribers are currently served) and shall properly allocate to the Partnership all Primestar activity in all systems formerly owned by Advance/Newhouse and all TWE systems contributed to the Partnership, plus Savannah. TWE shall fully and promptly cooperate with the Advance/Newhouse Accountants in their review and audit of such reports so that within 90 days of receipt of such reports, TWE and Advance/Newhouse shall be in position to agree upon the final accounting of such matters. TWE shall thereafter make any appropriate adjustments. (c) Amendment to Section 6.7 of Contribution Agreement. Section 6.7 of the Contribution Agreement shall be amended (effective from and after the Effective Date) by deleting the following words from the third sentence thereof: "(net of taxes on the net income relating thereto calculated at the highest marginal combined Federal, state and local income tax rate (giving effect to the deduction of state and local income taxes, as applicable, for Federal and state income tax purposes), applicable to a corporation located in the jurisdiction in which the Person holding such Beneficial Asset is located)". (d) Substitution of Paragon for TW Holding Co. Prior to the Closing, TWE may elect by written notice to Advance/Newhouse, to substitute Paragon Communications, a Colorado general partnership ("Paragon"), for TW Holding Co., in which case all references herein to TW Holding Co. shall be deemed to mean Paragon. 12. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New York (other than its rules of conflicts of law to the extent the application of the law of another jurisdiction would be required thereby). (b) The parties hereto shall cooperate with each other and their respective counsel and accountants in connection with any steps required to be taken as part of their respective obligations under this Agreement and will each use reasonable best efforts to perform or fulfill all conditions and obligations to be performed or fulfilled by them under this Agreement so that the transactions contemplated hereby shall be consummated. (c) This Agreement may be terminated by either TWE or Advance/Newhouse (by delivery of written notice to the other) if the Closing hereunder has not occurred on or before April 1, 1998. (d) Section headings contained in this Agreement are inserted only as a matter of convenience and reference and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provisions hereof. (e) This Agreement may be executed in one or more counterparts, each of which shall be an original and all of which, when taken together, shall constitute one and the same instrument. (f) This Agreement supersedes the Original Transaction Agreement and from and after the date hereof the Original Transaction Agreement shall be of no force and effect. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. ADVANCE PUBLICATIONS, INC. By: /s/ S.I. NEWHOUSE, JR. Name: S.I. Newhouse, Jr. Title: Chairman & Vice President NEWHOUSE BROADCASTING CORPORATION By: /s/ S.I. NEWHOUSE, JR. Name: S.I. Newhouse, Jr. Title: Vice President ADVANCE/NEWHOUSE PARTNERSHIP By: ADVANCE COMMUNICATION CORP., General Partner By: /s/ S.I. NEWHOUSE, JR. Name: S.I. Newhouse, Jr. Title: Vice President By: NEWHOUSE BROADCASTING CORPORATION, General Partner By: /s/ S.I. NEWHOUSE, JR. Name: S.I. Newhouse, Jr. Title: Vice President TIME WARNER ENTERTAINMENT COMPANY, L.P. By: /s/ SPENCER B. HAYS Name: Spencer B. Hays Title: Vice President TW HOLDING CO. By: TWI CABLE INC., General Partner By: /s/ SPENCER B. HAYS Name: Spencer B. Hays Title: Vice President TIME WARNER ENTERTAINMENT - ADVANCE/NEWHOUSE PARTNERSHIP By: TIME WARNER ENTERTAINMENT COMPANY, L.P., General Partner By: /s/ SPENCER B. HAYS Name: Spencer B. Hays Title: Vice President By: ADVANCE/NEWHOUSE PARTNERSHIP, General Partner By: ADVANCE COMMUNICATION CORP., General Partner By: /s/ S.I. NEWHOUSE, JR. Name: S.I. Newhouse, Jr. Title: Vice President By: NEWHOUSE BROADCASTING CORPORATION, General Partner By: /s/ S.I. NEWHOUSE, JR. Name: S.I. Newhouse, Jr. Title: Vice President For purposes of Section 8 only: TIME WARNER INC. By: /s/ SPENCER B. HAYS Name: Spencer B. Hays Title: Vice President Accepted and agreed to as of the date set forth above: U S WEST, INC. By: /s/ FRANK EICHLER Name: Frank Eichler Title: Vice President U S WEST MULTIMEDIA COMMUNICATIONS, INC. By: /s/ FRANK EICHLER Name: Frank Eichler Title: Vice President -----END PRIVACY-ENHANCED MESSAGE-----