TW TELECOM INC. - 10-K - 20000317 - FINANCIAL_DATA
Item 6. Selected Financial Data
Selected Consolidated and Combined Financial and Other Operating Data
The following table is derived in part from the audited consolidated and
combined financial statements of the Company. The financial statements of the
Company for all periods prior to the Reorganization that occurred on July 14,
1998 reflect the "carved out" historical financial position, results of
operations, cash flows and changes in stockholders' equity of the commercial
telecommunications operations of predecessors of the Company, as if they had
been operating as a separate company. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited consolidated and combined financial
statements and the notes thereto.
Years Ended December 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
---------- --------- --------- -------- --------
(in thousands, except per share and operating
data amounts)
Statements of Operations
Data:
Revenue:
Dedicated transport
services.............. $ 152,468 84,024 44,529 20,362 6,505
Switched services(1)... 116,285 37,848 10,872 3,555 350
---------- --------- --------- -------- --------
Total revenue........ 268,753 121,872 55,401 23,917 6,855
---------- --------- --------- -------- --------
Costs and expenses(2):
Operating.............. 117,567 67,153 40,349 25,715 15,106
Selling, general and
administrative........ 113,389 77,401 54,640 60,366 34,222
Depreciation and
amortization.......... 68,785 50,717 38,466 22,353 7,216
---------- --------- --------- -------- --------
Total costs and
expenses............ 299,741 195,271 133,455 108,434 56,544
---------- --------- --------- -------- --------
Operating loss.......... (30,988) (73,399) (78,054) (84,517) (49,689)
Interest expense, net
and other(2)........... (28,473) (19,340) 7,398 (1,599) (1,416)
---------- --------- --------- -------- --------
Net loss before income
taxes.................. (59,461) (92,739) (70,656) (86,116) (51,105)
Income tax expense(3)... 29,804 -- -- -- --
---------- --------- --------- -------- --------
Net loss................ $ (89,265) (92,739) (70,656) (86,116) (51,105)
========== ========= ========= ======== ========
Basic and diluted loss
per common share....... $ ( 0.93) (1.14) (0.87) (1.06) (0.63)
========== ========= ========= ======== ========
Other Operating Data:
EBITDA(1)(4)............ $ 37,797 (22,682) (39,588) (62,164) (42,473)
EBITDA Margin(1)(5)..... 14% (19)% (72)% (260)% (620)%
Net cash provided by
(used in) operating
activities............. 54,235 (343) (29,419) (52,274) (35,605)
Capital expenditures.... 221,224 126,023 127,315 144,815 141,479
Operating Data(6):
Operating Networks...... 21 19 19 18 15
Route miles............. 8,872 6,968 5,913 5,010 3,207
Fiber miles............. 332,263 272,390 233,488 198,490 116,286
Voice grade equivalent
circuits............... 5,331,000 2,953,454 1,702,431 687,001 158,572
Digital telephone
switches............... 19 16 14 2 1
Employees............... 1,259 919 714 673 508
Access lines............ 192,369 78,036 16,078 2,793 493
Balance Sheet Data:
Cash and cash
equivalents............ $ 90,586 105,140 -- -- --
Marketable securities... 173,985 250,857 -- -- --
Property, plant and
equipment, net......... 677,106 494,158 415,158 323,161 199,005
Total assets............ 1,043,012 904,344 438,077 341,480 214,963
Long-term debt and
capital lease
obligations(6)......... 403,627 574,940 75,475 -- --
Total stockholders'
equity................. $ 422,916 207,651 300,390 294,937 179,589
(1) Includes the recognition of a non-recurring $7.6 million settlement of
reciprocal compensation in the fourth quarter of 1999.
28
(2) Includes expenses resulting from transactions with affiliates of $20.0
million, $27.7 million, $17.1 million, $12.4 million and $6.5 million in
1999, 1998, 1997, 1996 and 1995, respectively. See note 6 to the Company's
financial statements appearing elsewhere in this report for an explanation
of these expenses.
(3) During 1999, the Company recorded a non-recurring $39.4 million charge to
earnings to record a net deferred tax liability associated with the
Reconstitution. This change occurred immediately prior to the Company's
IPO. Since the Reconstitution, the Company has recorded a deferred income
tax benefit aggregating $9.6 million, which is primarily due to a decrease
in the net deferred tax liability.
(4) "EBITDA" is defined as operating income (loss) before depreciation and
amortization expense. It does not include charges for interest expense or
provision for income taxes. Accordingly, EBITDA is not intended to replace
operating income, net income (loss), cash flow and other measures of
financial performance and liquidity reported in accordance with generally
accepted accounting principles. Rather, EBITDA is a measure of operating
performance and liquidity that investors may consider in addition to such
measures. Management believes that EBITDA is a standard measure of
operating performance and liquidity that is commonly reported and widely
used by analysts, investors and other interested parties in the
telecommunications industry because it eliminates many differences in
financial, capitalization and tax structures, as well as non-operating
one-time charges to earnings. EBITDA is used internally by the Company's
management to assess on-going operations and is a component of a covenant
of the Senior Notes that limits the Company's ability to incur certain
additional future indebtedness. However, EBITDA as used in this report may
not be comparable to similarly titled measures reported by other companies
due to differences in accounting policies.
(5) EBITDA Margin represents EBITDA as a percentage of revenue.
(6) Includes all managed properties including unconsolidated affiliates
(MetroComm AxS, L.P. in Columbus, Ohio and the Albany and Binghamton, New
York networks). Albany and Binghamton were wholly owned at December 31,
1997 and MetroComm AxS, L.P. was wholly owned at December 31, 1999.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Securities and Exchange Commission encourages companies to disclose
forward-looking information so that investors can better understand a
company's future prospects and make informed investment decisions. This
document, together with management's public commentary related thereto,
contains such "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, particularly statements anticipating
future growth in revenue, EBITDA and cash flow. Words such as "anticipate,"
"estimate," "expects," "projects," "intends," "plans," "believes," "target"
and words and terms of similar substance used in connection with any
discussion of future operating or financial performance identify such forward-
looking statements. Those forward-looking statements are management's present
expectation of future events. As with any projection or forecast, they are
inherently susceptible to changes in circumstances, and the Company is under
no obligation to (and expressly disclaims any such obligation to) update or
alter its forward-looking statements despite such changes. The following
discussion and analysis should be read in conjunction with the Company's
financial statements, including the notes thereto, appearing elsewhere in this
report.
Overview
The Company is a leading fiber facilities-based integrated communications
provider offering local businesses "last-mile" broadband connections for data,
high-speed Internet access, local voice and long distance services. The
Company serves customers in 21 metropolitan markets in the United States. The
markets include: Austin, Dallas, Houston and San Antonio, Texas; Charlotte,
Greensboro and Raleigh, North Carolina; Albany, Binghamton, New York City and
Rochester, New York; Northern New Jersey; Cincinnati and Columbus, Ohio;
Memphis, Tennessee; Orlando and Tampa, Florida; Indianapolis, Indiana;
Milwaukee, Wisconsin; San Diego, California and Honolulu, Hawaii. The Company
plans to enter Los Angeles/Orange County, California; Fayetteville, North
Carolina and Dayton, Ohio during 2000.
29
The Company began its business in 1993 by providing telephony services
through cable systems owned by TWE, TWE-A/N and Time Warner. The Company's
original business was to provide certain telephony services together with
cable television. In January 1997, the Company put in place a new management
team that implemented a business strategy focused exclusively on serving
business customers, rapidly providing switched services in the Company's
service areas and expanding the range of business telephony services offered
by the Company.
On July 14, 1998, TWT LLC succeeded to the ownership of the Company's
business. At that time, the Class B Stockholders formed TWT LLC to acquire the
assets and liabilities of the Company's business from the Former Parent
Companies and to conduct the offering of the Senior Notes. In the transaction,
referred to as the "Reorganization," the Class B Stockholders (either directly
or through subsidiaries) became the owners of all the limited liability
company interests in TWT LLC.
On May 10, 1999, in preparation for the Company's IPO, TWT LLC was
reconstituted as a Delaware corporation under the name Time Warner Telecom
Inc. by merging into a newly formed Delaware corporation. As part of the
merger, the outstanding Class A limited company interests were converted into
Class A common stock and the Class B Stockholders exchanged their interests in
TWT LLC for Class B common stock of the newly formed corporation, Time Warner
Telecom Inc. Prior to the Reconstitution, the only outstanding Class A
interests were those hold by the former shareholders of Inc.Net, which the
Company acquired in April 1999. The Company accounted for the Reorganization
and the Reconstitution at each of the Class B Stockholders' historical cost
basis and, except as noted below, the Reorganization and the Reconstitution
had no effect on the Company's total stockholders' equity, which has been
presented on a consistent basis.
The primary change to the Company's operating structure since the
Reconstitution is that the management of the Company became accountable to the
Board of Directors, instead of to the management committee of TWT LLC. In
addition, all future net operating loss carryforwards from the date of the
Reconstitution can be utilized against future earnings of the Company as a
result of the change in the Company's operating and legal structure from a
limited liability company to a corporation. Prior to the Reconstitution, all
net operating losses were allocated to and utilized primarily by the Class B
Stockholders. The Company has not been, and will not be compensated for such
net operating losses utilized by the Class B Stockholders. As a result of the
Reconstitution, which occurred during the second quarter of 1999, the Company
recorded a non-recurring charge to earnings for a net deferred tax liability
of approximately $39.4 million.
On May 14, 1999, in conjunction with the Reconstitution, the Company
completed an IPO of 20,700,000 shares of Class A common stock at a price of
$14 per share. The IPO generated approximately $270.2 million in proceeds for
the Company, net of underwriting discounts and expenses. A portion of the
proceeds of the IPO was used to repay $180 million of loans from the Former
Parent Companies that were generated from the financing requirements of the
Company from July 1, 1997 through July 14, 1998, which had remained
outstanding, accruing interest, through May 14, 1999. The proceeds of the IPO
remaining after repayment of such loans were used to repay assumed debt from
acquisitions and to fund capital expenditures.
As a result of the IPO, the Company has two classes of common stock
outstanding, Class A common stock and Class B common stock. In general,
holders of Class A common stock have one vote per share and holders of Class B
common stock have ten votes per share. Each share of Class B common stock is
convertible, at the option of the holder, into one share of Class A common
stock. Holders of Class A common stock and Class B common stock generally vote
together as a single class. However, some matters require the approval of 100%
of the holders of the Class B common stock voting separately as a class, and
some matters require the approval of a majority of the holders of the Class A
common stock, voting separately as a class. Upon completion of the IPO, the
Class B Stockholders owned all of the 81,250,000 shares of outstanding Class B
common stock. Subsequent to the IPO, 35,715 shares of Class B common stock
were converted into Class A common stock. As of December 31, 1999, the Class B
Stockholders had approximately 97.2% of the combined voting power of the
outstanding common stock.
30
In connection with the Reconstitution, the Company assumed the obligations
under the former Time Warner Telecom LLC 1998 Option Plan, amended such plan,
and renamed it the Time Warner Telecom 1998 Stock Option Plan (the "1998
Option Plan"). The 1998 Option Plan provides for the granting of stock options
to purchase shares of Class A common stock to directors and current or
prospective employees of, and consultants or other individuals providing
services to, the Company and its subsidiaries. As of December 31, 1999,
options for approximately 8.2 million shares were outstanding.
Acquisitions
During the second quarter of 1999, the Company acquired all of the
outstanding common stock of Inc.Net, an ISP, for consideration consisting of
$3.8 million of Class A limited liability interests in TWT LLC, the Company's
predecessor, approximately $3.5 million in net cash and the assumption of $1.9
million in liabilities. At the time of the IPO, such Class A limited liability
interests were converted into 307,550 shares of Class A common stock of the
Company. The Class A common stock of the Company into which the limited
liability interests were converted will be held in escrow to be released to
the former Inc.Net's shareholders over a period of three years. Through the
acquisition of this subsidiary, the Company manages current and future data
networks and provides new Internet products.
During the second quarter of 1999, the Company acquired all of the
outstanding common stock of MetroComm, Inc. ("MetroComm") through the issuance
of 2,190,308 shares of Class A common stock of the Company valued at $24.1
million, and the assumption of $20.1 million in liabilities. Through the
acquisition of MetroComm, the Company acquired the 50% interest of MetroComm
AxS, L.P., a CLEC in Columbus, Ohio, not already owned by the Company.
31
Results of Operations
The following table sets forth certain consolidated and combined statements
of operations data of the Company, in thousands of dollars and expressed as a
percentage of total revenue, for each of the periods presented. This table
should be read together with the Company's financial statements, including the
notes thereto, appearing elsewhere in this report:
Years Ended December 31,
-----------------------------------------------
1999 1998 1997
-------------- ------------- --------------
(amounts in thousands, except per share
amounts)
Statements of Operations
Data:
Revenue:
Dedicated transport
services................... $ 152,468 57 % 84,024 69 % 44,529 80%
Switched services(1)........ 116,285 43 37,848 31 10,872 20
--------- --- -------- --- -------- ----
Total revenue............... 268,753 100 121,872 100 55,401 100
--------- --- -------- --- -------- ----
Costs and expenses(2):
Operating................... 117,567 44 67,153 55 40,349 73
Selling, general and
administrative............. 113,389 42 77,401 63 54,640 99
Depreciation and
amortization............... 68,785 25 50,717 42 38,466 69
--------- --- -------- --- -------- ----
Total costs and expenses.... 299,741 111 195,271 160 133,455 241
--------- --- -------- --- -------- ----
Operating loss............... (30,988) (11) (73,399) (60) (78,054) (141)
Interest expense(2).......... (45,264) (17) (29,198) (24) (1,538) (3)
Interest income.............. 16,589 6 9,731 8 -- --
Equity in income (losses) of
unconsolidated affiliate.... 202 -- 127 -- (2,082) (4)
Gain on dispostion of
investments(3).............. -- -- -- -- 11,018 20
--------- --- -------- --- -------- ----
Net loss before income
taxes....................... (59,461) (22) (92,739) (76) (70,656) (128)
Income tax expense(4)........ 29,804 11 -- -- -- --
--------- --- -------- --- -------- ----
Net loss..................... $ (89,265) (33)% (92,739) (76)% (70,656) (128)%
========= === ======== === ======== ====
Basic and diluted loss per
common share................ $ (0.93) (1.14) (0.87)
Basic and diluted loss per
common share before income
taxes(4).................... $ (0.62) (1.14) (0.87)
Average common shares
outstanding................. 95,898 81,250 81,250
EBITDA(1)(5)................. $ 37,797 14 % (22,682) (19)% (39,588) (71)%
Net cash provided by (used
in) operating activities.... 54,235 (343) (29,419)
Net cash used in investing
activities.................. (146,917) (378,083) (120,621)
Net cash provided by
financing activities........ 78,128 483,566 150,040
(1) Includes the recognition of a non-recurring $7.6 million settlement of
reciprocal compensation in the fourth quarter of 1999.
(2) Includes expenses resulting from transactions with affiliates of $20.0
million, $27.7 million and $17.1 million in 1999, 1998 and 1997,
respectively.
(3) In 1997, the Company completed a series of transactions related to its
interests in the Hyperion Partnerships, a group of unconsolidated
telecommunication partnerships serving the New York area, whereby it sold
its interests in the partnerships serving the Buffalo and Syracuse markets
in exchange for approximately $7.0 million of cash and all of the minority
interests in the partnerships serving the Albany and Binghamton markets
that were not already owned by the Company. In connection with these
transactions, the Company recognized a gain of approximately $11.0
million.
(4) A non-recurring charge to earnings of $39.4 million was recorded in 1999
to reflect the initial net deferred tax liability associated with the
change from a limited liability company to a corporation. Income tax
32
expense for 1999 reflects the $39.4 million charge, net of a $9.6 million
deferred income tax benefit, resulting in net income tax expense of
approximately $29.8 million.
(5) "EBITDA" is defined as operating income (loss) before depreciation and
amortization expense. It does not include charges for interest expense or
provision for income taxes. Accordingly, EBITDA is not intended to replace
operating income, net income (loss), cash flow and other measures of
financial performance and liquidity reported in accordance with generally
accepted accounting principles. Rather, EBITDA is a measure of operating
performance and liquidity that investors may consider in addition to such
measures. Management believes that EBITDA is a standard measure of
operating performance and liquidity that is commonly reported and widely
used by analysts, investors and other interested parties in the
telecommunications industry because it eliminates many differences in
financial, capitalization, and tax structures, as well as non-operating
one-time charges to earnings. EBITDA is used internally by the Company's
management to assess ongoing operations and is a component of a covenant
of the Senior Notes that limits the Company's ability to incur certain
additional future indebtedness. However, EBITDA as used in this report may
not be comparable to similarly titled measures reported by other companies
due to differences in accounting policies.
General
The Company's revenue has been derived primarily from business telephony
services, including dedicated transport, local switched, long distance, data
and high-speed Internet access services. The Company's customers are
principally telecommunications-intensive business end-users, IXCs, ISPs,
wireless communications companies and governmental entities. Since its
inception in 1993, the Company has experienced significant growth in revenue
and the geographic scope of its operations. An increasing portion of the
Company's growth in revenue has come from the provision of local switched
services as a result of the 19 digital voice switches deployed as of December
31, 1999. The Company believes that switched services provide the opportunity
for a greater return on invested capital than that expected from dedicated
transport services. The shift of the revenue growth to switched services may
cause the Company's revenue to become less predictable since a portion of such
services are billed to customers on a usage basis. Dedicated transport
customers are typically billed a flat monthly rate which produces a less
variable stream of revenue for the Company. Furthermore, it is expected that
the growth in the switched service offerings, as well as data and Internet
services, will expand the Company's customer base to customers that are
generally smaller than those who purchase dedicated transport services. Key to
the Company's strategy is leveraging its existing fiber optic networks by
adding additional services such as data and Internet and an integrated product
for smaller customers. The Company expects to experience a higher churn rate
for these customers than it has traditionally experienced with dedicated
transport services. The Company intends to minimize churn in services to
smaller customers by offering such service under minimum one-year contracts.
Reciprocal compensation revenue is an element of switched services revenue,
which represents compensation from LECs for local exchange traffic terminated
on the Company's facilities originated by other LECs. Reciprocal compensation
is based on contracts between the Company and LECs. The Company recognizes
reciprocal compensation revenue as it is earned, except in such cases where
the revenue is under dispute. Under several of its contracts, the LECs have
disputed the payment of reciprocal compensation for traffic terminating to ISP
customers contending that such traffic was not local. As a result, the Company
has filed complaints with various public utility commissions ("PUCs")
contending that the ISP traffic is local. Various of these state PUCs have
ruled in favor of the Company, but all of these favorable decisions have
subsequently been appealed by the LECs. While the Company believes that these
disputes will ultimately be resolved in its favor, the Company only recognizes
revenue on a portion of the cash received and defers recognition of a
significant portion of this revenue pending outcome of the dispute. As of
December 31, 1999, the Company has deferred recognition of $32.8 million in
reciprocal compensation revenue for payments received associated with these
disputes. 1999 switched services revenue includes the recognition of a non-
recurring $7.6 million settlement of reciprocal compensation. The Company pays
reciprocal compensation expense to the other LECs for local exchange traffic
it terminates on the LECs facilities. These costs are recognized as incurred.
33
The Company benefits from its strategic relationship with TW Cable both
through access to local right-of-way and construction cost-sharing. The
Company's networks have been constructed primarily through the use of fiber
capacity licensed from TW Cable. As of December 31, 1999, the Company operated
networks in 21 metropolitan areas that spanned 8,872 route miles, contained
332,263 fiber miles and offered service to 5,566 buildings.
The Company plans to continue expanding its revenue base by fully utilizing
available network capacity in its existing markets, by adding networks in new
markets and by continuing to develop and selectively tailor new services in
competitively-priced packages to meet the needs of its medium- and large-sized
business customers. The Company intends to expand its product offerings on a
continuous basis to achieve a diverse revenue base. As part of that process,
the Company is targeting the expansion of data and Internet products that can
be offered on the Company's existing network.
Operating expenses consist of costs directly related to the operation and
maintenance of the networks and the provision of the Company's services. This
includes the salaries and related expenses of operations and engineering
personnel, as well as costs incurred from the ILECs, other competitors and
long distance providers for facility leases and interconnection. These costs
have increased over time as the Company has increased its operations and
revenue. The Company expects such costs to continue to increase as the
Company's revenue growth continues, but generally at a slower rate than
revenue growth.
Selling, general and administrative expenses consist of salaries and
related costs for employees other than those involved in operations and
engineering. Such expenses include costs related to sales and marketing,
information technology, billing, regulatory and legal costs. These costs have
increased over time as the Company has increased its operations and revenue.
The Company expects these costs to continue to increase as the Company's
revenue growth continues, but generally at a slower rate than revenue growth.
In the normal course of business, the Company engages in various
transactions with TW Cable, generally on negotiated terms among the affected
units that, in management's view, result in reasonable allocations. In
connection with the Reorganization, the Company entered into several contracts
with the Former Parent Companies with respect to certain of such transactions.
The Company's selling, general and administrative expenses include charges
allocated from TW Cable for office rent and overhead charges for various
administrative functions they perform for the Company. These charges are
required to reflect all costs of doing business and are based on various
methods, which management believes result in reasonable allocations of such
costs that are necessary to present the Company's operations as if they are
operated on a stand alone basis. In addition, the Company licenses the right
to use the majority of its fiber optic cable capacity from TW Cable through
prepaid right-to-use agreements and reimburses TW Cable for facility
maintenance and pole rental costs. Such maintenance and pole rental costs are
included in the Company's operating expenses.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenue. Revenue increased $146.9 million, or 121%, to $268.8 million for
1999, from $121.9 million for 1998. This increase in revenue is primarily
because of increased customers, increased revenue from existing customers, a
broader array of products offered and acquisitions. Revenue from the provision
of dedicated transport services increased $68.4 million or 81%, to $152.5
million for 1999, from $84.0 million for 1998. Switched service revenue
increased $78.4 million, or 207%, to $116.3 million for 1999, from $37.8
million for 1998. Exclusive of the effects of acquisitions and the effects of
the recognition of a non-recurring $7.6 million settlement of reciprocal
compensation in the fourth quarter of 1999, dedicated transport service and
switched service revenue increased 73% and 182%, respectively. The increase in
revenue from dedicated transport services primarily reflects a 54% increase in
average dedicated transport customers and a broader array of products and
services offered in existing markets. The increase in switched service revenue
reflects a 136% increase in average switched service customers, and an
increase in revenue from switched access services, reciprocal compensation and
a broader array of products and services offered in existing markets.
Reciprocal compensation, the mutual
34
charges by local carriers for recovery of costs associated with the
termination of traffic on each other's networks, represented 7% and 8% of
total revenue for 1999 and 1998, respectively, excluding the effects of the
recognition of a non-recurring $7.6 million settlement of reciprocal
compensation in the fourth quarter of 1999. At December 31, 1999, the Company
offered dedicated transport services in 21 metropolitan areas, 20 of which
also offered switched services. At December 31, 1998, the Company offered
dedicated transport services in 19 metropolitan areas, 16 of which also
offered switched services.
Operating Expenses. Operating expenses increased $50.4 million, or 75%, to
$117.6 million for 1999, from $67.2 million for 1998. Exclusive of the effects
of acquisitions, such expenses increased 67%. The increase in operating
expenses was primarily attributable to the Company's expansion of its
business, principally switched services, the ongoing development of existing
markets resulting in higher LEC charges for circuit leases and
interconnection, and higher technical personnel costs. As a percentage of
revenue, operating expenses decreased to 44% for 1999 from 55% for 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $36.0 million, or 46%, to $113.4 million for
1999, from $77.4 million for 1998. Exclusive of the effects of acquisitions,
such expenses increased 43%. The increase in selling, general and
administrative expenses was primarily attributable to an increase in employee
headcount and higher direct sales costs associated with the increase in
revenue, higher data processing costs and an increase in the provision for
doubtful accounts related to the increase in revenue. As a percentage of
revenue, selling, general and administrative expenses decreased to 42% for
1999 from 63% for 1998.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased $18.1 million, or 36%, to $68.8 million for 1999, from $50.7
million for 1998. Exclusive of the effects of acquisitions, such expense
increased 28%. The increase in depreciation and amortization expense was
primarily attributable to increased capital expenditures and increased
goodwill generated from acquisitions.
EBITDA. EBITDA increased $60.5 million, to $37.8 million, for 1999 from a
loss of $22.7 million for 1998. Exclusive of the effects of acquisitions and
the effects of the recognition of a non-recurring $7.6 million settlement of
reciprocal compensation in the fourth quarter of 1999, such amount increased
$51.6 million. This improvement was primarily the result of economies of scale
as more revenue was generated in existing markets, increased utilization of
networks and facilities, and a more skilled and productive workforce.
Interest Expense. During the period July 1, 1997 through July 14, 1998, all
of the Company's financing requirements were funded with loans from the Former
Parent Companies. Such loans remained outstanding, accruing interest, through
May 14, 1999. On July 21, 1998, the Company issued $400 million in Senior
Notes in a public offering. On May 14, 1999, the subordinated loans of
approximately $180 million, including accrued interest, were repaid in full to
the Former Parent Companies from the IPO proceeds. Interest expense relating
to these loans and Senior Notes totaled $45.3 million and $29.2 million for
1999 and 1998, respectively. The increase of $16.1 million is primarily due to
the higher weighted average debt balance during 1999.
Net Loss. Net loss decreased $3.5 million, or 4%, to $89.3 million for
1999, from a net loss of $92.7 million for 1998. The decrease in net loss is
primarily related to improved results from operations, partially offset by an
increase in net interest expense of $9.2 million and income tax expense of
$29.8 million.
Loss per Common Share. The basic and diluted loss per common share was
computed by dividing net loss applicable to common shares by the weighted
average outstanding common shares for the period. Potential common shares were
not included in the computation of weighted average shares outstanding because
their inclusion would be anti-dilutive. The increase in the weighted average
shares outstanding is due to the issuance of Class A common stock for the IPO,
for acquisitions and upon the exercise of stock options. For 1999, the basic
and diluted loss per common share decreased $0.21 per share, or 18%, to
($0.93) per share from ($1.14) per share for 1998.
35
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenue. Revenue increased $66.5 million, or 120%, to $121.9 million for
1998, from $55.4 million for 1997. Revenue from the provision of dedicated
transport services increased $39.5 million, or 89%, to $84.0 million for 1998,
from $44.5 million for 1997. Switched service revenue increased $27.0 million,
or 248%, to $37.8 million for 1998, from $10.9 million for 1997. The increase
in revenue from dedicated transport services primarily reflects growth of
services and new products offered in existing markets. The increase in
switched services resulted from the offering of services in new markets and
the growth of services in existing markets including reciprocal compensation.
Reciprocal compensation represented 8% and 9% of total revenue for 1998 and
1997, respectively. At December 31, 1998, the Company offered dedicated
transport services in 19 metropolitan areas, 16 of which also offered switched
services, as compared to offering dedicated transport services in 19
metropolitan areas, 14 of which also offered switched services at December 31,
1997. The metropolitan areas do not include MetroComm AxS, L.P., a 50% owned
entity of the Company.
Operating Expenses. Operating expenses increased $26.8 million, or 66%, to
$67.2 million for 1998, from $40.3 million for 1997. The increase in operating
expenses was primarily attributable to the Company's expansion of its
business, principally switched services, the ongoing development of existing
markets resulting in higher LEC charges for circuit leases and
interconnection, higher technical personnel costs, and higher data processing
costs. As a percentage of revenue, operating expenses decreased to 55% in 1998
from 73% for 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $22.8 million, or 42%, to $77.4 million for
1998, from $54.6 million for 1997. The increase in selling, general and
administrative expenses was primarily attributable to higher direct sales
costs associated with the increase in revenue, higher property taxes, an
increase in consulting expenses relating to local regulatory matters, the
implementation of new billing and system software, and an increase in the
provision for doubtful accounts related to the increase in revenue. As a
percentage of revenue, selling, general and administrative expenses decreased
to 63% for 1998 from 99% for 1997.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased $12.3 million, or 32%, to $50.7 million for 1998, from $38.5
million for 1997. The increase in depreciation and amortization expense was
primarily attributable to higher capital expenditures related to the ongoing
construction and expansion of the Company's telecommunications networks in
both 1998 and 1997. As a percentage of revenue, depreciation and amortization
expenses decreased to 42% for 1998, from 69% for 1997.
EBITDA. The EBITDA loss for 1998 decreased $16.9 million, or 43%, to a loss
of $22.7 million for 1998, from a loss of $39.6 million for 1997. This
improvement was primarily the result of increased revenue due to the Company's
expansion of local telecommunications networks in new and existing markets and
growth of the Company's customer base, partially offset by higher operating
expenses in support of the larger customer base, and higher selling, general
and administrative expenses required to support the expansion.
Interest Expense. During the period July 1, 1997 through July 14, 1998, all
of the Company's financing requirements were funded with loans from the Former
Parent Companies. On July 21, 1998, the Company issued $400 million in Senior
Notes in a public offering. Interest expense relating to these loans and
Senior Notes totaled $29.2 million and $1.5 million for 1998 and 1997,
respectively.
Net Loss. Net loss increased $22.1 million, or 31%, to $92.7 million for
1998, from a net loss of $70.7 million for 1997. This increase resulted from
higher depreciation and amortization expenses relating to the Company's
expansion of telecommunications networks in new and existing markets, as well
as interest expense relating to the subordinated loans payable to the Former
Parent Companies and the Senior Notes.
36
Liquidity and Capital Resources
Sources and Uses of Funds
Operations. For 1999, the Company's cash provided by operations was $54.2
million, as compared to cash used in operations of $343,000 for 1998. This
increase in cash provided by operations of $54.6 million principally resulted
from an increase in EBITDA of $60.5 million. During the second quarter of
1999, the Company achieved positive EBITDA and expects to continue to generate
positive EBITDA for the foreseeable future. As the Company continues its
expansion plan to enter into new markets, the expenditures incurred, together
with initial operating expenses, will generally result in negative EBITDA and
operating losses from a network until an adequate customer base and revenue
stream for the network have been established. Accordingly, the Company expects
that the network constructed in each new market will generally produce
negative EBITDA for at least two and a half years after operations commence in
each market. Although overall, the Company expects to continue to have
positive EBITDA for the near future as it develops and expands its business,
there can be no assurance that the Company will sustain sufficient positive
EBITDA to meet its working capital requirements and to service its
indebtedness.
Investing. Cash used in investing activities decreased $231.2 million to
$146.9 million in 1999, as compared to $378.1 million in 1998. During 1999, a
portion of the proceeds from maturities of marketable securities were used to
partially fund capital expenditures and working capital requirements. During
1998, the net proceeds from the issuance of the Senior Notes were primarily
invested in marketable securities.
During 1999, capital expenditures were $221.2 million (net of capital
leases incurred of $3.7 million), an increase of $95.2 million from 1998. The
largest commitment of capital was related to the installation of transport and
switch related electronics to support the increase in sales activity and the
addition of 1,904 route miles of fiber since December 31, 1998. Based on
historic capital requirements for network construction in relation to sales
volumes and network expansion plans, the Company anticipates it will commit
approximately $350 million in 2000 to fund its capital expenditures. This
target spending includes requirements for current operating markets and the
Company's expansion plans.
The facilities-based telecommunications service business is a capital
intensive business. The Company's operations have required and will continue
to require substantial capital investment for: (i) the purchase and
installation of switches, electronics, fiber and other technologies in
existing networks and in additional networks to be constructed in new service
areas; (ii) the acquisition and expansion of networks currently owned and
operated by other companies; and (iii) the evolution of the network to support
new products, services and technologies. The Company's expected capital
expenditures for general corporate and working capital purposes include: (i)
expenditures with respect to the Company's management information system and
corporate service support infrastructure and (ii) operating and administrative
expenses with respect to new networks and debt service. The Company plans to
make substantial capital investments in connection with plans to construct and
develop new networks, as well as for technology upgrades. Expansion of the
Company's networks will include the geographic expansion of the Company's
existing operations, and the Company will consider the development of new
markets. In addition, the Company may acquire existing networks in the future.
The Company, from time to time, evaluates potential acquisitions of, and
joint ventures relating to, networks currently owned and operated by other
companies, including affiliates of the Class B Stockholders, and expects to
continue to do so. In the event the Company enters into a definitive agreement
with respect to any acquisition or joint venture, it may require additional
financing or it may elect to use a portion of the proceeds from the sale of
the Senior Notes not theretofore expended for other purposes, including but
not limited to, capital expenditures and working capital requirements.
While the Company intends to continue to leverage its relationship with TW
Cable in pursuing expansion opportunities, to the extent the Company seeks to
expand into service areas where TW Cable does not conduct cable operations,
the Company may incur significant additional costs in excess of those
historically incurred by
37
the Company when expanding into existing TW Cable service areas. In addition,
TW Cable is not obligated to construct or provide additional fiber optic
capacity in excess of what is already licensed to the Company under the
Capacity License Agreements. Accordingly, if the Company is unable to lease
such additional capacity at the same rates as are currently provided for under
the Capacity License Agreements, the Company may be required to obtain
additional capacity on more expensive terms. See "Operating Agreements with TW
Cable--Capacity License Agreements" in Item 1 above.
The development and expansion of the Company's existing and future networks
and services will require significant capital to fund these capital
expenditures. The Company expects that its future cash requirements will
principally be for funding future growth and capital expenditures. The Company
has appointed Chase Securities Inc. as lead arranger in the syndication of a
$400 million revolving senior secured credit facility for the Company. If the
syndication of the facility is successful, the Company anticipates closing the
financing in the second quarter of 2000. However, there is no assurance that
the financing will be available to the Company or on acceptable terms. The
Company expects that the $264.6 million in cash, cash equivalents and
marketable securities at December 31, 1999, borrowings under the $400 million
credit facility along with internally generated funds, will provide sufficient
funds for the Company to meet its expected capital and liquidity needs to
expand its business as currently planned and pay interest on the Senior Notes.
In the event that the Company's plans or assumptions change or prove to be
inaccurate, or the foregoing sources of funds prove to be insufficient to fund
the Company's growth and operations, or if the Company consummates
acquisitions or joint ventures, the Company may be required to seek additional
capital sooner than currently anticipated. The Company's revenue and costs are
dependent upon factors that are not within the Company's control, such as
regulatory changes, changes in technology and increased competition. Due to
the uncertainty of these and other factors, actual revenue and costs may vary
from expected amounts, possibly to a material degree, and such variations are
likely to affect the level of the Company's future capital expenditures and
expansion plans. Sources of financing may include public or private debt,
equity financing by the Company or its subsidiaries or other financing
arrangements.
Financing. Net cash provided by financing activities for 1999 decreased by
$405.4 million, as compared to 1998. Net cash provided by financing activities
for 1999, reflects the net proceeds from the IPO of $270.2 million, offset by
the repayment of loans from the Former Parent Companies of $180 million, as
well as acquired debt and capital lease obligations. Net cash provided by
financing activities for 1998, reflects proceeds from issuance of the Senior
Notes and loans from the Former Parent Companies.
During the period from July 1, 1997 through July 14, 1998, all of the
Company's financing requirements were funded with subordinated loans from the
Former Parent Companies. These loans remained outstanding, accruing interest,
through May 14, 1999. The loans from the Former Parent Companies were
subordinated in right of payment to the Senior Notes, except for a provision
allowing repayment prior to maturity with the net proceeds of any offering of
common stock or equivalent interest of the Company. The $400 million principal
amount in Senior Notes that the Company issued in July 1998 are unsecured,
unsubordinated obligations of the Company. Interest on the Senior Notes is
payable semiannually on January 15 and July 15, beginning on January 15, 1999.
Aggregate annual interest payments on the Senior Notes through 2008 are
expected to be approximately $39 million. The Senior Notes are required to be
repaid on July 15, 2008. On May 14, 1999, approximately $180 million of the
proceeds from the IPO were used to repay the subordinated loans payable to the
Former Parent Companies in full, including accrued interest. The proceeds of
the IPO remaining after repayment of the subordinated loans payable, combined
with the proceeds from the Senior Notes, have been used to continue funding
the Company's continued growth, which includes expansion of the Company's
networks, and for general corporate purposes. The Former Parent Companies are
not under any obligation to make any additional equity investments or loans to
the Company.
The Company intends to continue to evaluate potential acquisitions and
joint ventures. Currently, the Company has no new definitive agreement with
respect to any material acquisition or joint venture, although from time to
time it may discuss and assess opportunities with other companies, including
the Class B Stockholders.
38
Substantial Leverage/Covenants
The Company is highly leveraged. As of December 31, 1999, the Company had
approximately $400 million of consolidated total debt. The degree to which the
Company is leveraged could have a material adverse effect upon the Company,
including: (i) the Company's ability to obtain additional financing in the
future for capital expenditures, acquisitions, joint ventures, working capital
or general corporate or other purposes may be limited; (ii) a substantial
portion of the Company's cash flow from operations will be dedicated to the
payment of the principal of, and interest on, its debt; and (iii) the
Company's substantial leverage may make it more vulnerable to economic
downturns, limit its ability to withstand competitive pressures and reduce its
flexibility in responding to changing business and economic conditions. A
failure by the Company to comply with the covenants and other provisions of
financing documents to which the Company is a party, including the Indenture
governing the Senior Notes (the "Indenture"), or other debt instruments to
which the Company may become party in the future, could permit acceleration of
the debt under such instruments and, in some cases, acceleration of debt under
other instruments that contain cross-default or cross-acceleration provisions.
The Indenture contains certain restrictive covenants. Such restrictions
affect, and in many respects significantly limit or prohibit, among other
things, the ability of the Company to incur indebtedness, make prepayments of
certain indebtedness, pay dividends, make investments, engage in transactions
with shareholders and affiliates, issue capital stock of subsidiaries, create
liens, sell assets and engage in mergers and consolidations. The loan
documents for the $400 million credit facility the Company is currently
negotiating may contain further restrictions on these and other activities of
the Company.
Additional Risks and Other Uncertainties
The Company's ability to expand its business depends on a variety of
factors. These factors include the Company's ability to assess markets, design
fiber optic network backbone routes, acquire and install facilities, obtain
and utilize rights-of-way and building access, obtain any required
governmental authorizations and permits and implement interconnection with
LECs. There can be no assurance that the Company will be able to achieve this
expansion in a timely manner, at a reasonable cost, or on terms and conditions
acceptable to the Company.
The successful implementation of the Company's expansion strategy will be
subject to a variety of risks, including operating and technical problems,
regulatory uncertainties, competition and the availability of capital. There
can be no assurance that any existing networks will be successfully expanded
or any new networks will be developed. In addition, there can be no assurance
that any networks that are developed will be completed on schedule, at
commercially reasonable costs or within the Company's specifications. There
can also be no assurance that any new or expanded networks will become
profitable or generate positive cash flow at any time in the future. A
substantial portion of the Company's network build-out plans within existing
markets are dependent upon its continuing relationship with TW Cable. See
"Operating Agreements with TW Cable." The Company's inability to expand its
existing networks and operations or install new networks or manage effectively
such expansion and installation could have a material adverse effect upon the
Company's business operations, financial condition and results of operations.
In addition, the expansion of the Company's business may involve acquisitions
or joint ventures which, if made or entered into, could divert the resources
and management time of the Company and could require integration with the
Company's operations.
A portion of the Company's revenue is comprised of services that are rate
sensitive. Switched access which is the connection between a long distance
carrier's POP and an end-user's premises that is provided through the
switching facilities of a LEC is billed on a per minute of use basis.
Historically the FCC has regulated the access rates imposed by the ILECs,
while CLEC access rates have been less regulated. In 1999, the FCC established
a framework for the eventual deregulation of ILEC interstate access charges.
Degrees of increased pricing flexibility and ultimate price deregulation are
triggered by the extent of competition within each of our markets. This will
exert greater downward pressure on the Company's interstate access rates as
various conditions are met over the next few years. In addition, the FCC is
considering proposals to decrease ILEC per-minute access charges, while
imposing regulation on CLEC access charges to restrict rates to levels below
an established benchmark. Although the Company's business plans have reflected
downward pressure on access rates and their
39
impact, these regulatory developments may potentially result in lower rates
than anticipated. For 1999, switched access revenue represented 11% of total
revenue. Management believes that increased volume in services and markets
served will offset the impact of switched access rate reduction. However, the
degree and timing of the regulatory developments cannot be predicted. In
addition, there is no assurance that the Company will be able to compensate
for the reduction in switched access revenue from rate reform with other
revenue sources.
Reciprocal compensation is also a component of switched services that is
rate sensitive. Reciprocal compensation is the mutual charges by local
carriers for recovery of costs associated with the termination of traffic on
each other's networks. Rates are established by interconnection agreements
between the parties based on regulatory and judicial ruling in each of the
states. Several significant agreements have expired or will be expiring over
the next year. These contracts are being or will be renegotiated in 2000. In
most of the states, regulatory bodies have established lower traffic
termination rates than the rates provided under the Company's previous
agreements. While the Company expects that it will negotiate reasonable
interconnection agreements with the ILECs, pricing structures are not likely
to remain at their current levels. Currently reciprocal compensation
represents 7% of revenue excluding non-recurring settlements of $7.6 million
recognized in 1999. Although the renegotiated interconnection agreements are
likely to result in lower rates, management believes that the volume in
minutes driven by the growth in Internet and related markets will more than
offset the impact of the rate reduction. The outcome of regulatory and
judicial rulings on reciprocal compensation for ISP traffic may also
negatively impact the Company's revenue from reciprocal compensation. The
Company cannot predict the outcome of these rulings. Accordingly, there is no
assurance that the Company will be able to compensate for the reduction in
reciprocal compensation with increased volume of terminating local traffic.
The Company's future performance will depend, in part, upon its ability to
manage its growth effectively. The Company's rapid growth has placed, and in
the future may continue to place, a significant strain on its administrative,
operational and financial resources. The Company's ability to continue to
manage its growth successfully will require the Company to further enhance its
operations, management, financial and information systems and controls and to
expand, train and manage its employee base. In addition, as the Company
increases its service offerings and expands its targeted markets, there will
be additional demands on the Company's customer support, sales, marketing,
administrative resources and network infrastructure. There can be no assurance
that the Company's administrative, operating and financial resources, systems
and controls will be adequate to manage the Company's growth effectively. The
Company's inability to manage its expansion effectively, including the
emergence of unexpected expansion difficulties, could have a material adverse
effect on the Company's business, results of operations and financial
condition.
Currently, the Company offers primarily local telecommunications services.
However, the Company continues to examine opportunities to expand into other
related telecommunications services. If the Company were to expand into new
categories of telecommunications services, it could incur certain additional
demands and risks in connection with such expansion, including demands on its
ability to manage growth, technological compatibility risks, legal and
regulatory risks and possible adverse reaction by some of its current
customers.
The Company may, as part of its business strategy, acquire other businesses
that will complement its existing business. Management is unable to predict
whether or when any prospective acquisitions will occur or the likelihood of
any material transactions being completed on favorable terms and conditions.
The Company's ability to finance acquisitions may be constrained by, among
other things, its high degree of leverage. The Indenture significantly limits
the Company's ability to make acquisitions and to incur indebtedness in
connection with acquisitions. If the Company completes a bank financing, the
documents for that financing may include similar limitations. Such
transactions commonly involve certain risks, including, among others:
. the difficulty of assimilating the acquired operations and personnel;
. the potential disruption of the Company's ongoing business and diversion
of resources and management time;
. the possible inability of management to maintain uniform standards,
controls, procedures and policies;
40
. the risks of entering markets in which the Company has little or no prior
experience; and
. the potential impairment of relationships with employees or customers as
a result of changes in management or business.
There can be no assurance that any acquisition will be made, that the
Company will be able to obtain additional financing needed to finance any
acquisition and, if any acquisitions are made, that the acquired business will
be successfully integrated into the Company's operations so that the acquired
business will perform as expected. The Company has no definitive agreement
with respect to any acquisition, although from time to time it has discussions
with other companies, including affiliates of the Former Parent Companies, and
assesses opportunities on an ongoing basis.
The Company may also enter into joint venture transactions. These
transactions present many of the same risks involved in acquisitions and may
also involve the risk that other joint venture partners may have economic,
business or legal interests or objectives that are inconsistent with those of
the Company. Joint venture partners may also be unable to meet their economic
or other obligations, thereby forcing the Company to fulfill these
obligations.
Impact of Year 2000
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission
critical information technology and non-information technology systems and
believes those systems successfully responded to the Year 2000 date change,
including the leap year date. The Company expensed approximately $2.8 million
during 1999 in connection with remediating its systems. The Company is not
aware of any material problems resulting from Year 2000 issues, either with
its products, its internal systems or the products and services of third
parties. The Company will continue to monitor its mission critical computer
applications and those of its suppliers and vendors throughout the year 2000
to ensure that any latent Year 2000 matters that may arise are addressed
promptly.
Effects of Inflation
Historically, inflation has not had a material effect on the Company.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company's interest income is sensitive to changes in the general level
of interest rates. In this regard, changes in interest rates can affect the
interest earned on the Company's cash equivalents and marketable securities.
To mitigate the impact of fluctuations in interest rates, the Company
generally enters into fixed rate investing arrangements.
41
The following table provides information at December 31, 1999, about the
Company's financial instruments that are sensitive to changes in interest
rates. For investment securities, the table presents related weighted-average
interest rates expected by the maturity dates. These investment securities
will mature within one year. At December 31, 1999, the fair value of the
Company's fixed rate 9 3/4% Senior Notes due 2008 was $415 million, as
compared to a carrying value of $400 million on such date, based on market
prices at December 31, 1999.
2000 Maturities
-----------------------------
(dollar amounts in thousands)
Assets
Marketable securities:
Shares of money market mutual funds........... $ 4,510
Average interest rate....................... 5.5%
Certificates of deposit with banks............ $ 54,797
Average interest rate....................... 5.3%
Corporate and municipal debt securities....... $196,455
Average interest rate....................... 5.9%
Item 8. Financial Statements and Supplementary Data
See "Index to Consolidated Financial Statements" at Page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
42
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is incorporated by reference from the
Company's definitive proxy statement to be filed with the Commission no later
than April 15, 2000 pursuant to Regulation 14A of the General Rules and
Regulations under the Securities Exchange Act of 1934.
Item 11. Executive Compensation
The information required by this item is incorporated by reference from the
Company's definitive proxy statement for its 2000 Annual Meeting of
Stockholders to be filed with the Commission no later than April 15, 2000
pursuant to Regulation 14A of the General Rules and Regulations under the
Securities Exchange Act of 1934.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference from the
Company's definitive proxy statement for its 2000 Annual Meeting of
Stockholders to be filed with the Commission no later than April 15, 2000
pursuant to Regulation 14A of the General Rules and Regulations under the
Securities Exchange Act of 1934.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference from the
Company's definitive proxy statement for its 2000 Annual Meeting of
Stockholders to be filed with the Commission no later than April 15, 2000
pursuant to Regulation 14A of the General Rules and Regulations under the
Securities Exchange Act of 1934.
43
GLOSSARY
Access Charges. The fees paid by long distance carriers for the local
connections between the long distance carriers' networks and the long distance
carriers' customers.
ATM (asynchronous transfer mode). A recently commercialized switching and
transmission technology that is one of a general class of packet technologies
that relay traffic by way of an address contained within the first five bits
of a standard fifty-three bit-long packet or cell. ATM-based packet transport
was specifically developed to allow switching and transmission of mixed voice,
data and video at varying rates. The ATM format can be used by many different
information systems, including LANs.
BOC (Bell Operating Company). A telephone operating subsidiary of an RBOC;
an incumbent local exchange carrier.
Broadcast Video TV-1. This Company service provides dedicated transport of
broadcast quality video signals.
CAP (Competitive Access Provider). A company that provides dedicated
telecommunications services (private line, local transport and special access)
as an alternative to the ILEC.
CDMA (Code Division Multiple Access). A form of wireless communications
technology.
Central Offices. A telecommunications center where switches and other
telecommunications facilities are housed. CAPs may connect with ILEC networks
either at this location or through a remote location.
Collocation. The ability of a telecommunications carrier to interconnect
its network to the ILEC's network by extending its facilities to the ILEC's
central office. Physical collocation occurs when the interconnecting carrier
places its network equipment within the ILEC's central offices. Virtual
collocation is an alternative to physical collocation under which the ILEC
permits a carrier to interconnect its network to the ILEC's network in a
manner which is technically, operationally and economically comparable to
physical collocation, even though the interconnecting carrier's network
connection equipment is not physically located within the central offices.
CLEC (Competitive Local Exchange Carrier). A company that provides local
exchange services, including Dedicated service, in competition with the ILEC.
Dedicated. Telecommunications lines dedicated to, or reserved for use by, a
particular customer along predetermined routes (in contrast to links which are
temporarily established).
Dedicated Transmission. The sending of electronic signals carrying
information over a Direct Transport facility.
Dense Wavelength Division Multiplexing (DWDM). A technology that multiplies
the capacity of single fiber to 8, 16, 32, or 80 new transmission channels.
Higher capacity multiples are under testing.
Digital. A means of storing, processing and transmitting information by
using distinct electronic or optical pulses that represent the binary digits 0
and 1. Digital transmission and switching technologies use a sequence of these
pulses to represent information as opposed to the continuously variable analog
signal. The precise digital numbers preclude distortion (such as graininess or
snow in the case of video transmission, or static or other background
distortion in the case of audio transmission).
Direct Transport (aka Dedicated Transport). A non-switched point-to-point
telecommunications facility leased from a telecommunications provider by an
end user and used exclusively by that end user.
44
Diverse Routing. A telecommunications network configuration in which
signals are transmitted simultaneously along two different paths so that if
one path is cut or impaired, traffic can continue in the other direction
without interrupting service. The Company's networks generally provide diverse
routing.
DS0, DS1, DS3. Standard North American telecommunications industry digital
signal formats, which are distinguishable by bit rate (the number of binary
digits (0 and 1) transmitted per second). DS0 service has a bit rate of 64
kilobits per second. DS1 service has a bit rate of 1.544 megabits per second
and DS3 service has a bit rate of 44.736 megabits per second. A DS0 can
transmit a single uncompressed voice conversation.
FCC. Federal Communications Commission.
FDMA (Frequency Division Multiple Access). A form of wireless
communications technology.
Fiber Miles. The number of route miles of fiber optic cable installed
(excluding pending installations) along a telecommunications path multiplied
by the number of fibers in the cable. See the definition of "route mile"
below.
Fiber Optics. Fiber optic technology involves sending laser light pulses
across glass strands in order to transmit digital information. Fiber optic
cable is the medium of choice for the telecommunications and cable industries.
Fiber is immune to electrical interference and environmental factors that
effect copper wiring and satellite transmission.
Gbps (Gigabits per second). One billion bits of information. The
information-carrying capacity (i.e., bandwidth) of a circuit may be measured
in "billions of bits per second."
Hub. Collocation centers located centrally in an area where
telecommunications traffic can be aggregated for transport and distribution.
ILECs (Incumbent Local Exchange Carriers). The local phone companies,
either a BOC or an independent (such as GTE) which provides local exchange
services.
Internet. The name used to describe the global open network of computers
that permits a person with access to the Internet to exchange information with
any other computer connected to the network.
IntraLATA. A call that originates and terminates within the same LATA.
ISDN (Integrated Services Digital Network). ISDN is an internationally
agreed standard which, through special equipment, allows two-way, simultaneous
voice and data transmission in digital formats over the same transmission
line. ISDN permits video conferencing over a single line, for example, and
also supports a multitude of value-added switched service applications such as
Incoming Calling Line Identification. ISDN's combined voice and data
networking capabilities reduce costs for end users and result in more
efficient use of available facilities. ISDN combines standards for highly
flexible customer to network signaling with both voice and data within a
common facility.
IXC (Interexchange Carrier). A long distance carrier.
Kbps (Kilobits per second). Kilobit means one thousand bits of information.
The information-carrying capacity (i.e., bandwidth) of a circuit may be
measured in "thousands of bits per second."
LANs (Local Area Networks). The interconnection of computers for the
purpose of sharing files, programs and peripheral devices such as printers and
high-speed modems. LANs may include dedicated computers or file servers that
provide a centralized source of shared files and programs. LANs are generally
confined to a single customer's premises and may be extended or interconnected
to other locations through the use of bridges and routers.
45
LATA (Local Access and Transport Area). The geographical areas within which
a local telephone company may offer telecommunications services, as defined in
the divestiture order known as the Modification of Final Judgment ("MFJ")
unless and until refined by the FCC pursuant to the Telecommunications Act of
1996.
Local Exchange. A geographic area defined by the appropriate state
regulatory authority in which telephone calls generally are transmitted
without toll charges to the calling or called party.
Local Exchange Service/Local Exchange Telephone Service. Basic local
telephone service, including the provision of telephone numbers, dial tone and
calling within the local exchange area.
Long Distance Carriers (Interexchange Carriers or IXC). Long distance
carriers providing services between LATAs, on an interstate or intrastate
basis. A long distance carrier may be facilities-based or offer service by
reselling the services of a facilities-based carrier.
Local Transport Services. Dedicated lines between the ILEC's central
offices and long distance carrier POPs used to carry switched traffic.
Mbps (Megabits per second). Megabit means one million bits of information.
The information carrying capacity (i.e., bandwidth) of a circuit may be
measured in "millions of bits per second."
Multiplexing. An electronic or optical process that combines a number of
lower speed transmission signals into one higher speed signal. There are
various techniques for multiplexing, including frequency division (splitting
the total available frequency bandwidth into smaller frequency slices), time
division (slicing a channel into timeslots and placing each signal into its
assigned timeslot), and statistical (wherein multiplexed signals share the
same channel and each transmits only when it has data to send).
OC-3c. Optical Carrier level-3, combined into a single data stream. Optical
carrier refers to a SONET optical signal.
OC-N. Optical carrier levels ranging from OC1 (51.84 Mbps) to OC192 (9.9
Gbps).
Node. A point of connection into a fiber optic network.
PBX (Private Branch Exchange). A customer owned and operated switch on
customer premises, typically used by large businesses with multiple telephone
lines.
PBX Trunk. A transmission facility which connects a PBX to the Company's or
ILEC's central office switching center.
POPs (Points of Presence). Locations where a IXC has installed transmission
equipment in a service area that serves as, or relays telephone calls to, a
network switching center of the same IXC.
Primary Rate Interface (PRI). A transport mechanism provided currently over
class 5 switches to terminate at managed modem pools. The primary application
is for dial-up Internet access.
Private Line. A private, dedicated telecommunications link between
different customer locations (excluding IXC POPs).
Private Network Transport Service. This service is a private, dedicated
high-capacity premium quality service over fully redundant, diverse routed,
SONET rings with band width that is dedicated and always available.
Public Switched Telephone Network. The switched network available to all
users generally on a shared basis (i.e., not dedicated to a particular user).
The local exchange telephone service networks operated by ILECs are the
largest and often the only public switched networks in a given locality.
46
RBOC (Regional Bell Operating Company). The holding company which owns a
BOC.
Reciprocal Compensation. An arrangement in which two local exchange
carriers agree to terminate traffic originating on each other's networks in
exchange for a negotiated level of compensation.
Redundant Electronics. A telecommunications facility that uses two separate
electronic devices to transmit a telecommunications signal so that if one
device malfunctions, the signal may continue without interruption.
Route Mile. The number of miles along which fiber optic cables are
installed.
SONET (Synchronous Optical Network). A set of standards for optical
communications transmission systems that define the optical rates and formats,
signal characteristics, performance, management and maintenance information to
be embedded within the signals and the multiplexing techniques to be employed
in optical communications transmission systems. SONET facilitates the
interoperability of dissimilar vendors equipment. SONET benefits business
customers by minimizing the equipment necessary for various telecommunications
applications and supports networking diagnostic and maintenance features.
Special Access Services. The lease of private, dedicated telecommunications
lines or circuits on an ILEC's or a CAP's network which run to or from the
IXC's POPs. Special access services do not require the use of switches.
Examples of special access services are telecommunications circuits running
between POPs of a single IXC, from one IXC's POP to another IXC's POP or from
an end user to its IXC's POP.
STS-1. This dedicated transmission service is carried over high-capacity
channels for full duplex, synchronous optical transmission of digital data on
SONET standards. This service eliminates the need to maintain and pay for
multiple dedicated lines.
Switch. A mechanical or electronic device that opens or closes circuits or
selects the paths or circuits to be used for the transmission of information.
Switching is a process of linking different circuits to create a temporary
transmission path between users. Within this document, switches generally
refer to voice grade telecommunications switches unless specifically stated
otherwise.
Switched Access Services. The connection between a IXC's POP and an end
user's premises through the switching facilities of a local exchange carrier.
Switched Services. Telecommunications services that support the connection
of one calling party with another calling party via use of a telephone switch
(i.e., an electronic device that opens or closes circuits, completes or breaks
an electrical path, or selects paths or circuits).
TDMA (Time Division Multiple Access). A form of wireless communications
technology.
Toll Services. Otherwise known as EAS or intra LATA toll services are those
calls that are beyond the free local calling area but originate and terminate
within the same LATA; such calls are usually priced on a measured basis.
Type II. A circuit offered to a customer by a telecommunications provider
including a portion of the circuit provided by another LEC, where the first
provider bills the customer for the entire circuit.
Voice Grade Equivalent (VGE) Circuit. One DS0. One voice grade equivalent
circuit is equal to 64 kilobits of bandwidth.
47
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1), (2) The Financial Statements and Schedule II--Valuation and
Qualifying Accounts listed on the index on Page F-1 following are included
herein by reference. All other schedules are omitted, either because they are
not applicable or because the required information is shown in the financial
statements or the notes thereto.
(3) Exhibits:
Exhibit
Number Description of Exhibit
------- ----------------------
2.1 --Reorganization Agreement among Time Warner Companies, Inc., MediaOne
Group, Inc., Advance/Newhouse Partnership, Time Warner Entertainment
Company, L.P., and Time Warner Entertainment-Advance/Newhouse
Partnership (filed as Exhibit 2.1 to Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998)*
2.2 --Merger Agreement among the Company, Time Warner Telecom LLC and Time
Warner Telecom Inc. (filed as Exhibit 2.2 to the Company's
Registration Statement on Form S-1 (Registration No. 333-49439))*
3.1 --Restated Certificate of Incorporation of the Company (filed as
Exhibit 3.1 to Company's Registration Statement on Form S-1
(Registration No. 333-49439))*
3.2 --Restated By-laws of the Company (filed as Exhibit 3.2 to Company's
Registration Statement on Form S-1 (Registration No. 333-49439))*
4.1 --Stockholders Agreement, among the Company, Time Warner Companies,
Inc., American Television and Communications Corporation, Warner
Communications Inc., TW/TAE Inc., FibrCom Holdings, L.P., Paragon
Communications, MediaOne Group, Inc., Multimedia Communications,
Inc. and Advance/Newhouse Partnership (filed as Exhibit 4.1 to
Company's Registration Statement on Form S-1 (Registration No. 333-
49439))*
4.2 --Indenture, between Time Warner Telecom LLC, TWT Inc. and The Chase
Manhattan Bank, as Trustee (filed as Exhibit 4.1 to TWT LLC's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998)*
10.1 --Lease, between Quebec Court Joint Venture No. 2, Landlord, and
Intelligent Advanced Systems, Inc., Tenant, dated June 3, 1994
(filed as Exhibit 10.1 to Time Warner Telecom LLC's Registration
Statement on Form S-1 (Registration No. 333-53553))*
10.2 --Agreement for Assignment of Lease, dated September 12, 1997, between
Ingram Micro Inc. and Time Warner Communications Holdings Inc.
(filed as Exhibit 10.2 to TWT LLC's Registration Statement on Form
S-1 (Registration No. 333-53553))*
10.3 --First Amendment to Lease, dated October 15, 1997, by CarrAmerica
Realty, L.P. and Time Warner Communications Holdings Inc. (filed as
Exhibit 10.3 to TWT LLC's Registration Statement on Form S-1
(Registration No. 333-53553))*
10.4 --Time Warner Telecom LLC 1998 Option Plan as amended December 8, 1999
10.5 --Employment Agreement between the Company and Larissa L. Herda
10.6 --Employment Agreement between the Company and Paul B. Jones
10.7 --Employment Agreement between the Company and A. Graham Powers
10.8 --Employment Agreement between the Company and David Rayner
10.9 --Employment Agreement between the Company and John T. Blount
10.10 --Employment Agreement between the Company and Michael Rouleau
10.11 --Employment Agreement between the Company and Julie Rich
10.12 --Employment Agreement between the Company and Raymond Whinery
10.13 --Capacity License Agreement (filed as Exhibit 10.3 to Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998)*
10.14 --Trade Name License Agreement (filed as Exhibit 10.4 to Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998)*
48
10.15 --Agreement between AT&T Communications, Inc. and Time Warner
Communications, dated as of September 15, 1996, as amended on June 1,
1997 (filed as Exhibit 10.13 to the Company's Registration Statement
on Form S-1 (Registration No. 333-49439))*
21 --Subsidiaries of the Company (filed as Exhibit 21 to Company's
Registration Statement on Form S-1 (Registration No. 333-49439))*
23 --Consent of Ernst & Young LLP, Independent Auditors
27 --Financial Data Schedule
* Incorporated by reference.
(b) Reports on Form 8-K.
None.
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, on
March 17, 2000.
TIME WARNER TELECOM INC.
/s/ David J. Rayner
By: _________________________________
David J. Rayner
Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the Registrant in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
(i) Principal Executive Officer
/s/ Larissa L. Herda President and Chief March 17, 2000
______________________________________ Executive Officer and
Larissa L. Herda Representative
(ii) Principal Financial Officer
/s/ David J. Rayner Senior Vice President and March 17, 2000
______________________________________ Chief Financial Officer
David J. Rayner
(iii) Principal Accounting Officer
/s/ Jill Stuart Vice President, Accounting March 17, 2000
______________________________________ and Finance and Chief
Jill Stuart Accounting Officer
(iv) Directors
/s/ Glenn A. Britt Director March 17, 2000
______________________________________
Glenn A. Britt
/s/ Bruce Claflin Director March 17, 2000
______________________________________
Bruce Claflin
/s/ Richard J. Davies Director March 17, 2000
______________________________________
Richard J. Davies
/s/ Spencer B. Hays Director March 17, 2000
______________________________________
Spencer B. Hays
50
/s/ Larissa L. Herda Director March 17, 2000
______________________________________
Larissa L. Herda
/s/ Douglas Holmes Director March 17, 2000
______________________________________
Douglas Holmes
/s/ Lisa Hook Director March 17, 2000
______________________________________
Lisa Hook
/s/ Stephen A. McPhie Director March 17, 2000
______________________________________
Stephen A. McPhie
/s/ Robert J. Miron Director March 17, 2000
______________________________________
Robert J. Miron
/s/ Audley M. Webster, Jr. Director March 17, 2000
______________________________________
Audley M. Webster, Jr.
51
TIME WARNER TELECOM INC.
INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
PAGE
----
Audited Financial Statements:
Report of Independent Auditors.......................................... F-2
Consolidated Balance Sheets at December 31, 1999 and 1998............... F-3
Consolidated and Combined Statements of Operations for the years ended
December 31, 1999, 1998 and 1997....................................... F-4
Consolidated and Combined Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997....................................... F-5
Consolidated and Combined Statements of Changes in Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997................... F-6
Notes to Consolidated and Combined Financial Statements................. F-7
Schedule II Valuation of Qualifying Accounts.............................. F-21
F-1
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of Time Warner Telecom Inc:
We have audited the accompanying consolidated balance sheets of Time Warner
Telecom Inc. (the "Company") as of December 31, 1999 and 1998, and the related
consolidated and combined statements of operations, cash flows and
stockholders' equity for each of the three years in the period ended December
31, 1999. Our audits also included the financial statement schedule listed on
the index at page F-1. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company
at December 31, 1999 and 1998, and the consolidated and combined results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Denver, Colorado
February 4, 2000
F-2
TIME WARNER TELECOM INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
1999 1998
---------- ---------
(amounts in
thousands, except
share amounts)
ASSETS
Current assets:
Cash and cash equivalents............................. $ 90,586 105,140
Marketable securities (note 3)........................ 173,985 231,107
Receivables, less allowances of $7,857 and $2,692..... 52,652 26,690
Prepaid expenses...................................... 2,938 2,176
---------- ---------
Total current assets................................ 320,161 365,113
---------- ---------
Investment in unconsolidated affiliate (note 2)......... -- 5,707
Property, plant and equipment........................... 868,770 612,119
Less accumulated depreciation......................... (191,664) (117,961)
---------- ---------
677,106 494,158
---------- ---------
Long-term marketable securities (note 3)................ -- 19,750
Intangible and other assets, net of accumulated
amortization (note 2).................................. 45,745 19,616
---------- ---------
Total assets........................................ $1,043,012 904,344
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 64,678 38,946
Deferred revenue...................................... 37,913 10,524
Accrued taxes, franchise and other fees............... 23,280 15,214
Accrued interest...................................... 17,983 17,333
Accrued payroll and benefits.......................... 13,945 8,821
Payble to TW Cable (note 6)........................... 5,085 16,801
Other current liabilities............................. 26,459 14,114
---------- ---------
Total current liabilities........................... 189,343 121,753
---------- ---------
Long-term debt and capital lease obligations (notes 4
and 9)................................................. 403,627 400,000
Deferred income taxes (note 7).......................... 27,126 --
Subordinated loans payable to the Former Parent
Companies (including
$3,399 of accrued interest in 1998) (note 5)........... -- 174,940
Stockholders' equity (note 1):
Preferred stock, $0.01 par value, 20,000,000 shares
authorized, no shares issued and outstanding......... -- --
Class A common stock, $0.01 par value, 277,300,000
shares authorized, 23,543,422 shares issued and
outstanding in 1999.................................. 235 --
Class B common stock, $0.01 par value, 162,500,000
shares authorized, 81,214,285 and 81,250,000 shares
issued and outstanding in 1999
and 1998, respectively............................... 812 813
Additional paid-in capital............................ 559,950 255,654
Accumulated deficit................................... (138,081) (48,816)
---------- ---------
Total stockholders' equity.......................... 422,916 207,651
---------- ---------
Total liabilities and stockholders' equity.......... $1,043,012 904,344
========== =========
See accompanying notes.
F-3
TIME WARNER TELECOM INC.
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
-------- ------- -------
(amounts in thousands,
except per share
amounts)
Revenue:
Dedicated transport services.................... $152,468 84,024 44,529
Switched services............................... 116,285 37,848 10,872
-------- ------- -------
Total revenue................................. 268,753 121,872 55,401
-------- ------- -------
Costs and expenses(a):
Operating....................................... 117,567 67,153 40,349
Selling, general and administrative............. 113,389 77,401 54,640
Depreciation and amortization................... 68,785 50,717 38,466
-------- ------- -------
Total costs and expenses...................... 299,741 195,271 133,455
-------- ------- -------
Operating loss.................................... (30,988) (73,399) (78,054)
Interest expense(a)............................... (45,264) (29,198) (1,538)
Interest income................................... 16,589 9,731 --
Equity in income (losses) of unconsolidated
affiliate (note 2)............................... 202 127 (2,082)
Gain on disposition of investments................ -- -- 11,018
-------- ------- -------
Net loss before income taxes...................... (59,461) (92,739) (70,656)
Income tax expense (note 7)....................... 29,804 -- --
-------- ------- -------
Net loss.......................................... $(89,265) (92,739) (70,656)
======== ======= =======
Basic and diluted loss per common share........... $ (0.93) (1.14) (0.87)
======== ======= =======
Average common shares outstanding................. 95,898 81,250 81,250
======== ======= =======
(a) Includes expenses resulting from transactions with affilitates (note 6):
Operating..................................... $ 2,513 2,041 1,731
======== ======= =======
Selling, general and administrative........... $ 1,579 5,063 6,810
======== ======= =======
Depreciation and amortization................. $ 10,792 9,010 7,064
======== ======= =======
Interest expense.............................. $ 5,078 11,582 1,544
======== ======= =======
See accompanying notes.
F-4
TIME WARNER TELECOM INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
--------- --------- ---------
(amounts in thousands)
Cash flows from operating activities:
Net loss..................................... $ (89,265) (92,739) (70,656)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................ 68,785 50,717 38,466
Equity in (income) losses of unconsolidated
affiliate................................... (202) (127) 2,082
Deferred income tax expense.................. 29,804 -- --
Gain on disposition of investments........... -- -- (11,018)
Changes in operating assets and liabilities,
net of the effect of acquisitions:
Receivables and prepaid expenses............ (22,384) (17,808) (4,019)
Accounts payable............................ 27,491 6,037 7,265
Accrued interest............................ 650 20,732 1,544
Payable to TW Cable......................... (11,716) 16,801 --
Accrued payroll and benefits................ 5,124 2,488 4,093
Other current liabilities................... 44,698 16,882 5,472
Other balance sheet changes................. 1,250 (3,326) (2,648)
--------- --------- ---------
Net cash provided by (used in) operating
activities................................ 54,235 (343) (29,419)
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures......................... (221,224) (126,023) (127,315)
Cash paid for acquisitions, net of cash
acquired.................................... (2,565) (1,204) (334)
Purchases of marketable securities........... (290,811) (286,356) --
Proceeds from maturities of marketable
securities.................................. 367,683 35,500 --
Proceeds from sale of investments............ -- -- 7,028
--------- --------- ---------
Net cash used in investing activities...... (146,917) (378,083) (120,621)
--------- --------- ---------
Cash flows from financing activities:
Proceeds of loans from Former Parent
Companies................................... -- 96,066 73,931
Repayment of loans to Former Parent
Companies................................... (180,018) -- --
Payment of capital lease obligations......... (174) -- --
Repayment of acquired debt................... (15,668) -- --
Net proceeds from issuance of debt........... -- 387,500 --
Net proceeds from issuance of common stock
upon exercise of stock options.............. 3,806 -- --
Net proceeds from initial public offering.... 270,182 -- --
Capital contributions from the Former Parent
Companies................................... -- -- 127,550
Distributions to the Former Parent
Companies................................... -- -- (51,441)
--------- --------- ---------
Net cash provided by financing activities.. 78,128 483,566 150,040
--------- --------- ---------
Increase (decrease) in cash and cash
equivalents............................... (14,554) 105,140 --
Cash and cash equivalents at beginning of
period.................................... 105,140 -- --
--------- --------- ---------
Cash and cash equivalents at end of
period.................................... $ 90,586 105,140 --
========= ========= =========
Supplemental disclosures of cash flow
information:
Cash paid for interest..................... $ 47,011 -- --
========= ========= =========
Cash paid for income taxes................. $ 168 181 4
========= ========= =========
Supplemental schedule for noncash investing and financing activities:
Time Warner Telecom Inc. (the "Company") issued Class A common stock
aggregating $27.9 million to purchase the common stock of Internet Connect,
Inc. ("Inc.Net") and MetroComm, Inc. ("MetroComm").
In 1999, the Company incurred capital lease obligations of $3.7 million for the
purchase of fiber, equipment and furniture leases.
See accompanying notes.
F-5
TIME WARNER TELECOM INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997
Common Stock
----------------------------
Class A Class B Additional Total
------------- -------------- paid-in Accumulated stockholders'
Shares Amount Shares Amount capital deficit equity
------ ------ ------ ------ ---------- ----------- -------------
(amounts in thousands)
Balance at January 1,
1997................... -- $-- 81,250 $813 478,885 (184,761) 294,937
Net capital
contributions from
the Former Parent
Companies............ -- -- -- -- 76,109 -- 76,109
Net loss.............. -- -- -- -- -- (70,656) (70,656)
------ ---- ------ ---- -------- -------- -------
Balance at December 31,
1997................... -- -- 81,250 813 554,994 (255,417) 300,390
Net loss prior to
Reorganization....... -- -- -- -- -- (43,923) (43,923)
------ ---- ------ ---- -------- -------- -------
-- -- 81,250 813 554,994 (299,340) 256,467
Effect of
Reorganization
(note 1)............. -- -- -- -- (299,340) 299,340 --
Net loss after
Reorganization....... -- -- -- -- -- (48,816) (48,816)
------ ---- ------ ---- -------- -------- -------
Balance at December 31,
1998................... -- -- 81,250 813 255,654 (48,816) 207,651
Initial public
offering, net of
offering expenses of
$19,618 (note 1)..... 20,700 207 -- -- 269,975 -- 270,182
Issuance of common
stock for
acquisitions (note
2)................... 2,498 25 -- -- 27,839 -- 27,864
Issuance of common
stock upon exercise
of stock options..... 309 2 -- -- 6,482 -- 6,484
Conversion of shares
by related party..... 36 1 (36) (1) -- -- --
Net loss.............. -- -- -- -- -- (89,265) (89,265)
------ ---- ------ ---- -------- -------- -------
Balance at December 31,
1999................... 23,543 $235 81,214 $812 559,950 (138,081) 422,916
====== ==== ====== ==== ======== ======== =======
See accompanying notes.
F-6
TIME WARNER TELECOM INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
1. Organization and Summary of Significant Accounting Policies
Description of Business and Capital Structure
The Company, a Delaware corporation, is a leading fiber facilities-based
integrated communications provider in selected metropolitan markets across the
United States, offering local businesses "last-mile" broadband connections for
data, high-speed Internet access, local voice and long distance services.
TW Cable, as defined below, began the Company's business in 1993 by
providing telephony services through cable systems owned by Time Warner
Entertainment Company, L.P. ("TWE"), Time Warner Entertainment-
Advance/Newhouse Partnership ("TWE-A/N") and Time Warner Inc. ("Time Warner"),
collectively referred to as the "Former Parent Companies." "TW Cable" refers
to the cable systems owned by TWE, TWE-A/N and Time Warner.
TWE and TWE-A/N are owned as follows:
(1) TWE is a partnership of subsidiaries of Time Warner and MediaOne Group,
Inc. ("MediaOne"); and
(2) TWE-A/N is a partnership of TWE, Time Warner and Advance/Newhouse
Partnership ("Advance").
The Company's original business was to provide certain telephony services
together with cable television. In January 1997, the Company put in place a
new management team that implemented a business strategy focused exclusively
on serving business customers, rapidly providing switched services in all the
Company's service areas and expanding the range of business telephony services
offered by the Company.
On July 14, 1998, Time Warner Telecom LLC ("TWT LLC") succeeded to the
ownership of the Company's business. At that time, Time Warner, MediaOne and
Advance (collectively referred to as the "Class B Stockholders") formed TWT
LLC to acquire the assets and liabilities of the Company's business from the
Former Parent Companies and to conduct the offering on July 21, 1998 of $400
million principal amount 9 3/4% Senior Notes due July 2008 (the "Senior
Notes"). In such transaction, referred to as the "Reorganization," the Class B
Stockholders (either directly or through subsidiaries) became the owners of
all the limited liability company interests in TWT LLC. The Reorganization has
been reflected as of July 1, 1998 for accounting purposes.
On May 10, 1999, in preparation for the Company's initial public offering,
TWT LLC was reconstituted as a Delaware corporation (the "Reconstitution")
under the name Time Warner Telecom Inc. by merging into a newly formed
Delaware corporation. The Company accounted for the Reorganization and the
Reconstitution at each of the Class B Stockholders' historical cost basis and,
except as noted below, the Reorganization and Reconstitution had no effect on
the Company's total stockholders' equity, which has been presented on a
consistent basis. In connection with the Reconstitution, the Company's
capitalization was authorized to include two classes of common stock, Class A
common stock and Class B common stock. As part of the merger, the outstanding
Class A limited liability company interests were converted into Class A common
stock and the Class B Stockholders exchanged their Class B limited liability
company interests in TWT LLC for Class B common stock of the newly formed
corporation, Time Warner Telecom Inc. Prior to the Reconstitution, the only
outstanding Class A interests were those held by the former shareholders of
Inc.Net, which the Company acquired in April 1999 (see note 2). Following the
Reconstitution, the Class B Stockholders held all of the Company's Class B
common stock. Accordingly, the accompanying financial statements have been
adjusted to retroactively reflect the authorization and issuance of the shares
of Class A common stock and Class B common stock for all periods presented.
F-7
TIME WARNER TELECOM INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
On May 14, 1999, in conjunction with the Reconstitution, the Company
completed an initial public offering of 20,700,000 shares, including an over-
allotment of 2,700,000 shares, of Class A common stock at a price of $14 per
share (the "IPO"). The IPO generated $270.2 million in proceeds for the
Company, net of underwriting discounts and expenses. The net proceeds were
used primarily to repay indebtedness to the Former Parent Companies (see note
5). Remaining proceeds have been and will continue to be used to fund the
Company's continued growth, which may include acquisitions and joint ventures,
and for general corporate purposes.
As a result of the IPO, the Company has two classes of common stock
outstanding, Class A common stock and Class B common stock. Holders of Class A
common stock have one vote per share and holders of Class B common stock have
ten votes per share. Each share of Class B common stock is convertible, at the
option of the holder, into one share of Class A common stock. Holders of Class
A common stock and Class B common stock generally vote together as a single
class. However, some matters require the approval of 100% of the holders of
the Class B common stock voting separately as a class, and some matters
require the approval of a majority of the holders of the Class A common stock,
voting separately as a class. Upon completion of the IPO, the Class B
Stockholders owned all of the 81,250,000 shares of outstanding Class B common
stock. Subsequent to the IPO, 35,715 shares of Class B common stock were
converted into Class A common stock. As of December 31, 1999, the Class B
Stockholders had approximately 97.2% of the combined voting power of the
outstanding common stock.
The Company also is authorized to issue shares of Preferred Stock. The
Company's Board of Directors has the authority to establish the voting powers,
the preferences and special rights for the Preferred Stock. No such voting
powers, preferences or special rights have been established and no shares of
Preferred Stock have been issued as of December 31, 1999.
On May 6, 1999, MediaOne and AT&T Corp. ("AT&T") entered into a merger
agreement providing for MediaOne to be acquired by AT&T. The MediaOne
stockholders have approved the merger, but the merger is subject to various
regulatory approvals. There is no assurance that the approvals will be
obtained or that the merger will be consummated. If the merger is completed,
the Class B common stock beneficially owned by MediaOne (through a subsidiary)
will be beneficially owned by AT&T. However, the transaction will not affect
the MediaOne subsidiary's rights as a Class B Stockholder.
On January 10, 2000, Time Warner announced an agreement to merge with
America Online, Inc. ("AOL") in a stock-for-stock transaction that would
create a new company called AOL Time Warner Inc. As a result of the mergers,
both AOL and Time Warner will become wholly owned subsidiaries of AOL Time
Warner. Under the terms of the merger agreement, Time Warner and AOL stock
will be converted to AOL Time Warner stock at fixed exchange ratios. Upon
consummation of the merger, current Time Warner shareholders will receive
approximately 45% of the stock of AOL Time Warner, and current AOL
shareholders will receive approximately 55%. If the merger is completed, the
Class B common stock beneficially owned by Time Warner will be beneficially
owned by AOL Time Warner and its subsidiaries. However, the transaction will
not affect the rights of Time Warner subsidiaries as Class B Stockholders. The
merger is subject to customary closing conditions, including regulatory
clearance and stockholder approvals. There is no assurance that the approvals
will be obtained or that the merger will be consummated.
Basis of Presentation
Until July 14, 1998, the historical financial statements of the Company
reflected the "carved out" historical financial position, results of
operations, cash flows and changes in stockholders' equity of the commercial
telecommunications operations of the Former Parent Companies, as if they had
been operating as a separate
F-8
TIME WARNER TELECOM INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
company. Although these financial statements are presented as if the Company
had operated as a corporation, the Company operated as a partnership for tax
purposes and continued to operate in a partnership structure through May 10,
1999. The consolidated and combined statements of operations have been
adjusted to retroactively reflect an allocation of certain expenses pursuant
to the final terms of agreements related to the Reorganization, primarily
relating to office rent, overhead charges for various administrative functions
performed by the Former Parent Companies and certain facility maintenance and
pole rental costs. These allocations were required to reflect all costs of
doing business and have been based on various methods which management
believes result in reasonable allocation of such costs.
Basis of Consolidation and Accounting for Investments
The consolidated and combined financial statements include the accounts of
the Company and all entities in which the Company has a controlling voting
interest ("subsidiaries"). Significant intercompany accounts and transactions
have been eliminated. Significant accounts and transactions with the Former
Parent Companies are disclosed as related party transactions.
Investments in entities in which the Company has significant influence, but
less than a controlling voting interest, are accounted for using the equity
method. At December 31, 1998, the Company's investment in unconsolidated
affiliate consisted solely of a 50% investment in MetroComm AxS, L.P.
("MetroComm L.P."), a joint venture providing commercial telecommunications
services in the central Ohio area. Under the equity method, only the Company's
investment in and amounts due to and from the equity investee are included in
the consolidated balance sheets, and only the Company's share of the
investee's income (losses) are included in the consolidated and combined
statements of operations. During the second quarter of 1999, the remaining 50%
of MetroComm L.P. was acquired (see note 2) and, accordingly, is accounted for
on a consolidated basis as of May 31, 1999.
Cash, Cash Equivalents and Marketable Securities
Prior to July 14, 1998, the Company did not maintain any cash or marketable
securities since all funding of the Company's operating, investing and
financing activities was provided by capital contributions from the Former
Parent Companies or by subordinated loans payable to the Former Parent
Companies (see note 5). Such funding consisted of subordinated loans during
the period from July 1, 1997 through July 14, 1998, and remained outstanding
until May 14, 1999. The capital contributions of the Former Parent Companies,
which are non-interest bearing, have been included in additional paid-in
capital. Prior to repayment of the subordinated loans in May 1999, the
subordinated loans, including accrued interest, had been reflected as long-
term liabilities in the accompanying consolidated balance sheets.
The Company considers all highly liquid debt instruments with an original
maturity of three months or less, when purchased, to be cash equivalents.
The Company records its marketable securities in conformity with the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." This statement entails
categorizing all debt and equity securities as held-to-maturity securities,
trading securities, or available-for-sale securities, and then measuring the
securities at either fair value or amortized cost.
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when the Company has
the positive intent and ability to hold the securities to maturity. Held-to-
maturity securities are stated at amortized cost, adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is included
in interest income. Interest on securities classified as held-to-maturity is
included in interest income.
F-9
TIME WARNER TELECOM INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
Receivables
The Company does not require collateral for telecommunication services
provided to customers. However, the Company performs ongoing credit
evaluations of its customers' financial conditions and has provided an
allowance for doubtful accounts based on the expected collectability of all
accounts receivable. The provision for doubtful accounts was $6.7 million,
$2.0 million and $1.2 million for 1999, 1998 and 1997, respectively.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Construction costs,
labor and applicable overhead related to the development, installation and
expansion of the Company's networks, and interest costs related to
construction are capitalized. During 1999, 1998 and 1997, interest capitalized
was not significant. Repairs and maintenance costs are charged to expense when
incurred.
The Company licenses the right to use the majority of its fiber optic cable
from TW Cable, in which they are co-located. The cost of these rights, which
are prepaid by the Company, is capitalized and reflects an allocable share of
TW Cable's costs, which, prior to the Reorganization, generally reflected the
incremental costs incurred by TW Cable to construct the fiber for the Company.
Subsequent to the Reorganization, the Company pays for its allocable share of
the cost of fiber and construction incurred by TW Cable in routes where they
are in joint construction. In routes where the Company is not in joint
construction with TW Cable, the Company pays for the full cost of
construction. Depreciation is provided on the straight-line method over
estimated useful lives as follows:
Buildings and improvements........................................ 5-20 years
Communications networks........................................... 5-15 years
Vehicles and other equipment...................................... 3-10 years
Fiber optic right to use.......................................... 15 years
Property, plant and equipment consist of:
December 31,
--------------------
1999 1998
--------- ---------
(amounts in
thousands)
Buildings and improvements............................. $ 15,741 14,453
Communications networks................................ 556,054 380,150
Vehicles and other equipment........................... 91,666 58,224
Fiber optic right to use............................... 205,309 159,292
--------- ---------
868,770 612,119
Less accumulated depreciation.......................... (191,664) (117,961)
--------- ---------
Total................................................ $ 677,106 494,158
========= =========
Intangible Assets
Intangible assets primarily consist of goodwill, deferred right of way
costs and covenants not to compete, which are amortized over periods of 10 to
20 years using the straight-line method. Amortization expense amounted to $2.7
million, $2.3 million and $2.0 million for 1999, 1998 and 1997, respectively.
Accumulated amortization of intangible assets at December 31, 1999 and 1998,
amounted to $7.0 million and $2.2 million, respectively.
F-10
TIME WARNER TELECOM INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
Impairment of Long-Lived Assets
The Company periodically reviews the carrying amounts of property, plant
and equipment and its identifiable intangible assets to determine whether
current events or circumstances warrant adjustments to such carrying amounts.
If an impairment adjustment is deemed necessary, such loss is measured by the
amount that the carrying value of such assets exceeds their fair value.
Considerable management judgment is necessary to estimate the fair value of
assets; accordingly, actual results could vary significantly from such
estimates. Assets to be disposed of are carried at the lower of their
financial statement carrying amount or fair value less costs to sell.
Revenue
The Company's revenue has been derived primarily from the provision of
"private line" or "direct access" telecommunications services; however, an
increasing portion is derived from the provision of switched services. The
Company's customers are principally telecommunications-intensive business end-
users, long distance carriers, Internet service providers, wireless
communications companies and governmental entities. Such customers are offered
a wide range of integrated telecommunications products and services, including
dedicated transmission, local switched, long distance, data and high-speed
Internet access services. In addition, the Company benefits from its strategic
relationship with the Class B Stockholders both through access rights and
construction cost-sharing. As a result, the Company's networks have been
constructed primarily through the use of fiber capacity licensed from the
Class B Stockholders.
Revenue for dedicated transport services is generally billed in advance on
a fixed rate basis and recognized over the period the services are provided.
Revenue for switched services, data and Internet services and long distance
are generally billed on a transactional basis determined by customer usage
with some fixed rate elements. The transactional elements of switched services
are billed in arrears and estimates are used to recognize revenue in the
period earned. The fixed rate elements are billed in advance and recognized
over the period provided.
Reciprocal compensation revenue is an element of switched services revenue,
which represents compensation from local exchange carriers ("LECs") for local
exchange traffic terminated on the Company's facilities originated by other
LECs. Reciprocal compensation is based on contracts between the Company and
LECs. The Company recognizes reciprocal compensation revenue as it is earned,
except in such cases where the revenue is under dispute. Under several of its
contracts, the LECs have disputed the payment of reciprocal compensation for
traffic terminating to Internet service provider ("ISP") customers contending
that such traffic was not local. As a result, the Company has filed complaints
with various public utility commissions ("PUCs") contending that the ISP
traffic is local. Various of these state PUCs have ruled in favor of the
Company, but all of these favorable decisions have subsequently been appealed
by the LECs. While the Company believes that these disputes will ultimately be
resolved in its favor, the Company only recognizes revenue on a portion of the
cash received and defers recognition of a significant portion of this revenue
pending outcome of the dispute. As of December 31, 1999, the Company deferred
recognition of $32.8 million in reciprocal compensation revenue for payments
received associated with these disputes. 1999 switched services revenue
includes the recognition of a non-recurring $7.6 million settlement of
reciprocal compensation. The Company pays reciprocal compensation expense to
the other LECs for local exchange traffic it terminates on the LEC's
facilities. These costs are recognized as incurred and are reported as a
component of operating expenses in the Consolidated and Combined Statements of
Operations.
Significant Customers
The Company has substantial business relationships with a few large
customers, including the major long distance carriers. For the years ended
December 31, 1999 and 1998, the Company's top 10 customers accounted
F-11
TIME WARNER TELECOM INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
for 39% and 38% of the Company's consolidated and combined revenue,
respectively. AT&T accounted for more than 10% of the Company's total revenue
in 1999 and AT&T and MCI WorldCom, Inc., accounted for more than 10% of the
Company's total revenue in 1998. However, a substantial portion of such
revenue results from traffic that is directed to the Company by the Company's
customers who have selected such carriers as their long distance providers.
Revenue includes sales to both AT&T and MCI WorldCom, Inc. (including sales
directed to the Company by the Company's customers) of approximately $58.8
million, $28.9 million and $14.7 million 1999, 1998 and 1997, respectively.
Segment Reporting
The Company operates in 21 service areas and the Company's management makes
decisions on resource allocation and assesses performance based on total
revenue, EBITDA and capital spending of these operating locations. Each of the
service areas offers the same products and services, have similar customers
and networks, are regulated by the same type of authorities, and are managed
directly by the Company's executives, allowing the 21 service areas to be
aggregated, resulting in one reportable line of business.
Loss Per Common Share
The Company computes loss per common share in accordance with the
provisions of Statement of Financial Accounting Standard No. 128, Earnings Per
Share ("SFAS 128"). SFAS 128 requires companies with complex capital
structures to present basic and diluted earnings per share ("EPS"). Basic EPS
is measured as the income or loss available to common stockholders divided by
the weighted average outstanding common shares for the period. Diluted EPS is
similar to basic EPS, but presents the dilutive effect on a per share basis of
potential common shares (e.g., convertible securities, stock options, etc.) as
if they had been converted at the beginning of the periods presented.
Potential common shares that have an anti-dilutive effect (e.g., those that
increase income per share or decrease loss per share) are excluded from
diluted EPS.
The basic and diluted loss per common share for all periods presented
herein was computed by dividing the net loss attributable to common shares by
the weighted average outstanding common shares for the period. Potential
common shares were not included in the computation of weighted average shares
outstanding because their inclusion would be anti-dilutive.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Reclassifications
Certain prior year amounts have been reclassified for comparability with
the 1999 presentation.
2. Acquisitions
During the second quarter of 1999, the Company acquired all of the
outstanding common stock of Inc.Net, an Internet service provider, for
consideration consisting of $3.8 million of Class A limited liability
interests in TWT LLC, the Company's predecessor, approximately $3.5 million in
net cash and the assumption of $1.9 million in liabilities. At the time of the
IPO, such Class A limited liability interests were converted into 307,550
F-12
TIME WARNER TELECOM INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
shares of Class A common stock of the Company. The Class A common stock of the
Company into which the limited liability interests were converted will be held
in escrow to be released to the former Inc.Net shareholders over a period of
three years. Through the acquisition of this subsidiary, the Company plans to
manage current and future data networks and provide new Internet products. The
transaction was accounted for under the purchase method of accounting and
generated $6.9 million in goodwill, which is being amortized on a straight-
line basis over a ten-year period. Amortization expense for 1999 was
approximately $462,000.
During the second quarter of 1999, the Company acquired all of the
outstanding common stock of MetroComm through the issuance of 2,190,308 shares
of Class A common stock of the Company valued at $24.1 million, and the
assumption of $20.1 million in liabilities. Through the acquisition of
MetroComm, the Company acquired the 50% interest of MetroComm AxS, L.P. not
already owned by the Company. After the acquisition, the Company's Columbus,
Ohio assets were transferred to MetroComm L.P. and all operations in Columbus,
Ohio are now reported under the new entity. The transaction was accounted for
under the purchase method of accounting and generated $18.8 million in
goodwill, which is being amortized on a straight-line basis over a ten-year
period. Amortization expense for 1999 was approximately $1.1 million.
The two acquisitions completed during 1999 are summarized as follows
(amounts in thousands):
1999
--------
Recorded value of assets acquired.................................. $ 32,003
Goodwill........................................................... 25,746
Elimination of investment in unconsolidated affiliate.............. (5,278)
Assumed liabilities................................................ (22,042)
Common stock issued in acquisitions................................ (27,864)
--------
Cash paid for acquisitions....................................... $ 2,565
========
Since both acquisitions are accounted for as purchases, the results of
operations of Inc.Net and MetroComm are consolidated with the Company's
results of operations from their respective acquisition dates. Had both
acquisitions occurred on January 1, 1998, revenue, net loss, and basic and
diluted loss per common share would not have been materially different for
1998 and 1999.
3. Marketable Securities
The Company's marketable securities portfolio includes shares of money
market mutual funds, corporate debt securities, certificates of deposit with
banks and foreign government debt securities. All of the Company's marketable
securities are categorized as "held-to-maturity" and carried at amortized
cost.
F-13
TIME WARNER TELECOM INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
Marketable securities at December 31, 1999 and 1998 were as follows:
1999 1998
----------- -----------
(amounts in thousands)
Cash equivalents:
Shares of money market mutual funds................. $ 4,510 3,338
Certificates of deposit with banks.................. -- 5,000
Corporate and municipal debt securities............. 77,267 93,394
----------- ----------
81,777 101,732
----------- ----------
Current marketable securities:
Certificates of deposit with banks.................. 54,797 57,014
Corporate and municipal debt securities............. 119,188 169,085
Foreign government debt securities.................. -- 5,008
----------- ----------
173,985 231,107
----------- ----------
Long-term marketable securities:
Corporate debt securities........................... -- 19,750
----------- ----------
Total marketable securities....................... $ 255,762 352,589
=========== ==========
The estimated fair value of the marketable securities is not materially
different from the amortized cost.
4. Long-Term Debt
The Senior Notes are unsecured, unsubordinated obligations of the Company.
Interest on the Senior Notes is payable semi-annually on January 15 and July
15, and began on January 15, 1999. Interest expense, including amortization of
debt discount, relating to the Senior Notes totaled approximately $40.3
million and $17.9 million for 1999 and 1998, respectively. At December 31,
1999, the fair market value for the $400 million of Senior Notes was $415
million, based on market prices.
The Senior Notes are governed by an Indenture that contains certain
restrictive covenants. Such restrictions affect, and in many respects
significantly limit or prohibit, among other things, the ability of the
Company to incur indebtedness, make prepayments of certain indebtedness, pay
dividends, make investments, engage in transactions with shareholders and
affiliates, issue capital stock of subsidiaries, create liens, sell assets and
engage in mergers and consolidations.
5. Subordinated Loans Payable to the Former Parent Companies
During the period from July 1, 1997 through July 14, 1998, all of the
Company's financing requirements were funded with subordinated loans from the
Former Parent Companies. Such loans remained outstanding, accruing interest,
through May 14, 1999. Such loans from the Former Parent Companies were
subordinated in right of payment to the Senior Notes, except for a provision
allowing repayment prior to maturity with the net proceeds of any offering of
common stock or equivalent interest of the Company. Such loans bore interest
(payable in kind) at The Chase Manhattan Bank's prime rate, which was 7.75%
from January 1, 1999 through the payoff of the loan in May 1999. Interest
expense relating to such loans totaled approximately $5.1 million, $11.6
million and $1.5 million for 1999, 1998 and 1997, respectively. On May 14,
1999, approximately $180 million of the proceeds from the IPO were used to
repay the subordinated loans payable to the Former Parent Companies in full,
including accrued interest.
F-14
TIME WARNER TELECOM INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
6. Related Party Transactions
In the normal course of business, the Company engages in various
transactions with the Former Parent Companies, generally on negotiated terms
among the affected units that, in management's opinion, result in reasonable
allocations.
The Company licenses the right to use the majority of its fiber optic cable
from TW Cable. The Company paid TW Cable $16.8 million, $23.8 million and
$32.5 million for 1999, 1998 and 1997, respectively, under this arrangement.
Such costs have been capitalized by the Company. The amortization expense of
these costs and fiber previously capitalized in the amount of $10.8 million,
$9.0 million and $7.1 million for 1999, 1998 and 1997, respectively, has been
classified as a component of depreciation and amortization expense in the
accompanying consolidated and combined statements of operations. In addition,
under this licensing arrangement, the Company reimburses TW Cable for facility
maintenance and pole rental costs, which aggregated $2.5 million, $2.0 million
and $1.7 million for 1999, 1998 and 1997, respectively.
The Company's operations, which in certain cases are co-located with TW
Cable's divisions, are allocated a charge for various overhead expenses for
services provided by such divisions. Prior to the Reorganization, such
allocations were based on direct labor, total expenses or headcount relative
to each operating unit. The Company is also allocated rent based on the square
footage of space occupied by the Company at TW Cable's facilities. After the
Reorganization, these costs are based on contracts with TW Cable. Such charges
aggregated approximately $1.6 million, $2.1 million and $4.4 million for 1999,
1998 and 1997, respectively.
During the period July 1, 1997 through May 14, 1999, the Former Parent
Companies provided all or a portion of the Company's financing requirements.
Interest expense relating to such loans aggregated approximately $5.1 million,
$11.6 million and $1.5 million for 1999, 1998 and 1997, respectively (see note
5).
During 1998 and 1997, the Company participated in the TW Cable Pension Plan
(the "TW Pension Plan"), a noncontributory defined benefit pension plan which
covered approximately 75% of all employees. The remaining 25% of employees
participated in a pension plan under the administration of MediaOne, their
previous employer (the "MediaOne Pension Plan"). The Company also participated
in the TW Cable Employees Savings Plan (the "Savings Plan"), a defined
contribution plan. Both the TW Pension Plan and Savings Plan were administered
by a committee appointed by the Board of Representatives of TWE and covered
substantially all employees.
Benefits under the TW Pension Plan are determined based on formulas which
reflect employees' years of service and compensation levels during their
employment period. Total pension cost aggregated $1.1 million for 1998 and
1997.
Benefit costs under the MediaOne Pension Plan for certain employees of the
Company aggregated $0.8 million and $0.6 million for 1998 and 1997,
respectively.
The Company's contributions to the Savings Plan represented up to 6.67% of
the employees' compensation during the plan year. Defined contribution plan
expense aggregated $1.0 million and $0.7 million for 1998 and 1997,
respectively.
As of January 1, 1999, the Company did not participate in the TW Pension
Plan, the MediaOne Pension Plan or the Savings Plan because the Company
adopted its own benefit plans (see note 10). The Company has no future
obligation to fund either the TW Pension Plan or the MediaOne Pension Plan.
F-15
TIME WARNER TELECOM INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
7. Income Taxes
On May 10, 1999, in conjunction with the Reconstitution, a one-time charge
to earnings of $39.4 million was recorded to recognize the net deferred tax
liability associated with the change from a limited liability company to a
corporation, as all of the Company's tax operating losses prior to May 10,
1999 were absorbed by the Former Parent Companies. The income tax benefit for
1999, shown below, includes the effect of the Reconstitution and the tax
impact of operations from the date of the Reconstitution through December 31,
1999.
Income tax expense is summarized as follows (amounts in thousands):
Total income tax expense......................................... $29,804
Less--tax benefit related to exercise of non-qualified stock
options......................................................... (2,678)
-------
Total deferred income taxes.................................... 27,126
Less current................................................... --
-------
Net deferred................................................... $27,126
=======
Variations from the federal statutory rate for activity since the
Reconstitution date are as follows:
Expected federal income tax benefit at statutory rate............ (35.0)%
Effect of net operating losses incurred prior to the
Reconstitution.................................................. 18.5
Effect of the initial deferred tax liability recorded at the time
of the Reconstitution........................................... 66.4
Effect of permanent differences.................................. 1.1
State income tax benefit, net of federal income tax benefit...... (2.1)
Other............................................................ 1.2
-------
Income tax expense............................................... 50.1%
=======
Significant components of the Company's net deferred tax liability at
December 31, 1999 are as follows (amounts in thousands):
Deferred tax assets:
Accrued expenses............................................... $ 4,933
Allowance for doubtful accounts................................ 3,159
Net operating losses since the Reconstitution.................. 5,869
-------
Total deferred tax assets.................................... 13,961
-------
Deferred tax liability--depreciation and amortization............ 41,087
-------
Net deferred tax liability................................... $27,126
=======
At December 31, 1999, the Company has a net operating loss carryforward
since the Reconstitution for federal income tax purposes of approximately
$14.6 million. The net operating loss carryforward is scheduled to expire in
2019.
8. Option Plans--Common Stock and Stock Options
Time Warner Telecom 1998 Option Plan
The Company maintains a stock option plan reserving 9,027,000 shares of
Class A common stock to be issued to officers and key employees under terms
and conditions to be set by the Company's Board of Directors.
F-16
TIME WARNER TELECOM INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
Generally, the options vest over periods of up to four years and expire ten
years from the date of issuance. Such options have generally been granted to
employees of the Company at an estimated fair value at the date of grant, and
accordingly, no compensation cost has been recognized by the Company relating
to such option plan.
During 1999, the Company granted options to purchase 100,000 shares outside
of the option plan. Deferred compensation expense of $2.1 million was recorded
and will be amortized on a straight-line basis over the four-year vesting
period. In 1999, stock compensation expense of approximately $88,000 was
recorded for such options and are reported as a component of selling, general
and administrative expenses in the accompanying consolidated and combined
statements of operations.
The Company has elected to follow Accounting Principles Board Opinion No.
25 ("APB 25"), "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options is
generally equal to the market price of the underlying stock on the date of the
grant, no compensation expense is recognized. SFAS No. 123, "Accounting and
Disclosure of Stock-Based Compensation," establishes an alternative method of
expense recognition for stock-based compensation awards to employees based on
fair values. The Company elected not to adopt SFAS No. 123 for expense
recognition purposes.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of SFAS
No. 123. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1998 and 1999, respectively: risk-free interest rate of 6.5%
during each period; dividend yield of 0.0% during each period; volatility
factor of the expected market price of the Company's common stock of 0.74 for
1999; and a weighted-average expected life of the option of five years during
each period.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
The weighted-average fair value of options granted during 1998 and 1999 was
$3.33 and $19.98, respectively. For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over the options'
vesting period. The Company's pro forma net loss and pro forma net loss per
share applicable to Class A common stock as if the company had used the fair
value accounting provisions of SFAS No. 123 would be a loss of $103.1 million
and a loss per share of $1.07 for the year ended December 31, 1999. The
Company's shares were not publicly traded and no shares were exercisable as of
December 31, 1998.
F-17
TIME WARNER TELECOM INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
A summary of the Company's stock option activity, and related information
for the year ended December 31, 1999 and 1998 are as follows:
1999 1998
--------------------------- ---------------------------
Weighted Average Weighted Average
Options Exercise Price Options Exercise Price
--------- ---------------- --------- ----------------
Options outstanding at
beginning of year...... 5,810,750 $12.00 -- $ --
Granted................. 2,950,750 29.90 6,115,250 12.00
Exercised............... (309,849) 12.00 -- --
Forfeited............... (277,594) 12.63 (304,500) 12.00
--------- ---------
Options outstanding at
end of year............ 8,174,057 18.44 5,810,750 12.00
========= =========
Exercisable at end of
year................... 1,784,036 $12.00 -- $12.00
========= =========
Exercise prices for options outstanding as of December 31, 1999, are as
follows:
Options Outstanding Options Exercisable
------------------------------------------------- --------------------------------
Number Weighted Number
Range of Outstanding as of Average Weighted Exercisable as of Weight
Exercise December 31, Remaining Average December 31, Average
Prices 1999 Contractual Life Exercise Price 1999 Exercise Price
-------- ----------------- ---------------- -------------- ----------------- --------------
$12.00-12.00 5,465,557 8.64 $12.00 1,784,036 $12.00
14.00-34.00 662,250 9.51 21.38 0 0.00
34.50-34.50 2,000,000 9.88 34.50 0 0.00
35.75-48.13 46,250 9.96 43.02 0 0.00
--------- ---------
8,174,057 9.02 $18.44 1,784,036 $12.00
========= =========
9. Commitments and Contingencies
The Company leases office space and furniture, switching facilities and
fiber optic use rights. Certain of these leases contain renewal clauses.
F-18
TIME WARNER TELECOM INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
At December 31, 1999, commitments under capital and non-cancelable
operating leases with terms in excess of one year were as follows:
Capital Operating
Leases Leases
----------- ------------
(amounts in thousands)
Year ended December 31:
2000............................................ $ 737 11,023
2001............................................ 736 9,152
2002............................................ 519 9,003
2003............................................ 433 8,804
2004............................................ 401 8,449
Thereafter...................................... 5,416 51,549
----------- ----------
Total minimum lease payments.................. 8,242 97,980
==========
Less amount representing interest................. (4,139)
-----------
Present value of obligations under capital
leases........................................... 4,103
Less current portion of obligations under capital
leases........................................... (476)
-----------
Obligations under capital leases, excluding
current portion.................................. $ 3,627
===========
The obligations under capital leases have been discounted at an imputed
interest rate of 9.75%. Rental expense under operating leases, aggregated $9.4
million, $7.0 million and $5.4 million for 1999, 1998 and 1997, respectively.
Pending legal proceedings are substantially limited to litigation
incidental to the business of the Company. In the opinion of management, the
ultimate resolution of these matters will not have a material adverse effect
on the Company's financial statements.
10. Employee Benefit Plans
Effective January 1, 1999, the Company adopted the "TWTC 401(k) by Time
Warner Telecom" qualified retirement plan (the "401(k) Plan"). Employees who
meet certain eligibility requirements may contribute up to 15% of their
eligible compensation, subject to statutory limitations, to a trust for
investment in several diversified investment choices, as directed by the
employee. The Company made a matching contribution of 100% of each employee's
contribution up to a maximum of 5% of the employee's eligible compensation.
Contributions to the 401(k) Plan aggregated $3.3 million for 1999.
Effective January 1, 2000, the Company adopted the "Time Warner Telecom
2000 Qualified Stock Purchase Plan" (the "Stock Purchase Plan"). Employees who
meet certain eligibility requirements may elect to designate up to 15% of
their eligible compensation to be used to purchase shares of the Company's
Class A common stock, up to an annual limit of $25,000 in the Company's Class
A common stock, at a 15% discount to fair market value. Stock purchases occur
twice a year on January 1 and July 1, with the price per share equaling the
lower of 85% of the market price at the beginning or end of the offering
period. Subject to stockholder approval at the Company's annual meeting, the
Company is authorized to issue a total of 750,000 shares of the Company's
Class A common stock to participants in the Stock Purchase Plan.
F-19
TIME WARNER TELECOM INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
11. Quarterly Results of Operations (Unaudited)
The following summarizes the Company's unaudited quarterly results of
operations for 1999 and 1998:
Three Months Ended
--------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
(dollars in thousands, except per share
amounts)
Year Ended December 31, 1999
Total revenue(1)............ $ 47,589 58,381 71,315 91,468
Operating income (loss)..... (15,536) (11,340) (8,561) 4,449
Net loss.................... (24,642) (53,178) (9,115) (2,330)
Basic and diluted loss per
common share............... (0.30) (0.57) (0.09) (0.02)
Year Ended December 31, 1998
Total revenue............... 22,048 27,047 32,686 40,091
Operating loss.............. (19,719) (19,407) (17,532) (16,741)
Net loss.................... (21,788) (22,135) (24,490) (24,326)
Basic and diluted loss per
common share............... $ (0.27) (0.27) (0.30) (0.30)
(1) Total revenue for the quarter ended December 31, 1999 includes the
recognition of a non-recurring $7.6 million settlement of reciprocal
compensation.
The total net loss per share for the 1999 quarter does not equal net loss
per share for the respective year as the per share amounts for each quarter
and for the year are computed based on their respective discrete periods.
F-20
TIME WARNER TELECOM INC.
SCHEDULE II--VALUATION OF QUALIFYING ACCOUNTS
Years Ended December 31, 1999, 1998 and 1997
Additions/
Balance at Charges to Balance at
Beginning Costs and End of
Of Period Expenses Deductions Period
---------- ---------- ---------- ----------
(amounts in thousands)
For the Year ended December 31,
1999:
Allowance for doubtful accounts
receivable...................... $2,692 6,735 (1,570) 7,857
====== ===== ====== =====
For the Year ended December 31,
1998:
Allowance for doubtful accounts
receivable...................... 776 2,020 (104) 2,692
====== ===== ====== =====
For the Year ended December 31,
1997:
Allowance for doubtful accounts
receivable...................... $ 193 1,213 (630) 776
====== ===== ====== =====
F-21
Exhibit 10.4 As amended and
------------ restated as of:
December 8, 1999
TIME WARNER TELECOM INC.
1998 STOCK OPTION PLAN
ARTICLE I
Purpose of the Plan
The purpose of the Time Warner Telecom Inc. (the "Company") 1998 Stock
Option Plan (hereinafter the "Plan") is to provide for the granting of options
to directors and employees of the Company and its Subsidiaries in recognition of
the valuable services provided, and contemplated to be provided, by such
directors and employees. The general purpose of the Plan is to promote the
interests of the Company and its stockholders and to reward dedicated directors
and employees of the Company and its Subsidiaries by providing them additional
incentives to continue and increase their efforts with respect to, and to remain
in the employ of, the Company or its Subsidiaries.
ARTICLE II
Certain Definitions
The following terms (whether used in the singular or plural) have the
meanings indicated when used in the Plan:
(a) "Agreement" means the option agreement specified in Article XI.
(b) "Approved Transaction" means any transaction in which the Board
(or, if approval of the Board is not required as a matter of law, the
stockholders of the Company) shall approve (i) any consolidation or merger of
the Company in which the Company is not the continuing or surviving company or
pursuant to which shares of Class A Common Stock would be converted into cash,
securities or other property, other than a merger of the Company in which the
equity holders of the Company immediately prior to the merger have the same
proportionate ownership of the equity value of the surviving company immediately
after the merger or (ii) any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company, or (iii) the adoption of any plan or proposal for
the liquidation or dissolution of the Company; provided that the reconstitution
of the Company as a corporation or other entity or a public offering of the
equity of the Company (or its successor) shall not constitute an Approved
Transaction.
(c) "Award" means grants of Options under this Plan.
(d) "Board" means the Board of Directors of the Company.
(e) "Board Change" means such time as the Class B Stockholders and
their respective affiliates as a group cease to have the ability to elect a
majority of the Board of Directors (other than the chief executive officer of
the Company and independent directors; provided that independent directors shall
be included in calculating whether the foregoing majority requirement is
satisfied if the directors nominated by the Class B Stockholders and their
respective affiliates do not constitute a majority of the committee that selects
the Board's nominees for independent directors) and a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) (other
than the Class B Stockholders and their respective affiliates) has become the
ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of
more than 35% of the total voting power of the voting interests of the Company
on a fully diluted basis and such ownership represents a greater percentage of
the total voting power of the voting interests of the Company, on a fully
diluted basis, than is held by the Class B Stockholders and their respective
affiliates as a group on such date.
(f) "Class A Common Stock" means the class A common stock, par value
$.01 per share, of the Company.
(g) "Class B Stockholders" means Time Warner Inc., Media One Group,
Inc., Advance/Newhouse Partnership and the affiliates of each of the foregoing.
(h) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute or statutes thereto. Reference to any
specific Code section shall include any successor section.
(i) "Committee" means the Committee comprised of members of the Board
appointed pursuant to Article IV.
(j) "Company" means Time Warner Telecom Inc, a Delaware corporation,
and any successor thereto.
(k) "Effective Date" means the date the Plan becomes effective
pursuant to Article XV.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor statute or statutes thereto.
Reference to any specific Exchange Act section shall include any successor
section.
(m) "Fair Market Value" of a share of Class A Common Stock shall mean
the fair market value of such a share of Class A Common Stock as determined in
good faith by the Board after consultation with an independent appraiser or
other third party deemed appropriate by the Board. In the event of an Approved
Transaction involving the sale of shares of Class A Common Stock of the
Company, the Fair Market Value of a share shall be based upon the price per
share paid by the acquiror in connection with such Approved Transaction, subject
to appropriate adjustment to reflect relative differences among the shares as
determined in good faith by the Board.
(n) "Holder" means a director or an employee of the Company or any of
its Subsidiaries who has received an Award under this Plan. An individual shall
continue to be considered a Holder for purposes of this Plan during the period
such individual holds shares of Class A Common Stock acquired pursuant to an
exercise of an Option.
(o) "Option" means any option granted pursuant to this Plan.
(p) "Plan" has the meaning ascribed thereto in Article I.
(q) "Subsidiary" of a person means any present or future subsidiary
of such person as such term is defined in Section 425 of the Code and any
present or future trade or business, whether or not incorporated, controlled by
or under common control with such person. An entity shall be deemed a
Subsidiary of a person only for such periods as the requisite ownership or
control relationship is maintained.
(r) "Total Disability" means a permanent and total disability as
defined in Section 22(e)(3) of the Code.
ARTICLE III
Shares Subject to the Plan
SECTION 3.01. Number of Shares. Subject to the provisions of Section
3.02 and Section 6.06, the maximum number of shares of Class A Common Stock in
respect of which Awards may be granted under the Plan shall be determined by the
Board as of the date of the initial grant of Awards under the Plan, but shall in
no event represent more than 10% of the total number of shares of the Company
outstanding as of that date. The maximum number of shares of Class A Common
Stock in respect of which Awards may be granted during any calendar year to any
one individual under the Plan shall not exceed one-half the number of shares
that may be subject to Awards granted under the Plan under the preceding
sentence. If and to the extent that an Option shall expire, terminate or be
canceled for any reason without having been exercised, the shares subject to
such expired, terminated or canceled portion of the Option shall again become
available for purposes of the Plan.
SECTION 3.02. Adjustments. In addition to the adjustment in the
Options as described in Section 6.06, in the event that the Board determines
that any dividend or other distribution (whether in the form of cash, shares of
Class A Common Stock, securities or other property), recapitalization,
reorganization, merger, consolidation, issuance or exchange of shares of Class A
Common Stock, other ownership interests or other securities of the Company,
issuance of warrants or other rights to purchase shares of Class A Common Stock,
other ownership interests or other securities of the Company or other similar
corporate transaction or event affects the shares of Class A Common Stock such
that an adjustment is determined by the Board in its discretion to be
appropriate in order to prevent inappropriate dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan,
then the Board may, in such manner as it may deem equitable, adjust any or all
of (a) the number of shares of Class A Common Stock, other ownership interests
or other securities of the Company (or number and kind of other securities or
property) with respect to which Awards may be granted, (b) the number of shares
of Class A Common Stock,
other ownership interests or other securities of the Company (or number and kind
of other securities or property) subject to outstanding Awards or the percentage
of Interests, other ownership interests or other securities of the Company
subject to shares of Class A Common Stock and (c) the exercise price with
respect to any Option or, if deemed appropriate, make provision for a cash
payment to the Holder of an outstanding Option in consideration for the
cancelation of such Option. No adjustment shall be made on account of the
issuance of shares of Class A Common Stock with respect to Options.
ARTICLE IV
Administration
SECTION 4.01. Powers. The Plan shall be administered by the Board.
Subject to the express provisions of the Plan, the Board shall have plenary
authority, in its discretion, to grant Awards under the Plan and to determine
the terms and conditions (which need not be identical) of all Awards so granted,
including without limitation, (a) the individuals to whom, and the time or times
at which, Awards shall be granted or awarded, (b) the number of shares of Class
A Common Stock to be subject to each Award, (c) when an Option can be exercised
and whether in whole or in installments, and (d) the form, terms and provisions
of any Agreement (which terms may be amended, subject to Article XIII).
SECTION 4.02. Factors to Consider. In making determinations
hereunder, the Board may take into account the nature of the services rendered
by the respective directors and employees, their dedication and past
contributions to the Company and its Subsidiaries, their present and potential
contributions to the success of the Company and its Subsidiaries and such other
factors as the Board in its discretion shall deem relevant.
SECTION 4.03. Interpretation. Subject to the express provisions of
the Plan, the Board shall have plenary authority to interpret the Plan, to
prescribe, amend and rescind the rules and regulations relating to it and to
make all other determinations deemed necessary or advisable for the
administration of the Plan. The determinations of the Board on the matters
referred to in this Article IV shall be conclusive.
SECTION 4.04. Delegation to Committee. Notwithstanding anything to
the contrary contained herein, the Board may at any time, or from time to time,
appoint a Committee and delegate to such Committee the authority of the Board to
administer the Plan, including to the extent provided by the Board, the power to
further delegate such authority. Upon such appointment and delegation, any such
Committee shall have all the powers, privileges and duties of the Board in the
administration of the Plan to the extent provided in such delegation, except for
the power to appoint members of the Committee and to terminate, modify or amend
the Plan. The Board may from time to time appoint members of any such Committee
in substitution for or in addition to members previously appointed, may fill
vacancies in such Committee and may discharge such Committee.
Any such Committee shall hold its meetings at such times and places as
it shall deem advisable. A majority of members shall constitute a quorum and
all determinations shall be made by a majority of such quorum. Any
determination reduced to writing and signed by all of the members shall be fully
as effective as if it had been made by a majority vote at a meeting duly called
and held.
ARTICLE V
Eligibility
Awards may be made only to (a) directors, employees, including
officers and directors who are also employees, of, and consultants to, the
Company or any of its Subsidiaries, (b) prospective employees of the Company or
any of its Subsidiaries and (c) any other individuals providing services to the
Company or any of its Subsidiaries. The exercise of Options granted to a
prospective employee shall be conditioned upon such person becoming an employee
of the Company or any of its Subsidiaries. For purposes of the Plan, the term
"prospective employee" shall mean any person who holds an outstanding offer of
employment on specific terms from the Company or any of its Subsidiaries.
Awards may be made to employees who hold or have held Awards under this Plan or
any similar or other awards under any other plan of the Company or its
Subsidiaries.
ARTICLE VI
Options
SECTION 6.01. Option Price. The purchase price of the shares of
Class A Common Stock under each Option shall be determined by the Board and set
forth in the applicable Agreement, but shall not be less than 100% of the Fair
Market Value of such shares on the date of grant.
SECTION 6.02. Term of Options. The term of each Option shall be for
such period as the Board shall determine, as set forth in the applicable
Agreement, but not more than 10 years from the date of grant.
SECTION 6.03. Exercise of Options. An Option granted under the Plan
shall become (and remain) exercisable during the term of the Option to the
extent provided in the applicable Agreement and this Plan and, unless the
Agreement otherwise provides, may be exercised to the extent exercisable, in
whole or in part, at any time and from time to time during such term; provided,
however, that subsequent to the grant of an Option, the Board, at any time
before complete termination of such Option, may accelerate the time or times at
which such Option may be exercised in whole or in part (without reducing the
term of such Option). The Agreement may contain conditions precedent to the
exercisability of Options, including without limitation, the achievement of
minimum performance criteria.
SECTION 6.04. Manner of Exercise. Payment of the Option purchase
price shall be made in cash or in whole shares of Class A Common Stock already
owned by the person exercising an Option or, partly in cash and partly in such
shares of Class A Common Stock; provided, however, that such payment may be made
in whole or in part in shares of Class A Common Stock held for six months and
only if and to the extent permitted by the applicable Agreement. The Company
shall effect the transfer of the shares purchased under the Option as soon as
practicable. No Holder or other person exercising an Option shall have any of
the rights of a stock holder of the Company with respect to shares of Class A
Common Stock subject to an Option granted under the Plan until due exercise and
full payment has been made.
SECTION 6.05. Limited Transferability of Options. Except as set
forth in this Section 6.05 and Article XX, Options shall not be transferable
other than by will or the laws of descent and distribution, and Options may be
exercised during the lifetime of the Holder thereof only by such Holder (or his
or her court appointed legal representative). The Agreement may provide that
Options are transferable by gift to such persons or entities and upon such terms
and conditions specified in the Agreement.
SECTION 6.06. Adjustment of Options. Upon the issuance or redemption
of shares of Class A Common Stock in the Company, the number of shares available
under the Plan and the number of shares of Class A Common Stock subject to
outstanding Options shall be equitably adjusted as determined by the Board in
its sole discretion to prevent inappropriate dilution or enlargement of the
economic interest represented by such Options.
SECTION 6.07. Section 83(b) election. Unless the Board determines
otherwise, an individual exercising an Option will be required to make a timely,
valid election under Section 83(b) of the Code.
SECTION 6.08. Tax Treatment of Exercise. Solely for purposes of
determining the appropriate tax treatment of the Class B Stockholders and the
Holder, upon exercise of an Option, a Holder will be treated as if the Company
paid him or her an amount equal to the aggregate difference between the exercise
price and the Fair Market Value of the shares of Class A Common Stock subject to
the Option and the Holder then purchased from the Company for cash the
applicable number of shares of Class A Common Stock at the then-current Fair
Market Value of such shares.
ARTICLE VII
Acceleration of Options
Notwithstanding any contrary waiting period or installment period in
any Agreement or in the Plan, or unless the applicable Agreement provides
otherwise, if a Holder's employment shall terminate by reason of death or Total
Disability, or in the event of any Approved Transaction or Board Change each
outstanding Option granted under the Plan shall immediately become exercisable
in full in respect of the aggregate number of shares of Class A Common Stock
covered thereby.
ARTICLE VIII
Termination of Employment
SECTION 8.01. General. If a Holder's employment shall terminate prior
to the complete exercise of an Option, then such Option shall thereafter be
exercisable in accordance with the provisions of the applicable Agreement
(including the provisions of any other agreement referred to in the Agreement);
provided, however, that (a) no Option may be exercised after the scheduled
expiration date of such Option; (b) if the Holder's employment terminates by
reason of death or Total Disability, Options shall remain exercisable for a
period of at least one year following such termination (but not later than the
scheduled expiration of such Option); and (c) any termination by the employing
company for cause will be treated in accordance with the provisions of Section
8.02.
SECTION 8.02. Termination for Cause. If a Holder's employment with
the Company or any of its Subsidiaries shall be terminated for cause, by the
Company or such Subsidiary prior to the exercise of any Option, then all Options
held by such Holder and any permitted transferee pursuant to Section 6.05 shall
immediately terminate For the purposes of this Section 8.02, cause shall have
the meaning ascribed thereto in any employment agreement to which such Holder is
a party. In the absence of an employment agreement, cause means (a)
insubordination, (b) dishonesty, (c) moral turpitude, (d) the Holder's refusal
to perform his duties and responsibilities for any reason other than illness or
incapacity, or (e) fraud, misappropriation, embezzlement, operation of a Company
vehicle when intoxicated or other behavior that in the opinion of counsel to the
Company (which opinion will be conclusive) constitutes a misdemeanor or felony
under applicable law, regardless of whether the Holder is actually prosecuted
for or convicted of an offense; provided, however, that if such termination
occurs within 12 months after an Approved Transaction or Board Change,
termination for cause in the absence of an employment agreement shall mean only
a felony conviction
SECTION 8.03. Miscellaneous. The Board may determine whether any
given leave of absence constitutes a termination of employment. Awards made
under the Plan shall not be affected by any change of employment so long as the
Holder continues to be an employee of the Company or one of its Subsidiaries.
ARTICLE IX
Right of Company to Terminate Employment
Nothing contained in the Plan or in any Award shall confer on any
Holder any right to continue in the employ of the Company or any of its
Subsidiaries or interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of the Holder at any time, with or
without cause; subject, however, to the provisions of any employment agreement
between the Holder and the Company or any of its Subsidiaries.
ARTICLE X
Nonalienation of Benefits
Except as specifically provided in Section 6.05 and Article XX, no
right or benefit under the Plan shall be subject to anticipation, alienation,
sale, assignment, hypothecation, pledge, exchange, transfer, encumbrance or
charge, and any attempt to anticipate, alienate, sell, assign, hypothecate,
pledge, exchange, transfer, encumber or charge the same shall be void. No right
or benefit hereunder shall in any manner be liable for or subject to the debts,
contracts, liabilities or torts of the person entitled to such benefits.
ARTICLE XI
Written Agreement
Each grant of an Option shall be evidenced by an Option Agreement in
such form and containing such terms and provisions not inconsistent with the
provisions of the Plan as the Board from time to time shall approve; provided,
however, that such Awards shall be evidenced by a single agreement. The
effective date of the granting of an Award shall be the date on which the Board
approves such grant. Each grantee of an Option shall be notified promptly of
such grant and a written Agreement shall be promptly executed and delivered by
the Company and the grantee; provided that such grant of Options shall terminate
if such written Agreement is not signed by such grantee (or his attorney) and
delivered to the Company within 90 days after the date the Agreement is sent to
such grantee for signature. Any such written Agreement may contain (but shall
not be required to contain) such provisions as the Board deems appropriate to
ensure that the penalty provisions of section 4999 of the Code will not apply to
any stock or cash received from the Company or any of its Subsidiaries by the
Holder or a transferee of such Holder if the Award, or any part thereof, has
been transferred pursuant to Section 6.05 or Article XX.
ARTICLE XII
Right of First Refusal
The Agreement may contain such provisions as the Board shall determine
to the effect that if a Holder, or such other person exercising an Option,
elects to sell all or any shares of Class A Common Stock that such Holder or
other person acquired upon the exercise of an Option awarded under the Plan,
then such Holder or other person shall not sell such shares unless such Holder
or other person shall have first offered in writing to sell such shares to the
Company at Fair Market Value on a date specified in such offer (which date shall
be at least three business days and not more than 10 business days following the
date of such offer). If the Company does not accept such offer within 10 days,
the shares may be sold on terms no more favorable than those offered to the
Company. If the shares (i) are not sold within 10 days of the date the Company
declined to purchase such shares or (ii) would be sold on terms more favorable
than those offered to the Company, the holder of the shares must again offer the
shares for sale to the Company in accordance with this Article XII before any
subsequent sale of such shares. Any transfer of shares that occurs after any
violation of this Article XII shall be null and void.
ARTICLE XIII
Termination And Amendment
SECTION 13.01. General. Unless the Plan shall theretofore have been
terminated as hereinafter provided, no Awards may be made under the Plan on or
after the tenth anniversary of the Effective Date. The Board may at any time
prior to the tenth anniversary of the Effective Date terminate the Plan, and the
Board may at any time modify or amend the Plan in such respects as it shall deem
advisable. The Company will at all times maintain a current copy of the Plan on
its intranet site, which will be updated to include amendments and will upon
request of a Holder provide a hard copy of the most current version. No further
notice of Plan modifications is required.
SECTION 13.02. Modification. No termination, modification or
amendment of the Plan may, without the consent of the person to whom any Award
shall theretofore have been granted (or a transferee of such person if the
Award, or any part thereof, has been transferred pursuant to Section 6.05 or
Article XX), adversely affect the rights of such person with respect to such
Award. No modification, extension, renewal or other change in any Award granted
under the Plan shall be made after the grant of such Award, unless the same is
consistent with the provisions of the Plan. With the consent of the Holder (or
a transferee of such Holder if the Award, or any part thereof, has been
transferred pursuant to Section 6.05 or Article XX) and subject to the terms and
conditions of the Plan (including Section 13.01), the Board may amend
outstanding Agreements with any Holder (or any such transferee), including,
without limitation, any amendment which would (a) accelerate the time or times
at which the Award may be exercised and/or (b) extend the scheduled expiration
date of the Award. Without limiting the generality of the foregoing, the Board
may, but solely with the Holder's consent, agree to cancel any Award under the
Plan held by such Holder and issue a new Award in substitution therefor;
provided that the Award so substituted shall satisfy all of the requirements of
the Plan as of the date such new Award is made.
SECTION 13.03. Sale or Merger Transaction.
(a) The Board shall have the right to require all Holders to
participate in a sale or merger transaction and to sell their shares of Class A
Common Stock to a third party purchaser in connection with such sale or merger.
Such right shall be exercisable by written notice (the "Buyout Notice") given to
each Holder which shall state (i) that there has been a proposal to effect the
sale of the Class A Common Stock, par value $.01 per share, of the Company to
such third party purchaser, (ii) the proposed purchase price per share to be
paid by the third party purchaser, and (iii) the name of the third party
purchaser, and to which shall be attached a copy of all writings between such
selling stockholder and the other parties to such transaction necessary to
establish the terms of such transaction. Each such Holder agrees that, upon
receipt of a Buyout Notice, each such Holder shall be obligated to sell his
Option Interests upon the terms and conditions of such transaction (and
otherwise take all reasonably necessary action to cause consummation of the
proposed transaction, including voting any such Option Interest in favor of such
transaction). The third party purchaser shall furnish evidence reasonably
satisfactory to the Board to the effect that it has the financial ability to
consummate the proposed purchase of the Interests of all of the stockholders.
For purposes of this paragraph, "Holder" means a person who holds an unexercised
Option or who holds shares of Class A Common Stock acquired upon exercise of an
Option. The term "Option Interest" means either an Option or a share of
Class A Common Stock acquired pursuant to exercise of an Option.
ARTICLE XIV
Effectiveness of the Plan
The Plan became effective on August 5, 1998, upon approval by the
affirmative vote of a majority of the members of the Management Committee of
Time Warner Telecom LLC, the predecessor of the Company. Pursuant to Article
XIII, this amended and restated Plan became effective on June 10, 1999, upon
approval by the affirmative vote of a majority of the Board of Directors of the
Company.
ARTICLE XVI
Government and Other Regulations
The obligation of the Company with respect to Awards shall be subject
to all applicable laws, rules and regulations and such approvals by any
governmental agencies as may be required, including, without limitation, the
effectiveness of any registration statement required under the Securities Act of
1933, and the rules and regulations of any applicable securities exchange.
ARTICLE XVI
Withholding
The Company's obligation to deliver shares of Class A Common Stock in
respect of any Award under the Plan shall be subject to applicable Federal,
state and local tax withholding requirements. Federal, state and local
withholding taxes paid upon the exercise of any Option may be paid in shares of
Class A Common Stock upon such terms and conditions as the Board shall
determine; provided, however, that the Board in its sole discretion may
disapprove such payment and require that such taxes be paid in cash.
ARTICLE XVII
Separability
If any of the terms or provisions of this Plan conflict with the
requirements of applicable law or applicable rules and regulations thereunder,
including the applicable requirements, if any, of Section 162(m) of the Code or
Rule 16b-3 under the Exchange Act, then such terms or provisions shall be deemed
inoperative to the extent necessary to avoid the conflict with applicable law,
or applicable rules and regulations, without invalidating the remaining
provisions hereof.
ARTICLE XVIII
Non-Exclusivity of the Plan
Neither the adoption of the Plan by the Board nor the submission of
the Plan to the Board of Directors of the Company for approval shall be
construed as creating any limitations on the power of the Board to adopt such
other incentive arrangements as it may deem desirable, including, without
limitation, the granting of stock options and the awarding of stock and cash
otherwise than under the Plan, and such arrangements may be either generally
applicable or applicable only in specific cases.
ARTICLE XIX
Exclusion from Pension and Profit-Sharing Computation.
By acceptance of an Award, each Holder shall be deemed to have agreed
that such Award is special incentive compensation that will not be taken into
account, in any manner, as salary, compensation or bonus in determining the
amount of any payment under any pension, retirement or other employee benefit
plan of the Company or any of its Subsidiaries. In addition, each beneficiary of
a deceased Holder shall be deemed to have agreed that such Award will not affect
the amount of any life insurance coverage, if any, provided by the Company or
any of its Subsidiaries on the life of the Holder which is payable to such
beneficiary under any life insurance plan covering employees of the Company or
any of its Subsidiaries.
ARTICLE XX
Beneficiaries
Each Holder may designate any person(s) or legal entity(ies),
including his or her estate, as his or her beneficiary under the Plan. Such
designation shall be made in writing on a form filed with the Secretary of the
Company or his or her designee and may be revoked or changed by such Holder at
any time by filing written notice of such revocation or change with the
Secretary of the Company or his or her designee. If no person shall be
designated by a Holder as his or her beneficiary or if no person designated as a
beneficiary survives such Holder, the Holder's beneficiary shall be his or her
estate.
ARTICLE XXI
Governing Law
The Plan shall be governed by, and construed in accordance with, the
laws of the State of New York.
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
Employment Agreement made as of January 17, 2000, effective as of January
1, 2000, between TIME WARNER TELECOM INC., a Delaware corporation (the
"Company"), and the employee whose name appears on the last page hereof (the
"Employee"). The Company shall employ the Employee on the following terms and
conditions:
1. Term. The Company hereby employs Employee and Employee hereby accepts
such employment upon the terms and conditions hereof for an initial term
commencing on January 1, 2000 (the "Effective Date") and ending, subject to
renewal or termination as provided herein, on the December 31 immediately prior
to the fifth anniversary of the Effective Date (the "Initial Term"); provided,
however, that this Agreement shall automatically continue for successive one
month periods thereafter (each such period being an "Additional Term") unless
either party has delivered written notice of termination to the other party no
later than six months prior to the end of the Initial Term or 60 days prior to
the end of any Additional Term. Sections 8, 10 through 22 and 24 through 28
shall survive any termination of Employee's employment under this Agreement. The
Employee hereby covenants that as of the Effective Date any agreement between
Employee and the Company, Time Warner Cable, US WEST, Inc. or MediaOne Group,
Inc., respectively, or any of their affiliates, entered into prior to the date
hereof, relating to Employee's employment with such entity, shall terminate as
of, or have been terminated prior to, the Effective Date.
2. Duties. Employee shall serve as President and Chief Executive Officer or
subject to Section 5, in such other senior management position as the Company
shall determine. Subject to the foregoing, Employee shall perform such duties as
may be assigned by the Company to Employee from time to time, and shall travel
for business purposes to the extent reasonably necessary or appropriate in the
performance of such duties.
Employee shall perform such duties on a full time basis (subject to the
Company's written
policies on vacations, illness, government service, etc. applicable to employees
at Employee's level in effect from time to time), provided, however, that
Employee shall not be precluded from devoting such time to personal affairs as
shall not interfere with the performance of his or her duties hereunder. In
performing his or her duties hereunder, Employee shall comply with the Company's
policies and procedures in effect from time to time. Unless Employee otherwise
consents, the headquarters for the performance of Employee's services shall be
the principal executive offices of the Company in the Denver, Colorado area,
subject to such reasonable travel as may be appropriate or required in the
performance of Employee's duties in the business of the Company.
3. Compensation. The Company shall pay or cause to be paid to Employee,
during the term of employment, an annual salary in respect of each calendar year
at the rate of not less than $312,012.33 per annum. The Company may increase,
but not decrease, such annual salary at any time and from time to time during
the term of employment. In addition to annual salary, Employee may be entitled
to receive an annual bonus in respect of each calendar year based on a target
percentage of the salary paid to Employee during such calendar year of 75%.
Subject to Section 5, and the second paragraph of this Section 3, Employee
acknowledges that his or her actual annual bonus may vary and range from 0% to
150% of the target amount, depending on actual performance of the Company and
Employee.
Subject to Section 5 and the second sentence of this Section 3, the Company
shall determine, in its sole discretion, the amount of any salary increase, the
amount of any annual bonus and whether to increase the target percentage of
Employee's annual bonus. The payment of any bonus compensation shall be made in
accordance with the Company's then current practices and policies, including
without limitation, less the usual required payroll deductions and withholding.
The Company shall pay or reimburse Employee, in accordance with Company
policies applicable to employees at Employee's level, for all travel,
entertainment and other business expenses actually incurred or paid by Employee
in the performance of his or her duties hereunder,
if properly substantiated and submitted.
4. Benefits. Employee shall be eligible to participate in any pension,
profit-sharing, employee stock ownership, vacation, insurance, hospitalization,
medical, health, disability and other employee benefit or welfare plan, program
or policy whether now existing or established hereafter (collectively, the
"Benefit Plans"), to the extent that employees at Employee's level are generally
deemed eligible under the general provisions thereof. The Company reserves the
right to amend or cancel any such Benefit Plan in its sole discretion.
5. Termination by Employee Following a Change in Control.
(a) Provided that notice of termination has not previously been given
under any other Section hereof, Employee shall have the right to terminate his
or her employment with the Company under this Agreement for cause upon 30 days
prior written notice delivered to the Company at any time within 180 days after
Employee has actual knowledge of the occurrence of any of the following events
following a Change in Control, indicating in such notice which event has
occurred:
A. A change in the location of Employee's office or of the
Company's principal executive offices to a place which is more than 50 miles
from the location of Employee's office or the location of the Company's
principal executive offices immediately prior to the occurrence of a Change in
Control;
B. A material reduction in Employee's decision-making,
budgetary, operating, staff and other responsibilities, taken as a whole, from
such responsibilities immediately prior to the occurrence of a Change in
Control, or a change in the person or persons to whom Employee reported
immediately prior to the occurrence of a Change in Control, to a person or
persons of lesser rank, title or responsibility; or
C. Any material breach of this Agreement by the Company.
(b) Upon the expiration of the 30-day notice period provided in
Section 5(a), Employee shall be relieved of his or her management position with
the Company and his or her duties hereunder. In the notice delivered by Employee
to the Company pursuant to Section 5(a), Employee shall elect either (A) to
terminate his or her employment with the Company, in which case Employee shall
receive: (x) subject to the terms thereof, all benefits which may be due to
Employee under the provisions of any Benefit Plan; and (y) in a lump sum
severance payment, within 30 days following the effective date of such
termination, the present value (using the discount rate described below) of an
amount equal to the sum of the annual salary at the rate in effect on the date
of termination of employment or immediately prior to the Change in Control,
whichever is greater, plus an annual bonus in a minimum amount equal to
Employee's then applicable target bonus amount or the Employee's applicable
target bonus amount in effect immediately prior to the Change in Control,
whichever is greater, for the remainder of the existing term of this Agreement,
without any further renewal or continuation, provided that such amount shall be
not less than the sum of such salary and bonus pro rated for an 18-month period;
or (B) to remain an employee of the Company for a period (as determined by
Employee) of up to 18 months following the date notice of termination is given
by Employee pursuant to Section 5(a), in which case Employee shall be relieved
of his or her management position with the Company and his or her duties
hereunder, and shall (i) continue to receive both salary, based on a rate equal
to his or her annual rate in effect on the date of giving notice of termination
of employment or immediately prior to the Change in Control, whichever is
greater, and annual bonuses in respect of such period (in each case payable
within 30 days after the end of the respective calendar year and prorated for
any portion of a year), each such bonus to be based on an amount equal to
Employee's then applicable target bonus amount or the Employee's applicable
target bonus amount in effect immediately prior to the Change in Control,
whichever is greater, and (ii) receive a discounted lump sum payment pursuant to
Section 5(b)(A)(y) for any portion of the Initial Term remaining after such
period; provided, however, that if Employee accepts full-time employment with
any other corporation, partnership, trust, government or other
entity ("Entity") during such period or notifies the Company in writing of his
or her intention to terminate his or her employment during such period,
Employee shall cease to be an employee of the Company effective upon the
commencement of such employment, or the effective date of such termination as
specified by Employee in such notice, and shall be entitled to receive, subject
to the terms thereof, all benefits due to Employee under the provisions of any
Benefit Plan and a discounted lump sum cash payment for the balance of the
salary and bonuses Employee would have been entitled to receive pursuant to this
Section 5(b)(B) had Employee remained on the Company's payroll until the end of
the Initial Term or such 18 month period, whichever is greater; provided,
further, however , that Employee shall not be entitled to receive any such lump
sum cash payment if he or she accepts full-time employment with any subsidiary
or Affiliate of the Company. For purposes of this Agreement the term "Affiliate"
shall mean an Entity which, directly or indirectly, controls, is controlled by
or is under common control with, the Company or Time Warner Inc. ("TWI").
In addition, whether Employee elects 5(b)(A) or 5(b)(B), for a period
of the earlier of one year from the date of termination of employment or the
date Employee is eligible to receive health benefits by virtue of other
employment, Employee shall receive continued eligibility and enrollment
(including family coverage, if any), without a premium charge therefor, in
hospital, medical and dental insurance plans providing substantially equivalent
benefit coverage to those plans in which Employee was enrolled immediately prior
to the Change in Control unless waived in writing by Employee (or, in the event
such coverage cannot be provided, substantially similar benefits).
Any lump sum payments required to be made pursuant to this Section
5(b) shall be discounted to present value from the times at which such amounts
would have been paid absent any such termination at an annual discount rate for
the relevant period equal to the "applicable Federal rate" (within the meaning
of Section 1274(d) of the Internal Revenue Code of 1986 (the "Code')),
compounded semi-annually, in effect on the date of such termination, the use of
which rate
is hereby elected by the Company and Employee pursuant to Treas. Reg. (S)
1.28OG-1Q/A32 (provided that in the event such election is not permitted, such
other rate determined as of such other date as is applicable for determining
present value under Section 280G of the Code shall be used).
6. Termination by Company.
(a) For Cause. Provided that notice of termination has not previously
been given under any other Section hereof, the Company shall have the right to
terminate Employee's employment for cause upon written notice to Employee at any
time. In such event, Employee's employment with the Company shall terminate
immediately and Employee shall be entitled to receive (i) any earned and unpaid
salary accrued through the date of such termination, and (ii) subject to the
terms thereof, any benefits which may be due to Employee under the provisions of
any Benefit Plan. Employee hereby disclaims any right to receive a pro rata
portion of his or her annual bonus with respect to the year in which such
termination occurs. For purposes hereof, "cause" shall mean termination by
action of the Company's Board of Directors or any committee thereof because of
Employee's conviction (treating a nolo contendere plea as a conviction) of a
felony (whether or not any right to appeal has been exercised) or willful
refusal without proper cause to perform his or her obligations under this
Agreement or because of Employee's material breach of the covenants provided for
in Sections 10, 11 and 12 of this Agreement. In the event (i) such termination
is because of the Employee's willful refusal without proper cause to perform any
one or more of his obligations under this Agreement, (ii) such notice is the
first such notice of termination for any reason delivered by the Company to the
Employee under this Section 6(a), and (iii) within 10 days following the date of
such notice the Employee shall cease his or her refusal and shall use his or
her best efforts to perform such obligations, the termination shall not be
effective.
(b) Other. Provided that notice of termination has not previously been
given under any other Section hereof, the Company shall have the right at any
time to terminate Employee's employment under this Agreement without cause, by
giving written notice thereof to Employee.
(i) If such notice is so given to Employee, Employee shall be
entitled to receive, subject to the terms thereof, all benefits which may be due
to Employee under the provisions of any Benefit Plan and to elect, within 30
days after receiving such notice, to receive either a lump sum severance payment
in the amount, and upon the terms and conditions, provided in Section 5(b)(A)
and calculated as set forth in the last paragraph of Section 5(b), or to remain
an employee of the Company upon the terms and conditions provided in Section
5(b)(B); provided, however, that (i) any reference therein to Section 5(a) shall
be deemed for purposes of this Section 6(b) to be a reference to this Section
6(b)(i), and (ii) if a Change in Control has not occurred, then (x) Employee's
salary shall be determined with reference to his or her then current annual
salary and (y) Employee's annual bonus shall equal at least the Employee's
target amount immediately prior to Employee's termination under this Section
6(b)(i).
(ii) For the period beginning when Employee receives notice of
termination from the Company pursuant to this Section 6(b), and ending six
months thereafter, Employee will, without charge to Employee, have use of
reasonable office space and reasonable office facilities at Employee's principal
job location immediately prior to his or her termination of employment, or other
location reasonably close to such location, together with reasonable secretarial
services in each case appropriate to an employee of Employee's position and
responsibilities prior to such termination of employment but taking into account
Employee's reduced need for such office space and secretarial services. Employee
will continue to be eligible to participate in the Company's Benefit Plans and
to receive, subject to the terms thereof, all benefits, which are received by
other employees at Employee's level thereunder other than options or similar
equity-based or incentive awards.
(iii) In the event that Employee's employment is terminated prior to
the occurrence of a Change in Control, or more than three years following a
Change in Control, then, in partial consideration for the Company's obligation
to make the payments described in this Section 6(b), Employee shall execute and
deliver to the Company a release in the form as set forth in Exhibit A. The
Company shall deliver such release to Employee at the time the Company delivers
notice of termination pursuant to this Section 6(b). Employee shall execute and
deliver such release to the Secretary of the Company within 21 days of receipt
of notice of termination. If Employee shall fail to execute and deliver to the
Company such release within 30 days of Employee's receipt thereof from the
Company, Employee's employment with the Company shall terminate effective at the
end of such 30-day period and Employee shall receive, in lieu of the severance
arrangements described in Section 6(b), a lump sum cash payment in an amount
determined in accordance with the personnel policies of the Company then
applicable.
7. Death; Disability.
(a) Death. If Employee shall die while employed by the Company,
Employee's employment under this Agreement shall thereupon terminate and
Employee's estate or beneficiaries, as the case may be, shall be entitled to
receive as promptly as practicable but in any event within 30 days after
reasonably satisfactory evidence of Employee's death is received by the Company
(i) any earned and unpaid salary accrued to Employee through the period ending
30 days following the date of Employee's death and a pro rata portion of the
target annual bonus amount in effect immediately prior to Employee's death; and
(ii) subject to the terms thereof, any benefits which may be due to Employee's
estate or beneficiaries under the provisions of any Benefit Plan.
(b) Disability. Provided that notice of termination has not previously
been given under any Section hereof, if employee becomes ill or is injured or
disabled during the term of this Agreement such that Employee fails to perform
all or substantially all the duties to be rendered hereunder and such failure
continues for a period in excess of 26 consecutive weeks (a "Disability"),
the Company may terminate the employment of Employee under this Agreement upon
written notice to Employee at any time and thereupon Employee shall be entitled
to receive (i) any earned and unpaid salary accrued through the date of such
termination; (ii) subject to the terms thereof, any benefits which may be due to
Employee under the provisions of any Benefit Plan; and (iii) a lump sum cash
payment equal to the sum of 75% of Employee's then current annual salary and
then applicable target annual bonus amount prorated for an 18-month period, less
the amount of any disability insurance proceeds payable to Employee under any
disability insurance policy or program covering Employee.
8. Stock Options and Other Incentive Awards. Upon Employee's termination of
employment with the Company for any reason, Employee's rights to benefits and
payments under any stock options, restricted shares or other incentive plans
shall be determined in accordance with the terms and provisions of such plans
and any agreements under which such stock options, restricted shares or other
awards were granted.
9. Change in Control. For purposes of this Agreement, a "Change in Control"
of the Company shall be deemed to have occurred at such time as TWI, MediaOne
Group, Inc. and Advance/Newhouse Partnership (and their respective affiliates)
(collectively, the "Founding Stockholders") as a group cease to have the ability
to elect a majority of the Board of Directors of the Company (other than the
chief executive officer of the Company and independent directors; provided that
independent directors shall be included in calculating whether the foregoing
majority requirement is satisfied if the directors nominated by the Founding
Stockholders (and their respective affiliates) do not constitute a majority of
the committee that selects the Board of Directors' nominees for independent
representatives) and a "person" or "group" (within the meaning of Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (other than the Founding Stockholders and their respective affiliates)
has become the ultimate "beneficial owner" (as defined in Rule l3d-3 under the
Exchange Act) of more than 35% of the total voting
power of the voting interests of the Company on a fully diluted basis and such
ownership represents a greater percentage of the total voting power of the
voting interests of the Company, on a fully diluted basis, than is held by the
Founding Stockholders (and their respective affiliates) as a group on such date.
10. Trade Secrets; Work Products, Etc. Except in connection with the
performance of his or her duties hereunder, Employee hereby expressly covenants
and agrees that Employee will not at any time while employed by the Company or
thereafter, exploit, use, sell, publish, disclose, communicate or divulge to any
person or Entity, other than the Company and its subsidiaries, either directly
or indirectly, any trade secrets or confidential information, knowledge or data
regarding the Company or any of its subsidiaries or Affiliates or any of their
respective officers, directors or employees including, without limitation, the
existence and terms of this Agreement, other than such information, knowledge or
data which has been released by the Company or such subsidiaries, Affiliates or
others to the public (except that with respect to the terms of this Agreement
Employee may communicate such terms to Employee's spouse and Employee's
attorneys and financial advisors). Notwithstanding the foregoing, Employee may
disclose such trade secrets or confidential information, knowledge, data or
terms when required to do so by a court or government agency or legislative body
of competent jurisdiction, provided Employee first notifies the Company orally
and in writing as promptly as possible of such requirement so that the Company
may either seek an appropriate protective order or waive compliance with the
provisions of this Section, and provided further that if, in the absence of such
protective order or waiver, Employee is nevertheless, in the written opinion of
his or her counsel, reasonably acceptable to the Company, addressed to and
delivered to the Company, otherwise required to disclose such information to any
such court, government agency or legislative body or else stand liable for
contempt or suffer other material penalty, Employee may disclose such
information in such case without liability hereunder so long as such disclosure
does not exceed that required by such court, government agency or legislative
body.
Employee hereby grants and assigns to the Company all rights (including,
without limitation, any copyright or patent) in the results and proceeds of all
services provided by Employee hereunder and all such services shall be subject
in all respects to the supervision, control and direction of the Company. Any
work in connection with such services shall be considered "work made for hire"
under the Copyright Law of 1976 or any successor thereof, and the Company shall
be the owner of such work as if the Company were the author of such work.
11. Non-Compete; Solicitation. Employee hereby expressly covenants and
agrees that:
(a) Employee will not at any time during the Term of employment and for
a period of one year following the date a notice of termination of Employee's
employment is terminated (i.e., Employee is no longer considered an employee
for payroll purposes) as provided herein, be or become an officer, director,
partner or employee of or consultant to or act in any managerial capacity with
or own any equity interest in any Entity (an "Affiliated Person") which is a
"Competitive Business Entity" (as such term is defined on Exhibit B hereto);
provided, however, that (i) ownership of less than 1% of the outstanding equity
securities of any Entity listed on any national securities exchange or traded on
the National Association of Securities Dealers Automated Quotation System shall
not be prohibited hereby, and (ii) in the event Employee is terminated pursuant
to Section 6(b) and notice of termination is so given to Employee following the
occurrence of a Change in Control, Employee is hereby permitted to accept
employment with any Founding Stockholder and such employment shall not violate
the provisions of this Section 11.
(b) Employee will not at any time during the Term of employment and for
a period of one year after the date Employee's employment is terminated as
provided herein, solicit (or assist or encourage the solicitation of) any
employee of the Company or any of its subsidiaries or Affiliates to work for
Employee or for any Entity in which Employee owns or expects to own more than a
1% equity interest or for which Employee serves or expects to serve as an
Affiliated Person.
For the purposes of this Section 11(b), the term "solicit any
employee" shall mean Employee's contacting, or providing information to others
who may be expected to contact, any employee of the Company or any of its
subsidiaries or Affiliates regarding their employment status, job satisfaction,
interest in seeking employment with Employee or any Affiliated Person or any
related matter, but shall not include general print advertising for personnel or
responding to an unsolicited request for a personal recommendation for or
evaluation of an employee of the Company or any of its subsidiaries or
Affiliates.
12. Documents; Conduct. Employee hereby expressly covenants and agrees
that:
(a) Following termination of Employee's employment with the Company
for any reason or at any time upon the Company's request, Employee will promptly
return to the Company all property of the Company and its subsidiaries and
Affiliates in his or her possession or control (whether maintained at his or her
office, home or elsewhere), including, without limitation, all copies of all
management studies, business or strategic plans, budgets, notebooks and other
printed, typed or written materials, documents, diaries, calendars and data of
or relating to the Company or its subsidiaries or Affiliates or their respective
personnel or affairs; and
(b) Employee will not at any time denigrate, ridicule or
intentionally criticize the Company or any of its subsidiaries or Affiliates or
any of their respective products, properties, employees, officers or directors,
including, without limitation, by way of news interviews, or the expression of
personal views, opinions or judgments to the news media.
13. Breach by Employee. Employee hereby expressly covenants and agrees
that the Company will suffer irreparable damage in the event any provisions of
Sections 10, 11 and 12 are not performed or are otherwise breached and that the
Company shall be entitled as a matter of right to an injunction or injunctions
and other relief to prevent a breach or violation by Employee and to secure its
enforcement of Section 10, 11 and 12 resort to such equitable relief, however,
shall not constitute a waiver of any other rights or remedies which the Company
may have.
14. Representations.
(a) Employee represents and warrants to the Company that this
Agreement is legal, valid and binding upon Employee and Employee is not a party
to any agreement or understanding which would prevent the fulfillment by
Employee of the terms of this Agreement. Employee has consulted with his or her
legal, tax, financial and other advisors, to the extent desired, prior to
execution and delivery of this Agreement.
(b) The Company represents and warrants to Employee that this
Agreement is legal, valid and binding upon the Company and the Company is not a
party to any agreement or understanding which would prevent the fulfillment by
the Company of the terms of this Agreement.
15. Notice. Any notice required or permitted to be given hereunder shall
be in writing (except where required to be given orally) and shall be
sufficiently given or sent by registered or certified mail or delivered, in
person, if to Employee at the address set forth on the last paragraph hereof, or
at such other address as Employee shall designate by written notice to the
Company, and if to the Company at 10475 Park Meadows Drive, Littleton, CO 80124,
attention of the Secretary or at such other address as the Company shall
designate by written notice to Employee.
16. Successors and Assigns. This Agreement is personal in its nature and
neither of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any right or obligations hereunder; provided however,
that the provisions hereof shall inure to the benefit of, and be binding upon,
any successor of the Company, whether by merger, consolidation, transfer of all
or substantially all of the assets of the Company, or otherwise.
17. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York, irrespective of
its conflicts of law rules, except for the By-laws referred to in Section 26,
which shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware.
To the extent that any applicable state or Federal law, rule or
regulation confers upon Employee any greater benefit or right than that set
forth in this Agreement, such law, rule or regulation shall control in lieu of
the provisions hereof relating to such benefit or right.
18. Mitigation. Employee shall have no obligation to mitigate damages in
the event of termination of Employee's employment under this Agreement under
Section 5(a), 6(b) or 7, other than as necessary to prevent the Company from
losing any tax deductions to which it otherwise would have been entitled for any
payments deemed to be "contingent on a change" under the Code and any payments
received by Employee hereunder shall not be offset or reduced in any way by any
other earnings or payments which may be received by Employee from any source,
except as provided by this Section 18. It is acknowledged and agreed that any
payment which may be made by the Company to Employee under Section 5(b), 6(b) or
7 is in the nature of severance and is not a penalty payment.
19. Withholding. All payments required to be paid by the Company to
Employee under this Agreement will be paid in accordance with the payroll
practices of the Company or the terms of the Benefit Plans, as the case may be,
and will be subject to withholding taxes, social security and other payroll
deductions in accordance with the Company's policies applicable to employees at
Employee's level and the terms of the Benefit Plan.
20. Complete Understanding. This Agreement supersedes any prior
contracts, understandings, discussions and agreements relating to employment
between Employee, on the one hand, and the Company and its subsidiaries and
Affiliates, on the other, and constitutes the complete understanding between the
parties with respect to the subject matter hereof. No statement, representation,
warranty or covenant has been made by either party with respect thereto except
as expressly set forth herein.
21. Modification; Waiver. This Agreement cannot be changed, modified or
amended and no provision or requirement hereof may be waived without the consent
in writing of both the parties hereto. No waiver by either party at any time of
any breach by the other party of any condition or provision of this Agreement
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. Subject to Section 28, no policy,
procedure or practice of the Company whether now or hereafter in effect shall be
deemed to modify, amend or supersede any provision of this Agreement except as
contemplated or provided otherwise in this Agreement.
22. Headings. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
23. Use of Likeness. The Company and TWI shall have the right to use
Employee's name, biography and likeness in connection with their respective
businesses and that of their subsidiaries and Affiliates, but not for use as a
direct endorsement.
24. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
25. Set-off. The Company and its subsidiaries and Affiliates shall have
no right to set-off payments owed to Employee hereunder against amounts owed or
claimed to be owed by Employee to the Company or its subsidiaries or Affiliates
under this Agreement or otherwise.
26. Indemnification. The Company shall indemnify Employee to no lesser
extent than provided in the Company's By-laws on the date hereof (the provisions
of which are hereby incorporated by reference herein), notwithstanding any
changes or amendments to such By-laws after the date hereof adversely affecting,
limiting or reducing such indemnification.
27. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
28. Changes. Subject to Section 5, the Company and its subsidiaries and
Affiliates are entitled to amend, modify, terminate or otherwise change at any
time or from time to time any and all Benefit Plans and policies, practices or
procedures referred to in this Agreement, and all references herein to such
Benefit Plans and policies, practices and procedures shall be to such as from
time to time in effect prior to a Change in Control except as otherwise
specifically herein provided.
29. Beneficiaries. Whenever this Agreement provides for any payment to
the Employee's estate, such payment may be made instead to such beneficiary or
beneficiaries as the Employee may designate in writing (using the form of
Beneficiary Designation attached hereto as Exhibit C) and file with the Company.
The Employee shall have the right to revoke such Beneficiary Designation and
redesignate a beneficiary by filing with the Company (and any applicable
insurance company) a later dated Beneficiary Designation to such effect.
IN WITNESS WHEREOF, Employee and the Company have caused this Agreement to
be executed as of the date first above written.
TIME WARNER TELECOM INC.
By: /s/ Glenn Britt
----------------------------------------
Name: Glenn Britt
Title: Director
Agreed to and accepted as of
the date first above written
/s/ Larissa L. Herda
--------------------------------------------
Name: Larissa L. Herda
Title: President and Chief Executive Officer
Address for Notices:
517 Prospect Drive
Castle Rock., Co 80104
EXHIBIT B
"Competitive Business Entity" shall mean any Entity which is engaged,
either directly or indirectly, in the ownership, operation or management of any
business that provides to customers at any location within the United States (or
its territories and dependencies) any telecommunications, any internet access
services or any other transport or network services for internet protocol based
information.
All capitalized terms used herein shall have the meanings provided in the
Employment Agreement to which this Exhibit B is attached.
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
Employment Agreement made as of January 17, 2000, effective as of January
1, 2000, between TIME WARNER TELECOM INC., a Delaware corporation (the
"Company"), and the employee whose name appears on the last page hereof (the
"Employee"). The Company shall employ the Employee on the following terms and
conditions:
1. Term. The Company hereby employs Employee and Employee hereby accepts
such employment upon the terms and conditions hereof for an initial term
commencing on January 1, 2000 (the "Effective Date") and ending, subject to
renewal or termination as provided herein, on the December 31 immediately prior
to the third anniversary of the Effective Date (the "Initial Term"); provided,
however, that this Agreement shall automatically continue for successive one
month periods thereafter (each such period being an "Additional Term") unless
either party has delivered written notice of termination to the other party no
later than six months prior to the end of the Initial Term or 60 days prior to
the end of any Additional Term. Sections 8, 10 through 22 and 24 through 28
shall survive any termination of Employee's employment under this Agreement. The
Employee hereby covenants that as of the Effective Date any agreement between
Employee and the Company, Time Warner Cable, US WEST, Inc. or MediaOne Group,
Inc., respectively, or any of their affiliates, entered into prior to the date
hereof, relating to Employee's employment with such entity, shall terminate as
of, or have been terminated prior to, the Effective Date.
2. Duties. Employee shall serve as Senior Vice President, Legal &
Regulatory Policy or subject to Section 5, in such other senior management
position as the Company shall determine. Subject to the foregoing, Employee
shall perform such duties as may be assigned by the Company to Employee from
time to time, and shall travel for business purposes to the extent reasonably
necessary or appropriate in the performance of such duties.
Employee shall perform such duties on a full time basis (subject to the
Company's written
policies on vacations, illness, government service, etc. applicable to employees
at Employee's level in effect from time to time), provide , however, that
Employee shall not be precluded from devoting such time to personal affairs as
shall not interfere with the performance of his or her duties hereunder. In
performing his or her duties hereunder, Employee shall comply with the Company's
policies and procedures in effect from time to time. Unless Employee otherwise
consents, the headquarters for the performance of Employee's services shall be
the principal executive offices of the Company in the Denver, Colorado area,
subject to such reasonable travel as may be appropriate or required in the
performance of Employee's duties in the business of the Company.
3. Compensation. The Company shall pay or cause to be paid to Employee,
during the term of employment, an annual salary in respect of each calendar year
at the rate of not less than $259,242.10 per annum. The Company may increase,
but not decrease, such annual salary at any time and from time to time during
the term of employment. In addition to annual salary, Employee may be entitled
to receive an annual bonus in respect of each calendar year based on a target
percentage of the salary paid to Employee during such calendar year of 50%.
Subject to Section 5, and the second paragraph of this Section 3, Employee
acknowledges that his or her actual annual bonus may vary and range from 0% to
150% of the target amount, depending on actual performance of the Company and
Employee.
Subject to Section 5 and the second sentence of this Section 3, the Company
shall determine, in its sole discretion, the amount of any salary increase, the
amount of any annual bonus and whether to increase the target percentage of
Employee's annual bonus. The payment of any bonus compensation shall be made in
accordance with the Company's then current practices and policies, including
without limitation, less the usual required payroll deductions and withholding.
The Company shall pay or reimburse Employee, in accordance with Company
policies applicable to employees at Employee's level, for all travel,
entertainment and other business expenses actually incurred or paid by Employee
in the performance of his or her duties hereunder,
if properly substantiated and submitted.
4. Benefits. Employee shall be eligible to participate in any pension,
profit-sharing, employee stock ownership, vacation, insurance, hospitalization,
medical, health, disability and other employee benefit or welfare plan, program
or policy whether now existing or established hereafter (collectively, the
"Benefit Plans"), to the extent that employees at Employee's level are generally
deemed eligible under the general provisions thereof. The Company reserves the
right to amend or cancel any such Benefit Plan in its sole discretion.
5. Termination by Employee Following a Change in Control.
(a) Provided that notice of termination has not previously been given
under any other Section hereof, Employee shall have the right to terminate his
or her employment with the Company under this Agreement for cause upon 30 days
prior written notice delivered to the Company at any time within 180 days after
Employee has actual knowledge of the occurrence of any of the following events
following a Change in Control, indicating in such notice which event has
occurred:
A. A change in the location of Employee's office or of the
Company's principal executive offices to a place which is more than 50 miles
from the location of Employee's office or the location of the Company's
principal executive offices immediately prior to the occurrence of a Change in
Control;
B. A material reduction in Employee's decision-making,
budgetary, operating, staff and other responsibilities, taken as a whole, from
such responsibilities immediately prior to the occurrence of a Change in
Control, or a change in the person or persons to whom Employee reported
immediately prior to the occurrence of a Change in Control, to a person or
persons of lesser rank, title or responsibility; or
C. Any material breach of this Agreement by the Company.
(b) Upon the expiration of the 30-day notice period provided in
Section 5(a), Employee shall be relieved of his or her management position with
the Company and his or her duties hereunder. In the notice delivered by Employee
to the Company pursuant to Section 5(a), Employee shall elect either (A) to
terminate his or her employment with the Company, in which case Employee shall
receive: (x) subject to the terms thereof, all benefits which may be due to
Employee under the provisions of any Benefit Plan; and (y) in a lump sum
severance payment, within 30 days following the effective date of such
termination, the present value (using the discount rate described below) of an
amount equal to the sum of the annual salary at the rate in effect on the date
of termination of employment or immediately prior to the Change in Control,
whichever is greater, plus an annual bonus in a minimum amount equal to
Employee's then applicable target bonus amount or the Employee's applicable
target bonus amount in effect immediately prior to the Change in Control,
whichever is greater, for the remainder of the existing term of this Agreement,
without any further renewal or continuation, provided that such amount shall be
not less than the sum of such salary and bonus pro rated for an 18-month period;
or (B) to remain an employee of the Company for a period (as determined by
Employee) of up to 18 months following the date notice of termination is given
by Employee pursuant to Section 5(a), in which case Employee shall be relieved
of his or her management position with the Company and his or her duties
hereunder, and shall (i) continue to receive both salary, based on a rate equal
to his or her annual rate in effect on the date of giving notice of termination
of employment or immediately prior to the Change in Control, whichever is
greater, and annual bonuses in respect of such period (in each case payable
within 30 days after the end of the respective calendar year and prorated for
any portion of a year), each such bonus to be based on an amount equal to
Employee's then applicable target bonus amount or the Employee's applicable
target bonus amount in effect immediately prior to the Change in Control,
whichever is greater, and (ii) receive a discounted lump sum payment pursuant to
Section 5(b)(A)(y) for any portion of the Initial Term remaining after such
period; provide , however, that if Employee accepts full-time employment with
any other corporation, partnership, trust, government or other
entity ("Entity") during such period or notifies the Company in writing of his
or her intention to terminate his or her employment during such period, Employee
shall cease to be an employee of the Company effective upon the commencement of
such employment, or the effective date of such termination as specified by
Employee in such notice, and shall be entitled to receive, subject to the terms
thereof, all benefits due to Employee under the provisions of any Benefit Plan
and a discounted lump sum cash payment for the balance of the salary and bonuses
Employee would have been entitled to receive pursuant to this Section 5(b)(B)
had Employee remained on the Company's payroll until the end of the Initial Term
or such 18 month period, whichever is greater; provided, further , however, that
Employee shall not be entitled to receive any such lump sum cash payment if he
or she accepts full-time employment with any subsidiary or Affiliate of the
Company. For purposes of this Agreement, the term "Affiliate" shall mean an
Entity which, directly or indirectly, controls, is controlled by or is under
common control with, the Company or Time Warner Inc. ("TWI").
In addition, whether Employee elects 5(b)(A) or 5(b)(B), for a period
of the earlier of one year from the date of termination of employment or the
date Employee is eligible to receive health benefits by virtue of other
employment, Employee shall receive continued eligibility and enrollment
(including family coverage, if any), without a premium charge therefor, in
hospital, medical and dental insurance plans providing substantially equivalent
benefit coverage to those plans in which Employee was enrolled immediately prior
to the Change in Control unless waived in writing by Employee (or, in the event
such coverage cannot be provided, substantially similar benefits).
Any lump sum payments required to be made pursuant to this Section
5(b) shall be discounted to present value from the times at which such amounts
would have been paid absent any such termination at an annual discount rate for
the relevant period equal to the "applicable Federal rate" (within the meaning
of Section 1274(d) of the Internal Revenue Code of 1986 (the "Code")),
compounded semi-annually, in effect on the date of such termination, the use of
which rate
is hereby elected by the Company and Employee pursuant to Treas. Reg. (S)
1.280G-1Q/A32 (provided that in the event such election is not permitted, such
other rate determined as of such other date as is applicable for determining
present value under Section 280G of the Code shall be used).
6. Termination by Company.
(a) For Cause. Provided that notice of termination has not previously
been given under any other Section hereof, the Company shall have the right to
terminate Employee's employment for cause upon written notice to Employee at any
time. In such event, Employee's employment with the Company shall terminate
immediately and Employee shall be entitled to receive (i) any earned and unpaid
salary accrued through the date of such termination, and (ii) subject to the
terms thereof, any benefits which may be due to Employee under the provisions of
any Benefit Plan. Employee hereby disclaims any right to receive a pro rata
portion of his or her annual bonus with respect to the year in which such
termination occurs. For purposes hereof, "cause" shall mean termination by
action of the Company's Board of Directors or any committee thereof because of
Employee's conviction (treating a nolo contendere plea as a conviction) of a
felony (whether or not any right to appeal has been exercised) or willful
refusal without proper cause to perform his or her obligations under this
Agreement or because of Employee's material breach of the covenants provided for
in Sections 10, 11 and 12 of this Agreement. In the event (i) such termination
is because of the Employee's willful refusal without proper cause to perform any
one or more of his obligations under this Agreement, (ii) such notice is the
first such notice of termination for any reason delivered by the Company to the
Employee under this Section 6(a), and (iii) within 10 days following the date of
such notice the Employee shall cease his or her refusal and shall use his or her
best efforts to perform such obligations, the termination shall not be
effective.
(b) Other. Provided that notice of termination has not previously been
given under any other Section hereof, the Company shall have the right at any
time to terminate Employee's employment under this Agreement without cause, by
giving written notice thereof to Employee.
(i) If such notice is so given to Employee, Employee shall be entitled
to receive, subject to the terms thereof, all benefits which may be due to
Employee under the provisions of any Benefit Plan and to elect, within 30 days
after receiving such notice, to receive either a lump sum severance payment in
the amount, and upon the terms and conditions, provided in Section 5(b)(A) and
calculated as set forth in the last paragraph of Section 5(b), or to remain an
employee of the Company upon the terms and conditions provided in Section
5(b)(B); provided, however, that (i) any reference therein to Section 5(a) shall
be deemed for purposes of this Section 6(b) to be a reference to this Section
6(b)(i), and (ii) if a Change in Control has not occurred, then (x) Employee's
salary shall be determined with reference to his or her then current annual
salary and (y) Employee's annual bonus shall equal at least the Employee's
target amount immediately prior to Employee's termination under this Section
6(b)(i).
(ii) For the period beginning when Employee receives notice of
termination from the Company pursuant to this Section 6(b), and ending six
months thereafter, Employee will, without charge to Employee, have use of
reasonable office space and reasonable office facilities at Employee's principal
job location immediately prior to his or her termination of employment, or other
location reasonably close to such location, together with reasonable secretarial
services in each case appropriate to an employee of Employee's position and
responsibilities prior to such termination of employment but taking into account
Employee's reduced need for such office space and secretarial services. Employee
will continue to be eligible to participate in the Company's Benefit Plans and
to receive, subject to the terms thereof, all benefits, which are received by
other employees at Employee's level thereunder other than options or similar
equity-based or incentive awards.
(iii) In the event that Employee's employment is terminated prior to
the occurrence of a Change in Control, or more than three years following a
Change in Control, then, in partial consideration for the Company's obligation
to make the payments described in this Section 6(b), Employee shall execute and
deliver to the Company a release in the form as set forth in Exhibit A. The
Company shall deliver such release to Employee at the time the Company delivers
notice of termination pursuant to this Section 6(b). Employee shall execute and
deliver such release to the Secretary of the Company within 21 days of receipt
of notice of termination. If Employee shall fail to execute and deliver to the
Company such release within 30 days of Employee's receipt thereof from the
Company, Employee's employment with the Company shall terminate effective at the
end of such 30-day period and Employee shall receive, in lieu of the severance
arrangements described in Section 6(b), a lump sum cash payment in an amount
determined in accordance with the personnel policies of the Company then
applicable.
7. Death; Disability.
(a) Death. If Employee shall die while employed by the Company,
Employee's employment under this Agreement shall thereupon terminate and
Employee's estate or beneficiaries, as the case may be, shall be entitled to
receive as promptly as practicable but in any event within 30 days after
reasonably satisfactory evidence of Employee's death is received by the Company
(i) any earned and unpaid salary accrued to Employee through the period ending
30 days following the date of Employee's death and a pro rata portion of the
target annual bonus amount in effect immediately prior to Employee's death; and
(ii) subject to the terms thereof, any benefits which may be due to Employee's
estate or beneficiaries under the provisions of any Benefit Plan.
(b) Disability. Provided that notice of termination has not previously
been given under any Section hereof, if employee becomes ill or is injured or
disabled during the term of this Agreement such that Employee fails to perform
all or substantially all the duties to be rendered hereunder and such failure
continues for a period in excess of 26 consecutive weeks (a "Disability"),
the Company may terminate the employment of Employee under this Agreement upon
written notice to Employee at any time and thereupon Employee shall be entitled
to receive (i) any earned and unpaid salary accrued through the date of such
termination; (ii) subject to the terms thereof, any benefits which may be due to
Employee under the provisions of any Benefit Plan; and (iii) a lump sum cash
payment equal to the sum of 75% of Employee's then current annual salary and
then applicable target annual bonus amount prorated for an 18-month period, less
the amount of any disability insurance proceeds payable to Employee under any
disability insurance policy or program covering Employee.
8. Stock Options and Other Incentive Awards. Upon Employee's termination of
employment with the Company for any reason, Employee's rights to benefits and
payments under any stock options, restricted shares or other incentive plans
shall be determined in accordance with the terms and provisions of such plans
and any agreements under which such stock options, restricted shares or other
awards were granted.
9. Change in Control. For purposes of this Agreement, a "Change in Control"
of the Company shall be deemed to have occurred at such time as TWI, MediaOne
Group, Inc. and Advance/Newhouse Partnership (and their respective affiliates)
(collectively, the "Founding Stockholders") as a group cease to have the ability
to elect a majority of the Board of Directors of the Company (other than the
chief executive officer of the Company and independent directors; provided that
independent directors shall be included in calculating whether the foregoing
majority requirement is satisfied if the directors nominated by the Founding
Stockholders (and their respective affiliates) do not constitute a majority of
the committee that selects the Board of Directors' nominees for independent
representatives) and a "person" or "group" (within the meaning of Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (other than the Founding Stockholders and their respective affiliates)
has become the ultimate "beneficial owner" (as defined in Rule l3d-3 under the
Exchange Act) of more than 35% of the total voting
power of the voting interests of the Company on a fully diluted basis and such
ownership represents a greater percentage of the total voting power of the
voting interests of the Company, on a fully diluted basis, than is held by the
Founding Stockholders (and their respective affiliates) as a group on such date.
10. Trade Secrets; Work Products, Etc. Except in connection with the
performance of his or her duties hereunder, Employee hereby expressly covenants
and agrees that Employee will not at any time while employed by the Company or
thereafter, exploit, use, sell, publish, disclose, communicate or divulge to any
person or Entity, other than the Company and its subsidiaries, either directly
or indirectly, any trade secrets or confidential information, knowledge or data
regarding the Company or any of its subsidiaries or Affiliates or any of their
respective officers, directors or employees including, without limitation, the
existence and terms of this Agreement, other than such information, knowledge or
data which has been released by the Company or such subsidiaries, Affiliates or
others to the public (except that with respect to the terms of this Agreement
Employee may communicate such terms to Employee's spouse and Employee's
attorneys and financial advisors). Notwithstanding the foregoing, Employee may
disclose such trade secrets or confidential information, knowledge, data or
terms when required to do so by a court or government agency or legislative body
of competent jurisdiction, provided Employee first notifies the Company orally
and in writing as promptly as possible of such requirement so that the Company
may either seek an appropriate protective order or waive compliance with the
provisions of this Section, and provided further that if, in the absence of such
protective order or waiver, Employee is nevertheless, in the written opinion of
his or her counsel, reasonably acceptable to the Company, addressed to and
delivered to the Company, otherwise required to disclose such information to any
such court, government agency or legislative body or else stand liable for
contempt or suffer other material penalty, Employee may disclose such
information in such case without liability hereunder so long as such disclosure
does not exceed that required by such court, government agency or legislative
body.
Employee hereby grants and assigns to the Company all rights (including,
without limitation, any copyright or patent) in the results and proceeds of all
services provided by Employee hereunder and all such services shall be subject
in all respects to the supervision, control and direction of the Company. Any
work in connection with such services shall be considered "work made for hire"
under the Copyright Law of 1976 or any successor thereof, and the Company shall
be the owner of such work as if the Company were the author of such work.
11. Non-Compete; Solicitation. Employee hereby expressly covenants and
agrees that:
(a) Employee will not at any time during the Term of employment and for
a period of one year following the date a notice of termination of Employee's
employment is terminated (i.e. Employee is no longer considered an employee for
payroll purposes) as provided herein, be or become an officer, director, partner
or employee of or consultant to or act in any managerial capacity with or own
any equity interest in any Entity (an "Affiliated Person") which is a
"Competitive Business Entity" (as such term is defined on Exhibit B hereto);
provide , however, that (i) ownership of less than 1% of the outstanding equity
securities of any Entity listed on any national securities exchange or traded on
the National Association of Securities Dealers Automated Quotation System shall
not be prohibited hereby, and (ii) in the event Employee is terminated pursuant
to Section 6(b) and notice of termination is so given to Employee following the
occurrence of a Change in Control, Employee is hereby permitted to accept
employment with any Founding Stockholder and such employment shall not violate
the provisions of this Section 11.
(b) Employee will not at any time during the Term of employment and for
a period of one year after the date Employee's employment is terminated as
provided herein, solicit (or assist or encourage the solicitation of) any
employee of the Company or any of its subsidiaries or Affiliates to work for
Employee or for any Entity in which Employee owns or expects to own more than a
1% equity interest or for which Employee serves or expects to serve as an
Affiliated Person.
For the purposes of this Section 1 l(b), the term "solicit any
employee" shall mean Employee's contacting, or providing information to others
who may be expected to contact, any employee of the Company or any of its
subsidiaries or Affiliates regarding their employment status, job satisfaction,
interest in seeking employment with Employee or any Affiliated Person or any
related matter, but shall not include general print advertising for personnel or
responding to an unsolicited request for a personal recommendation for or
evaluation of an employee of the Company or any of its subsidiaries or
Affiliates.
12. Documents; Conduct. Employee hereby expressly covenants and agrees that:
(a) Following termination of Employee's employment with the Company for
any reason or at any time upon the Company's request, Employee will promptly
return to the Company all property of the Company and its subsidiaries and
Affiliates in his or her possession or control (whether maintained at his or her
office, home or elsewhere), including, without limitation, all copies of all
management studies, business or strategic plans, budgets, notebooks and other
printed, typed or written materials, documents, diaries, calendars and data of
or relating to the Company or its subsidiaries or Affiliates or their respective
personnel or affairs; and
(b) Employee will not at any time denigrate, ridicule or intentionally
criticize the Company or any of its subsidiaries or Affiliates or any of their
respective products, properties, employees, officers or directors, including,
without limitation, by way of news interviews, or the expression of personal
views, opinions or judgments to the news media.
13. Breach by Employee. Employee hereby expressly covenants and agrees that
the Company will suffer irreparable damage in the event any provisions of
Sections 10, 11 and 12 are not performed or are otherwise breached and that the
Company shall be entitled as a matter of right to an injunction or injunctions
and other relief to prevent a breach or violation by Employee and to secure its
enforcement of Section 10, 11 and 12 resort to such equitable relief, however,
shall not constitute a waiver of any other rights or remedies which the Company
may have.
14. Representations.
(a) Employee represents and warrants to the Company that this
Agreement is legal, valid and binding upon Employee and Employee is not a party
to any agreement or understanding which would prevent the fulfillment by
Employee of the terms of this Agreement. Employee has consulted with his or her
legal, tax, financial and other advisors, to the extent desired, prior to
execution and delivery of this Agreement.
(b) The Company represents and warrants to Employee that this
Agreement is legal, valid and binding upon the Company and the Company is not a
party to any agreement or understanding which would prevent the fulfillment by
the Company of the terms of this Agreement.
15. Notice. Any notice required or permitted to be given hereunder shall
be in writing (except where required to be given orally) and shall be
sufficiently given or sent by registered or certified mail or delivered, in
person, if to Employee at the address set forth on the last paragraph hereof, or
at such other address as Employee shall designate by written notice to the
Company, and if to the Company at 10475 Park Meadows Drive, Littleton, CO 80124,
attention of the Secretary or at such other address as the Company shall
designate by written notice to Employee.
16. Successors and Assigns. This Agreement is personal in its nature and
neither of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any right or obligations hereunder; provide however,
that the provisions hereof shall inure to the benefit of, and be binding upon,
any successor of the Company, whether by merger, consolidation, transfer of all
or substantially all of the assets of the Company, or otherwise.
17. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York, irrespective of
its conflicts of law rules, except for the By-laws referred to in Section 26,
which shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware.
To the extent that any applicable state or Federal law, rule or
regulation confers upon Employee any greater benefit or right than that set
forth in this Agreement, such law, rule or regulation shall control in lieu of
the provisions hereof relating to such benefit or right.
18. Mitigation. Employee shall have no obligation to mitigate damages in
the event of termination of Employee's employment under this Agreement under
Section 5(a), 6(b) or 7, other than as necessary to prevent the Company from
losing any tax deductions to which it otherwise would have been entitled for any
payments deemed to be "contingent on a change" under the Code and any payments
received by Employee hereunder shall not be offset or reduced in any way by any
other earnings or payments which may be received by Employee from any source,
except as provided by this Section 18. It is acknowledged and agreed that any
payment which may be made by the Company to Employee under Section 5(b), 6(b) or
7 is in the nature of severance and is not a penalty payment.
19. Withholding. All payments required to be paid by the Company to
Employee under this Agreement will be paid in accordance with the payroll
practices of the Company or the terms of the Benefit Plans, as the case may be,
and will be subject to withholding taxes, social security and other payroll
deductions in accordance with the Company's policies applicable to employees at
Employee's level and the terms of the Benefit Plan.
20. Complete Understanding. This Agreement supersedes any prior
contracts, understandings, discussions and agreements relating to employment
between Employee, on the one hand, and the Company and its subsidiaries and
Affiliates, on the other, and constitutes the complete understanding between the
parties with respect to the subject matter hereof. No statement, representation,
warranty or covenant has been made by either party with respect thereto except
as expressly set forth herein.
21. Modification; Waiver. This Agreement cannot be changed, modified or
amended and no provision or requirement hereof may be waived without the consent
in writing of both the parties hereto. No waiver by either party at any time of
any breach by the other party of any condition or provision of this Agreement
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. Subject to Section 28, no policy,
procedure or practice of the Company whether now or hereafter in effect shall be
deemed to modify, amend or supersede any provision of this Agreement except as
contemplated or provided otherwise in this Agreement.
22. Headings. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
23. Use of Likeness. The Company and TWI shall have the right to use
Employee's name, biography and likeness in connection with their respective
businesses and that of their subsidiaries and Affiliates, but not for use as a
direct endorsement.
24. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
25. Set-off. The Company and its subsidiaries and Affiliates shall have
no right to set-off payments owed to Employee hereunder against amounts owed or
claimed to be owed by Employee to the Company or its subsidiaries or Affiliates
under this Agreement or otherwise.
26. Indemnification. The Company shall indemnify Employee to no lesser
extent than provided in the Company's By-laws on the date hereof (the provisions
of which are hereby incorporated by reference herein), notwithstanding any
changes or amendments to such By-laws after the date hereof adversely affecting,
limiting or reducing such indemnification.
27. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
28. Changes. Subject to Section 5, the Company and its subsidiaries and
Affiliates are entitled to amend, modify, terminate or otherwise change at any
time or from time to time any and all Benefit Plans and policies, practices or
procedures referred to in this Agreement, and all references herein to such
Benefit Plans and policies, practices and procedures shall be to such as from
time to time in effect prior to a Change in Control except as otherwise
specifically herein provided.
29. Beneficiaries. Whenever this Agreement provides for any payment to
the Employee's estate, such payment may be made instead to such beneficiary or
beneficiaries as the Employee may designate in writing (using the form of
Beneficiary Designation attached hereto as Exhibit C) and file with the Company.
The Employee shall have the right to revoke such Beneficiary Designation and
redesignate a beneficiary by filing with the Company (and any applicable
insurance company) a later dated Beneficiary Designation to such effect.
IN WITNESS WHEREOF, Employee and the Company have caused this Agreement
to be executed as of the date first above written.
TIME WARNER TELECOM INC
By: /s/ Larissa L. Herda
------------------------------------------
Name: Larissa L. Herda
Title: President & Chief Executive Officer
Agreed to and accepted as of
the date first above written
/s/ Paul B. Jones
-------------------------------------
Name: Paul B. Jones
Title: Senior Vice President, Legal &
Regulatory Policy
Address for Notices:
7867 S. Forest Street
Littleton, CO 80122
EXHIBIT B
"Competitive Business Entity" shall mean any Entity which is engaged,
either directly or indirectly, in the ownership, operation or management of any
business that provides to customers at any location within the United States (or
its territories and dependencies) any telecommunications, any internet access
services or any other transport or network services for internet protocol based
information.
All capitalized terms used herein shall have the meanings provided in the
Employment Agreement to which this Exhibit B is attached.
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
Employment Agreement made as of January 17, 2000, effective as of January
1, 2000, between TIME WARNER TELECOM INC., a Delaware corporation (the
"Company"), and the employee whose name appears on the last page hereof (the
"Employee"). The Company shall employ the Employee on the following terms and
conditions:
1. Term. The Company hereby employs Employee and Employee hereby accepts
such employment upon the terms and conditions hereof for an initial term
commencing on January 1, 2000 (the "Effective Date") and ending, subject to
renewal or termination as provided herein, on the December 31 immediately prior
to the third anniversary of the Effective Date (the "Initial Term"); provided,
however, that this Agreement shall automatically continue for successive one
month periods thereafter (each such period being an "Additional Term") unless
either party has delivered written notice of termination to the other party no
later than six months prior to the end of the Initial Term or 60 days prior to
the end of any Additional Term. Sections 8, 10 through 22 and 24 through 28
shall survive any termination of Employee's employment under this Agreement. The
Employee hereby covenants that as of the Effective Date any agreement between
Employee and the Company, Time Warner Cable, US WEST, Inc. or MediaOne Group,
Inc., respectively, or any of their affiliates, entered into prior to the date
hereof, relating to Employee's employment with such entity, shall terminate as
of, or have been terminated prior to, the Effective Date.
2. Duties. Employee shall serve as Senior Vice President and Chief
Information Officer or subject to Section 5, in such other senior management
position as the Company shall determine. Subject to the foregoing, Employee
shall perform such duties as may be assigned by the Company to Employee from
time to time, and shall travel for business purposes to the extent reasonably
necessary or appropriate in the performance of such duties.
Employee shall perform such duties on a full time basis (subject to the
Company's written
policies on vacations, illness, government service, etc. applicable to employees
at Employee's level in effect from time to time), provided, however, that
Employee shall not be precluded from devoting such time to personal affairs as
shall not interfere with the performance of his or her duties hereunder. In
performing his or her duties hereunder, Employee shall comply with the Company's
policies and procedures in effect from time to time. Unless Employee otherwise
consents, the headquarters for the performance of Employee's services shall be
the principal executive offices of the Company in the Denver, Colorado area,
subject to such reasonable travel as may be appropriate or required in the
performance of Employee's duties in the business of the Company.
3. Compensation. The Company shall pay or cause to be paid to Employee,
during the term of employment, an annual salary in respect of each calendar year
at the rate of not less than $185,000.00 per annum. The Company may increase,
but not decrease, such annual salary at any time and from time to time during
the term of employment. In addition to annual salary, Employee may be entitled
to receive an annual bonus in respect of each calendar year based on a target
percentage of the salary paid to Employee during such calendar year of 50%.
Subject to Section 5, and the second paragraph of this Section 3, Employee
acknowledges that his or her actual annual bonus may vary and range from 0% to
150% of the target amount, depending on actual performance of the Company and
Employee.
Subject to Section 5 and the second sentence of this Section 3, the Company
shall determine, in its sole discretion, the amount of any salary increase, the
amount of any annual bonus and whether to increase the target percentage of
Employee's annual bonus. The payment of any bonus compensation shall be made in
accordance with the Company's then current practices and policies, including
without limitation, less the usual required payroll deductions and withholding.
The Company shall pay or reimburse Employee, in accordance with Company
policies applicable to employees at Employee's level, for all travel,
entertainment and other business expenses actually incurred or paid by Employee
in the performance of his or her duties hereunder,
if properly substantiated and submitted.
4. Benefits. Employee shall be eligible to participate in any pension,
profit-sharing, employee stock ownership, vacation, insurance, hospitalization,
medical, health, disability and other employee benefit or welfare plan, program
or policy whether now existing or established hereafter (collectively, the
"Benefit Plans"), to the extent that employees at Employee's level are generally
deemed eligible under the general provisions thereof. The Company reserves the
right to amend or cancel any such Benefit Plan in its sole discretion.
5. Termination by Employee Following a Change in Control.
(a) Provided that notice of termination has not previously been given
under any other Section hereof, Employee shall have the right to terminate his
or her employment with the Company under this Agreement for cause upon 30 days
prior written notice delivered to the Company at any time within 180 days after
Employee has actual knowledge of the occurrence of any of the following events
following a Change in Control, indicating in such notice which event has
occurred:
A. A change in the location of Employee's office or of the
Company's principal executive offices to a place which is more than 50 miles
from the location of Employee's office or the location of the Company's
principal executive offices immediately prior to the occurrence of a Change in
Control;
B. A material reduction in Employee's decision-making, budgetary,
operating, staff and other responsibilities, taken as a whole, from such
responsibilities immediately prior to the occurrence of a Change in Control, or
a change in the person or persons to whom Employee reported immediately prior to
the occurrence of a Change in Control, to a person or persons of lesser rank,
title or responsibility; or
C. Any material breach of this Agreement by the Company.
(b) Upon the expiration of the 30-day notice period provided in
Section 5(a), Employee shall be relieved of his or her management position with
the Company and his or her duties hereunder. In the notice delivered by Employee
to the Company pursuant to Section 5(a), Employee shall elect either (A) to
terminate his or her employment with the Company, in which case Employee shall
receive: (x) subject to the terms thereof, all benefits which may be due to
Employee under the provisions of any Benefit Plan; and (y) in a lump sum
severance payment, within 30 days following the effective date of such
termination, the present value (using the discount rate described below) of an
amount equal to the sum of the annual salary at the rate in effect on the date
of termination of employment or immediately prior to the Change in Control,
whichever is greater, plus an annual bonus in a minimum amount equal to
Employee's then applicable target bonus amount or the Employee's applicable
target bonus amount in effect immediately prior to the Change in Control,
whichever is greater, for the remainder of the existing term of this Agreement,
without any further renewal or continuation, provided that such amount shall be
not less than the sum of such salary and bonus pro rated for an 18-month period;
or (B) to remain an employee of the Company for a period (as determined by
Employee) of up to 18 months following the date notice of termination is given
by Employee pursuant to Section 5(a), in which case Employee shall be relieved
of his or her management position with the Company and his or her duties
hereunder, and shall (i) continue to receive both salary, based on a rate equal
to his or her annual rate in effect on the date of giving notice of termination
of employment or immediately prior to the Change in Control, whichever is
greater, and annual bonuses in respect of such period (in each case payable
within 30 days after the end of the respective calendar year and prorated for
any portion of a year), each such bonus to be based on an amount equal to
Employee's then applicable target bonus amount or the Employee's applicable
target bonus amount in effect immediately prior to the Change in Control,
whichever is greater, and (ii) receive a discounted lump sum payment pursuant to
Section 5(b)(A)(y) for any portion of the Initial Term remaining after such
period; provided, however, that if Employee accepts full-time employment with
any other corporation, partnership, trust, government or other
entity ("Entity") during such period or notifies the Company in writing of his
or her intention to terminate his or her employment during such period, Employee
shall cease to be an employee of the Company effective upon the commencement of
such employment, or the effective date of such termination as specified by
Employee in such notice, and shall be entitled to receive, subject to the terms
thereof, all benefits due to Employee under the provisions of any Benefit Plan
and a discounted lump sum cash payment for the balance of the salary and bonuses
Employee would have been entitled to receive pursuant to this Section 5(b)(B)
had Employee remained on the Company's payroll until the end of the Initial Term
or such 18 month period, whichever is greater; provided, further, however, that
Employee shall not be entitled to receive any such lump sum cash payment if he
or she accepts full-time employment with any subsidiary or Affiliate of the
Company. For purposes of this Agreement, the term "Affiliate" shall mean an
Entity which, directly or indirectly, controls, is controlled by or is under
common control with, the Company or Time Warner Inc. ("TWI").
In addition, whether Employee elects 5(b)(A) or 5(b)(B), for a period
of the earlier of one year from the date of termination of employment or the
date Employee is eligible to receive health benefits by virtue of other
employment, Employee shall receive continued eligibility and enrollment
(including family coverage, if any), without a premium charge therefor, in
hospital, medical and dental insurance plans providing substantially equivalent
benefit coverage to those plans in which Employee was enrolled immediately prior
to the Change in Control unless waived in writing by Employee (or, in the event
such coverage cannot be provided, substantially similar benefits).
Any lump sum payments required to be made pursuant to this Section
5(b) shall be discounted to present value from the times at which such amounts
would have been paid absent any such termination at an annual discount rate for
the relevant period equal to the "applicable Federal rate" (within the meaning
of Section 1274(d) of the Internal Revenue Code of 1986 (the "Code")),
compounded semi-annually, in effect on the date of such termination, the use of
which rate
is hereby elected by the Company and Employee pursuant to Treas. Reg. (S)
1.280G-1Q/A32 (provided that in the event such election is not permitted, such
other rate determined as of such other date as is applicable for determining
present value under Section 280G of the Code shall be used).
6. Termination by Company.
(a) For Cause. Provided that notice of termination has not previously
been given under any other Section hereof, the Company shall have the right to
terminate Employee's employment for cause upon written notice to Employee at any
time. In such event, Employee's employment with the Company shall terminate
immediately and Employee shall be entitled to receive (i) any earned and unpaid
salary accrued through the date of such termination, and (ii) subject to the
terms thereof, any benefits which may be due to Employee under the provisions of
any Benefit Plan. Employee hereby disclaims any right to receive a pro rata
portion of his or her annual bonus with respect to the year in which such
termination occurs. For purposes hereof, "cause" shall mean termination by
action of the Company's Board of Directors or any committee thereof because of
Employee's conviction (treating a nolo contendere plea as a conviction) of a
felony (whether or not any right to appeal has been exercised) or willful
refusal without proper cause to perform his or her obligations under this
Agreement or because of Employee's material breach of the covenants provided for
in Sections 10, 11 and 12 of this Agreement. In the event (i) such termination
is because of the Employee's willful refusal without proper cause to perform any
one or more of his obligations under this Agreement, (ii) such notice is the
first such notice of termination for any reason delivered by the Company to the
Employee under this Section 6(a), and (iii) within 10 days following the date of
such notice the Employee shall cease his or her refusal and shall use his or her
best efforts to perform such obligations, the termination shall not be
effective.
(b) Other. Provided that notice of termination has not previously been
given under any other Section hereof, the Company shall have the right at any
time to terminate Employee's employment under this Agreement without cause, by
giving written notice thereof to Employee.
(i) If such notice is so given to Employee, Employee shall be entitled
to receive, subject to the terms thereof, all benefits which may be due to
Employee under the provisions of any Benefit Plan and to elect, within 30 days
after receiving such notice, to receive either a lump sum severance payment in
the amount, and upon the terms and conditions, provided in Section 5(b)(A) and
calculated as set forth in the last paragraph of Section 5(b), or to remain an
employee of the Company upon the terms and conditions provided in Section
5(b)(B); provided, however, that (i) any reference therein to Section 5(a) shall
be deemed for purposes of this Section 6(b) to be a reference to this Section
6(b)(i), and (ii) if a Change in Control has not occurred, then (x) Employee's
salary shall be determined with reference to his or her then current annual
salary and (y) Employee's annual bonus shall equal at least the Employee's
target amount immediately prior to Employee's termination under this Section
6(b)(i).
(ii) For the period beginning when Employee receives notice of
termination from the Company pursuant to this Section 6(b), and ending six
months thereafter, Employee will, without charge to Employee, have use of
reasonable office space and reasonable office facilities at Employee's principal
job location immediately prior to his or her termination of employment, or other
location reasonably close to such location, together with reasonable secretarial
services in each case appropriate to an employee of Employee's position and
responsibilities prior to such termination of employment but taking into account
Employee's reduced need for such office space and secretarial services. Employee
will continue to be eligible to participate in the Company's Benefit Plans and
to receive, subject to the terms thereof, all benefits, which are received by
other employees at Employee's level thereunder other than options or similar
equity-based or incentive awards.
(iii) In the event that Employee's employment is terminated prior to
the occurrence of a Change in Control, or more than three years following a
Change in Control, then, in partial consideration for the Company's obligation
to make the payments described in this Section 6(b), Employee shall execute and
deliver to the Company a release in the form as set forth in Exhibit A. The
Company shall deliver such release to Employee at the time the Company delivers
notice of termination pursuant to this Section 6(b). Employee shall execute and
deliver such release to the Secretary of the Company within 21 days of receipt
of notice of termination. If Employee shall fail to execute and deliver to the
Company such release within 30 days of Employee's receipt thereof from the
Company, Employee's employment with the Company shall terminate effective at the
end of such 30-day period and Employee shall receive, in lieu of the severance
arrangements described in Section 6(b), a lump sum cash payment in an amount
determined in accordance with the personnel policies of the Company then
applicable.
7. Death; Disability.
(a) Death. If Employee shall die while employed by the Company,
Employee's employment under this Agreement shall thereupon terminate and
Employee's estate or beneficiaries, as the case may be, shall be entitled to
receive as promptly as practicable but in any event within 30 days after
reasonably satisfactory evidence of Employee's death is received by the Company
(i) any earned and unpaid salary accrued to Employee through the period ending
30 days following the date of Employee's death and a pro rata portion of the
target annual bonus amount in effect immediately prior to Employee's death; and
(ii) subject to the terms thereof, any benefits which may be due to Employee's
estate or beneficiaries under the provisions of any Benefit Plan.
(b) Disability. Provided that notice of termination has not previously
been given under any Section hereof, if employee becomes ill or is injured or
disabled during the term of this Agreement such that Employee fails to perform
all or substantially all the duties to be rendered hereunder and such failure
continues for a period in excess of 26 consecutive weeks (a "Disability"),
the Company may terminate the employment of Employee under this Agreement upon
written notice to Employee at any time and thereupon Employee shall be entitled
to receive (i) any earned and unpaid salary accrued through the date of such
termination; (ii) subject to the terms thereof, any benefits which may be due to
Employee under the provisions of any Benefit Plan; and (iii) a lump sum cash
payment equal to the sum of 75% of Employee's then current annual salary and
then applicable target annual bonus amount prorated for an 18-month period, less
the amount of any disability insurance proceeds payable to Employee under any
disability insurance policy or program covering Employee.
8. Stock Options and Other Incentive Awards. Upon Employee's termination of
employment with the Company for any reason, Employee's rights to benefits and
payments under any stock options, restricted shares or other incentive plans
shall be determined in accordance with the terms and provisions of such plans
and any agreements under which such stock options, restricted shares or other
awards were granted.
9. Change in Control. For purposes of this Agreement, a "Change in Control"
of the Company shall be deemed to have occurred at such time as TWI, MediaOne
Group, Inc. and Advance/Newhouse Partnership (and their respective affiliates)
(collectively, the "Founding Stockholders") as a group cease to have the ability
to elect a majority of the Board of Directors of the Company (other than the
chief executive officer of the Company and independent directors; provided that
independent directors shall be included in calculating whether the foregoing
majority requirement is satisfied if the directors nominated by the Founding
Stockholders (and their respective affiliates) do not constitute a majority of
the committee that selects the Board of Directors' nominees for independent
representatives) and a "person" or "group" (within the meaning of Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (other than the Founding Stockholders and their respective affiliates)
has become the ultimate "beneficial owner" (as defined in Rule l3d-3 under the
Exchange Act) of more than 35% of the total voting
power of the voting interests of the Company on a fully diluted basis and such
ownership represents a greater percentage of the total voting power of the
voting interests of the Company, on a fully diluted basis, than is held by the
Founding Stockholders (and their respective affiliates) as a group on such date.
10. Trade Secrets, Work Products, Etc. Except in connection with the
performance of his or her duties hereunder, Employee hereby expressly covenants
and agrees that Employee will not at any time while employed by the Company or
thereafter, exploit, use, sell, publish, disclose, communicate or divulge to any
person or Entity, other than the Company and its subsidiaries, either directly
or indirectly, any trade secrets or confidential information, knowledge or data
regarding the Company or any of its subsidiaries or Affiliates or any of their
respective officers, directors or employees including, without limitation, the
existence and terms of this Agreement, other than such information, knowledge or
data which has been released by the Company or such subsidiaries, Affiliates or
others to the public (except that with respect to the terms of this Agreement
Employee may communicate such terms to Employee's spouse and Employee's
attorneys and financial advisors). Notwithstanding the foregoing, Employee may
disclose such trade secrets or confidential information, knowledge, data or
terms when required to do so by a court or government agency or legislative body
of competent jurisdiction, provided Employee first notifies the Company orally
and in writing as promptly as possible of such requirement so that the Company
may either seek an appropriate protective order or waive compliance with the
provisions of this Section, and provided further that if, in the absence of such
protective order or waiver, Employee is nevertheless, in the written opinion of
his or her counsel, reasonably acceptable to the Company, addressed to and
delivered to the Company, otherwise required to disclose such information to any
such court, government agency or legislative body or else stand liable for
contempt or suffer other material penalty, Employee may disclose such
information in such case without liability hereunder so long as such disclosure
does not exceed that required by such court, government agency or legislative
body.
Employee hereby grants and assigns to the Company all rights (including,
without limitation, any copyright or patent) in the results and proceeds of all
services provided by Employee hereunder and all such services shall be subject
in all respects to the supervision, control and direction of the Company. Any
work in connection with such services shall be considered "work made for hire"
under the Copyright Law of 1976 or any successor thereof, and the Company shall
be the owner of such work as if the Company were the author of such work.
11. Non-Compete; Solicitation. Employee hereby expressly covenants and
agrees that:
(a) Employee will not at any time during the Term of employment and for
a period of one year following the date a notice of termination of Employee's
employment is terminated (i.e. Employee is no longer considered an employee for
payroll purposes) as provided herein, be or become an officer, director, partner
or employee of or consultant to or act in any managerial capacity with or own
any equity interest in any Entity (an "Affiliated Person") which is a
"Competitive Business Entity" (as such term is defined on Exhibit B hereto);
provided, however, that (i) ownership of less than 1% of the outstanding equity
securities of any Entity listed on any national securities exchange or traded on
the National Association of Securities Dealers Automated Quotation System shall
not be prohibited hereby, and (ii) in the event Employee is terminated pursuant
to Section 6(b) and notice of termination is so given to Employee following the
occurrence of a Change in Control, Employee is hereby permitted to accept
employment with any Founding Stockholder and such employment shall not violate
the provisions of this Section 11.
(b) Employee will not at any time during the Term of employment and for
a period of one year after the date Employee's employment is terminated as
provided herein, solicit (or assist or encourage the solicitation of) any
employee of the Company or any of its subsidiaries or Affiliates to work for
Employee or for any Entity in which Employee owns or expects to own more than a
1% equity interest or for which Employee serves or expects to serve as an
Affiliated Person.
For the purposes of this Section 11(b), the term "solicit any
employee" shall mean Employee's contacting, or providing information to others
who may be expected to contact, any employee of the Company or any of its
subsidiaries or Affiliates regarding their employment status, job satisfaction,
interest in seeking employment with Employee or any Affiliated Person or any
related matter, but shall not include general print advertising for personnel or
responding to an unsolicited request for a personal recommendation for or
evaluation of an employee of the Company or any of its subsidiaries or
Affiliates.
12. Documents; Conduct. Employee hereby expressly covenants and agrees
that:
(a) Following termination of Employee's employment with the Company for
any reason or at any time upon the Company's request, Employee will promptly
return to the Company all property of the Company and its subsidiaries and
Affiliates in his or her possession or control (whether maintained at his or her
office, home or elsewhere), including, without limitation, all copies of all
management studies, business or strategic plans, budgets, notebooks and other
printed, typed or written materials, documents, diaries, calendars and data of
or relating to the Company or its subsidiaries or Affiliates or their respective
personnel or affairs; and
(b) Employee will not at any time denigrate, ridicule or intentionally
criticize the Company or any of its subsidiaries or Affiliates or any of their
respective products, properties, employees, officers or directors, including,
without limitation, by way of news interviews, or the expression of personal
views, opinions or judgments to the news media.
13. Breach by Employee. Employee hereby expressly covenants and agrees that
the Company will suffer irreparable damage in the event any provisions of
Sections 10, 11 and 12 are not performed or are otherwise breached and that the
Company shall be entitled as a matter of right to an injunction or injunctions
and other relief to prevent a breach or violation by Employee and to secure its
enforcement of Section 10, 11 and 12 resort to such equitable relief, however,
shall not constitute a waiver of any other rights or remedies which the Company
may have.
14. Representations.
(a) Employee represents and warrants to the Company that this Agreement
is legal, valid and binding upon Employee and Employee is not a party to any
agreement or understanding which would prevent the fulfillment by Employee of
the terms of this Agreement. Employee has consulted with his or her legal, tax,
financial and other advisors, to the extent desired, prior to execution and
delivery of this Agreement.
(b) The Company represents and warrants to Employee that this Agreement
is legal, valid and binding upon the Company and the Company is not a party to
any agreement or understanding which would prevent the fulfillment by the
Company of the terms of this Agreement.
15. Notice. Any notice required or permitted to be given hereunder shall be
in writing (except where required to be given orally) and shall be sufficiently
given or sent by registered or certified mail or delivered, in person, if to
Employee at the address set forth on the last paragraph hereof, or at such other
address as Employee shall designate by written notice to the Company, and if to
the Company at 10475 Park Meadows Drive, Littleton, CO 80124, attention of the
Secretary or at such other address as the Company shall designate by written
notice to Employee.
16. Successors and Assigns. This Agreement is personal in its nature and
neither of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any right or obligations hereunder; provided however,
that the provisions hereof shall inure to the benefit of, and be binding upon,
any successor of the Company, whether by merger, consolidation, transfer of all
or substantially all of the assets of the Company, or otherwise.
17. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York, irrespective of
its conflicts of law rules, except for the By-laws referred to in Section 26,
which shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware.
To the extent that any applicable state or Federal law, rule or
regulation confers upon Employee any greater benefit or right than that set
forth in this Agreement, such law, rule or regulation shall control in lieu of
the provisions hereof relating to such benefit or right.
18. Mitigation. Employee shall have no obligation to mitigate damages in
the event of termination of Employee's employment under this Agreement under
Section 5(a), 6(b) or 7, other than as necessary to prevent the Company from
losing any tax deductions to which it otherwise would have been entitled for any
payments deemed to be "contingent on a change" under the Code and any payments
received by Employee hereunder shall not be offset or reduced in any way by any
other earnings or payments which may be received by Employee from any source,
except as provided by this Section 18. It is acknowledged and agreed that any
payment which may be made by the Company to Employee under Section 5(b), 6(b) or
7 is in the nature of severance and is not a penalty payment.
19. Withholding. All payments required to be paid by the Company to
Employee under this Agreement will be paid in accordance with the payroll
practices of the Company or the terms of the Benefit Plans, as the case may be,
and will be subject to withholding taxes, social security and other payroll
deductions in accordance with the Company's policies applicable to employees at
Employee's level and the terms of the Benefit Plan.
20. Complete Understanding. This Agreement supersedes any prior contracts,
understandings, discussions and agreements relating to employment between
Employee, on the one hand, and the Company and its subsidiaries and Affiliates,
on the other, and constitutes the complete understanding between the parties
with respect to the subject matter hereof. No statement, representation,
warranty or covenant has been made by either party with respect thereto except
as expressly set forth herein.
21. Modification; Waiver. This Agreement cannot be changed, modified or
amended and no provision or requirement hereof may be waived without the consent
in writing of both the parties hereto. No waiver by either party at any time of
any breach by the other party of any condition or provision of this Agreement
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. Subject to Section 28, no policy,
procedure or practice of the Company whether now or hereafter in effect shall be
deemed to modify, amend or supersede any provision of this Agreement except as
contemplated or provided otherwise in this Agreement.
22. Headings. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
23. Use of Likeness. The Company and TWI shall have the right to use
Employee's name, biography and likeness in connection with their respective
businesses and that of their subsidiaries and Affiliates, but not for use as a
direct endorsement.
24. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
25. Set-off. The Company and its subsidiaries and Affiliates shall have no
right to set-off payments owed to Employee hereunder against amounts owed or
claimed to be owed by Employee to the Company or its subsidiaries or Affiliates
under this Agreement or otherwise.
26. Indemnification. The Company shall indemnify Employee to no lesser
extent than provided in the Company's By-laws on the date hereof (the provisions
of which are hereby incorporated by reference herein), notwithstanding any
changes or amendments to such By-laws after the date hereof adversely affecting,
limiting or reducing such indemnification.
27. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
28. Changes. Subject to Section 5, the Company and its subsidiaries and
Affiliates are entitled to amend, modify, terminate or otherwise change at any
time or from time to time any and all Benefit Plans and policies, practices or
procedures referred to in this Agreement, and all references herein to such
Benefit Plans and policies, practices and procedures shall be to such as from
time to time in effect prior to a Change in Control except as otherwise
specifically herein provided.
29. Beneficiaries. Whenever this Agreement provides for any payment to the
Employee's estate, such payment may be made instead to such beneficiary or
beneficiaries as the Employee may designate in writing (using the form of
Beneficiary Designation attached hereto as Exhibit C) and file with the Company.
The Employee shall have the right to revoke such Beneficiary Designation and
redesignate a beneficiary by filing with the Company (and any applicable
insurance company) a later dated Beneficiary Designation to such effect.
IN WITNESS WHEREOF, Employee and the Company have caused this Agreement
to be executed as of the date first above written.
TIME WARNER TELECOM INC.
By: /s/ Larissa L. Herda
-----------------------------------
Name: Larissa L. Herda
Title: President & Chief Executive
Officer
Agreed to and accepted as of
the date first above written
/s/ A.Graham Powers
---------------------------------
Name: A. Graham Powers
Title: Senior Vice President and
Chief Information Officer
Address for Notices:
PO BOX 68
FRASER, CO
80442
EXHIBIT B
"Competitive Business Entity" shall mean any Entity which is engaged,
either directly or indirectly, in the ownership, operation or management of any
business that provides to customers at any location within the United States (or
its territories and dependencies) any telecommunications, any internet access
services or any other transport or network services for internet protocol based
information.
All capitalized terms used herein shall have the meanings provided in the
Employment Agreement to which this Exhibit B is attached.
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
Employment Agreement made as of January 17, 2000, effective as of January
1, 2000, between TIME WARNER TELECOM INC., a Delaware corporation (the
"Company"), and the employee whose name appears on the last page hereof (the
"Employee"). The Company shall employ the Employee on the following terms and
conditions:
1. Term. The Company hereby employs Employee and Employee hereby accepts
such employment upon the terms and conditions hereof for an initial term
commencing on January 1, 2000 (the "Effective Date") and ending, subject to
renewal or termination as provided herein, on the December 31 immediately prior
to the fourth anniversary of the Effective Date (the "Initial Term"); provided,
however, that this Agreement shall automatically continue for successive one
month periods thereafter (each such period being an "Additional Term") unless
either party has delivered written notice of termination to the other party no
later than six months prior to the end of the Initial Term or 60 days prior to
the end of any Additional Term. Sections 8, 10 through 22 and 24 through 28
shall survive any termination of Employee's employment under this Agreement. The
Employee hereby covenants that as of the Effective Date any agreement between
Employee and the Company, Time Warner Cable, US WEST, Inc. or MediaOne Group,
Inc., respectively, or any of their affiliates, entered into prior to the date
hereof, relating to Employee's employment with such entity, shall terminate as
of, or have been terminated prior to, the Effective Date.
2. Duties. Employee shall serve as Chief Financial Officer or subject to
Section 5, in such other senior management position as the Company shall
determine. Subject to the foregoing, Employee shall perform such duties as may
be assigned by the Company to Employee from time to time, and shall travel for
business purposes to the extent reasonably necessary or appropriate in the
performance of such duties.
Employee shall perform such duties on a full time basis (subject to the
Company's written
policies on vacations, illness, government service, etc. applicable to employees
at Employee's level in effect from time to time), provide , however, that
Employee shall not be precluded from devoting such time to personal affairs as
shall not interfere with the performance of his or her duties hereunder. In
performing his or her duties hereunder, Employee shall comply with the Company's
policies and procedures in effect from time to time. Unless Employee otherwise
consents, the headquarters for the performance of Employee's services shall be
the principal executive offices of the Company in the Denver, Colorado area,
subject to such reasonable travel as may be appropriate or required in the
performance of Employee's duties in the business of the Company.
3. Compensation. The Company shall pay or cause to be paid to Employee,
during the term of employment, an annual salary in respect of each calendar year
at the rate of not less than $205,000.00 per annum. The Company may increase,
but not decrease, such annual salary at any time and from time to time during
the term of employment. In addition to annual salary, Employee may be entitled
to receive an annual bonus in respect of each calendar year based on a target
percentage of the salary paid to Employee during such calendar year of 75%.
Subject to Section 5, and the second paragraph of this Section 3, Employee
acknowledges that his or her actual annual bonus may vary and range from 0% to
150% of the target amount, depending on actual performance of the Company and
Employee.
Subject to Section 5 and the second sentence of this Section 3, the Company
shall determine, in its sole discretion, the amount of any salary increase, the
amount of any annual bonus and whether to increase the target percentage of
Employee's annual bonus. The payment of any bonus compensation shall be made in
accordance with the Company's then current practices and policies, including
without limitation, less the usual required payroll deductions and withholding.
The Company shall pay or reimburse Employee, in accordance with Company
policies applicable to employees at Employee's level, for all travel,
entertainment and other business expenses actually incurred or paid by Employee
in the performance of his or her duties hereunder,
if properly substantiated and submitted.
4. Benefits. Employee shall be eligible to participate in any pension,
profit-sharing, employee stock ownership, vacation, insurance, hospitalization,
medical, health, disability and other employee benefit or welfare plan, program
or policy whether now existing or established hereafter (collectively, the
"Benefit Plans"), to the extent that employees at Employee's level are generally
deemed eligible under the general provisions thereof. The Company reserves the
right to amend or cancel any such Benefit Plan in its sole discretion.
5. Termination by Employee Following a Change in Control.
(a) Provided that notice of termination has not previously been given
under any other Section hereof, Employee shall have the right to terminate his
or her employment with the Company under this Agreement for cause upon 30 days
prior written notice delivered to the Company at any time within 180 days after
Employee has actual knowledge of the occurrence of any of the following events
following a Change in Control, indicating in such notice which event has
occurred:
A. A change in the location of Employee's office or of the
Company's principal executive offices to a place which is more than 50 miles
from the location of Employee's office or the location of the Company's
principal executive offices immediately prior to the occurrence of a Change in
Control;
B. A material reduction in Employee's decision-making,
budgetary, operating, staff and other responsibilities, taken as a whole, from
such responsibilities immediately prior to the occurrence of a Change in
Control, or a change in the person or persons to whom Employee reported
immediately prior to the occurrence of a Change in Control, to a person or
persons of lesser rank, title or responsibility; or
C. Any material breach of this Agreement by the Company.
(b) Upon the expiration of the 30-day notice period provided in
Section 5(a), Employee shall be relieved of his or her management position with
the Company and his or her duties hereunder. In the notice delivered by Employee
to the Company pursuant to Section 5(a), Employee shall elect either (A) to
terminate his or her employment with the Company, in which case Employee shall
receive: (x) subject to the terms thereof, all benefits which may be due to
Employee under the provisions of any Benefit Plan; and (y) in a lump sum
severance payment, within 30 days following the effective date of such
termination, the present value (using the discount rate described below) of an
amount equal to the sum of the annual salary at the rate in effect on the date
of termination of employment or immediately prior to the Change in Control,
whichever is greater, plus an annual bonus in a minimum amount equal to
Employee's then applicable target bonus amount or the Employee's applicable
target bonus amount in effect immediately prior to the Change in Control,
whichever is greater, for the remainder of the existing term of this Agreement,
without any further renewal or continuation, provided that such amount shall be
not less than the sum of such salary and bonus pro rated for an 18-month period;
or (B) to remain an employee of the Company for a period (as determined by
Employee) of up to 18 months following the date notice of termination is given
by Employee pursuant to Section 5(a), in which case Employee shall be relieved
of his or her management position with the Company and his or her duties
hereunder, and shall (i) continue to receive both salary, based on a rate equal
to his or her annual rate in effect on the date of giving notice of termination
of employment or immediately prior to the Change in Control, whichever is
greater, and annual bonuses in respect of such period (in each case payable
within 30 days after the end of the respective calendar year and prorated for
any portion of a year), each such bonus to be based on an amount equal to
Employee's then applicable target bonus amount or the Employee's applicable
target bonus amount in effect immediately prior to the Change in Control,
whichever is greater, and (ii) receive a discounted lump sum payment pursuant to
Section 5(b)(A)(y) for any portion of the Initial Term remaining after such
period; provided, however, that if Employee accepts full-time employment with
any other corporation, partnership, trust, government or other
entity ("Entity") during such period or notifies the Company in writing of his
or her intention to terminate his or her employment during such period, Employee
shall cease to be an employee of the Company effective upon the commencement of
such employment, or the effective date of such termination as specified by
Employee in such notice, and shall be entitled to receive, subject to the terms
thereof, all benefits due to Employee under the provisions of any Benefit Plan
and a discounted lump sum cash payment for the balance of the salary and bonuses
Employee would have been entitled to receive pursuant to this Section 5(b)(B)
had Employee remained on the Company's payroll until the end of the Initial Term
or such 18 month period, whichever is greater; provide , further , however, that
Employee shall not be entitled to receive any such lump sum cash payment if he
or she accepts full-time employment with any subsidiary or Affiliate of the
Company. For purposes of this Agreement, the term "Affiliate" shall mean an
Entity which, directly or indirectly, controls, is controlled by or is under
common control with, the Company or Time Warner Inc. ("TWI").
In addition, whether Employee elects 5(b)(A) or 5(b)(B), for a period
of the earlier of one year from the date of termination of employment or the
date Employee is eligible to receive health benefits by virtue of other
employment, Employee shall receive continued eligibility and enrollment
(including family coverage, if any), without a premium charge therefor, in
hospital, medical and dental insurance plans providing substantially equivalent
benefit coverage to those plans in which Employee was enrolled immediately prior
to the Change in Control unless waived in writing by Employee (or, in the event
such coverage cannot be provided, substantially similar benefits).
Any lump sum payments required to be made pursuant to this Section
5(b) shall be discounted to present value from the times at which such amounts
would have been paid absent any such termination at an annual discount rate for
the relevant period equal to the "applicable Federal rate" (within the meaning
of Section 1274(d) of the Internal Revenue Code of 1986 (the "Code")),
compounded semi-annually, in effect on the date of such termination, the use of
which rate
is hereby elected by the Company and Employee pursuant to Treas. Reg. (S)
1.28OG-1Q/A32 (provided that in the event such election is not permitted, such
other rate determined as of such other date as is applicable for determining
present value under Section 28OG of the Code shall be used).
6. Termination by Company.
(a) For Cause. Provided that notice of termination has not previously
been given under any other Section hereof, the Company shall have the right to
terminate Employee's employment for cause upon written notice to Employee at any
time. In such event, Employee's employment with the Company shall terminate
immediately and Employee shall be entitled to receive (i) any earned and unpaid
salary accrued through the date of such termination, and (ii) subject to the
terms thereof, any benefits which may be due to Employee under the provisions of
any Benefit Plan. Employee hereby disclaims any right to receive a pro rata
portion of his or her annual bonus with respect to the year in which such
termination occurs. For purposes hereof, "cause" shall mean termination by
action of the Company's Board of Directors or any committee thereof because of
Employee's conviction (treating a nolo contendere plea as a conviction) of a
felony (whether or not any right to appeal has been exercised) or willful
refusal without proper cause to perform his or her obligations under this
Agreement or because of Employee's material breach of the covenants provided for
in Sections 10, 11 and 12 of this Agreement. In the event (i) such termination
is because of the Employee's willful refusal without proper cause to perform any
one or more of his obligations under this Agreement, (ii) such notice is the
first such notice of termination for any reason delivered by the Company to the
Employee under this Section 6(a), and (iii) within 10 days following the date of
such notice the Employee shall cease his or her refusal and shall use his or her
best efforts to perform such obligations, the termination shall not be
effective.
(b) Other. Provided that notice of termination has not previously been
given under any other Section hereof, the Company shall have the right at any
time to terminate Employee's employment under this Agreement without cause, by
giving written notice thereof to Employee.
(i) If such notice is so given to Employee, Employee shall be
entitled to receive, subject to the terms thereof, all benefits which may be due
to Employee under the provisions of any Benefit Plan and to elect, within 30
days after receiving such notice, to receive either a lump sum severance payment
in the amount, and upon the terms and conditions, provided in Section 5(b)(A)
and calculated as set forth in the last paragraph of Section 5(b), or to remain
an employee of the Company upon the terms and conditions provided in Section
5(b)(B); provided, however, that (i) any reference therein to Section 5(a) shall
be deemed for purposes of this Section 6(b) to be a reference to this Section
6(b)(i), and (ii) if a Change in Control has not occurred, then (x) Employee's
salary shall be determined with reference to his or her then current annual
salary and (y) Employee's annual bonus shall equal at least the Employee's
target amount immediately prior to Employee's termination under this Section
6(b)(i).
(ii) For the period beginning when Employee receives notice of
termination from the Company pursuant to this Section 6(b), and ending six
months thereafter, Employee will, without charge to Employee, have use of
reasonable office space and reasonable office facilities at Employee's principal
job location immediately prior to his or her termination of employment, or other
location reasonably close to such location, together with reasonable secretarial
services in each case appropriate to an employee of Employee's position and
responsibilities prior to such termination of employment but taking into account
Employee's reduced need for such office space and secretarial services. Employee
will continue to be eligible to participate in the Company's Benefit Plans and
to receive, subject to the terms thereof, all benefits, which are received by
other employees at Employee's level thereunder other than options or similar
equity-based or incentive awards.
(iii) In the event that Employee's employment is terminated
prior to the occurrence of a Change in Control, or more than three years
following a Change in Control, then, in partial consideration for the Company's
obligation to make the payments described in this Section 6(b), Employee shall
execute and deliver to the Company a release in the form as set forth in Exhibit
A. The Company shall deliver such release to Employee at the time the Company
delivers notice of termination pursuant to this Section 6(b). Employee shall
execute and deliver such release to the Secretary of the Company within 21 days
of receipt of notice of termination. If Employee shall fail to execute and
deliver to the Company such release within 30 days of Employee's receipt thereof
from the Company, Employee's employment with the Company shall terminate
effective at the end of such 30-day period and Employee shall receive, in lieu
of the severance arrangements described in Section 6(b), a lump sum cash payment
in an amount determined in accordance with the personnel policies of the Company
then applicable.
7. Death; Disability.
(a) Death. If Employee shall die while employed by the Company,
Employee's employment under this Agreement shall thereupon terminate and
Employee's estate or beneficiaries, as the case may be, shall be entitled to
receive as promptly as practicable but in any event within 30 days after
reasonably satisfactory evidence of Employee's death is received by the Company
(i) any earned and unpaid salary accrued to Employee through the period ending
30 days following the date of Employee's death and a pro rata portion of the
target annual bonus amount in effect immediately prior to Employee's death; and
(ii) subject to the terms thereof, any benefits which may be due to Employee's
estate or beneficiaries under the provisions of any Benefit Plan.
(b) Disability. Provided that notice of termination has not previously
been given under any Section hereof, if employee becomes ill or is injured or
disabled during the term of this Agreement such that Employee fails to perform
all or substantially all the duties to be rendered hereunder and such failure
continues for a period in excess of 26 consecutive weeks (a "Disability"),
the Company may terminate the employment of Employee under this Agreement upon
written notice to Employee at any time and thereupon Employee shall be entitled
to receive (i) any earned and unpaid salary accrued through the date of such
termination; (ii) subject to the terms thereof, any benefits which may be due to
Employee under the provisions of any Benefit Plan; and (iii) a lump sum cash
payment equal to the sum of 75% of Employee's then current annual salary and
then applicable target annual bonus amount prorated for an 18-month period, less
the amount of any disability insurance proceeds payable to Employee under any
disability insurance policy or program covering Employee.
8. Stock Options and Other Incentive Awards. Upon Employee's termination of
employment with the Company for any reason, Employee's rights to benefits and
payments under any stock options, restricted shares or other incentive plans
shall be determined in accordance with the terms and provisions of such plans
and any agreements under which such stock options, restricted shares or other
awards were granted.
9. Change in Control. For purposes of this Agreement, a "Change in Control"
of the Company shall be deemed to have occurred at such time as TWI, MediaOne
Group, Inc. and Advance/Newhouse Partnership (and their respective affiliates)
(collectively, the "Founding Stockholders") as a group cease to have the ability
to elect a majority of the Board of Directors of the Company (other than the
chief executive officer of the Company and independent directors; provided that
independent directors shall be included in calculating whether the foregoing
majority requirement is satisfied if the directors nominated by the Founding
Stockholders (and their respective affiliates) do not constitute a majority of
the committee that selects the Board of Directors' nominees for independent
representatives) and a "person" or "group" (within the meaning of Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (other than the Founding Stockholders and their respective affiliates)
has become the ultimate "beneficial owner" (as defined in Rule l3d-3 under the
Exchange Act) of more than 35% of the total voting
power of the voting interests of the Company on a fully diluted basis and such
ownership represents a greater percentage of the total voting power of the
voting interests of the Company, on a fully diluted basis, than is held by the
Founding Stockholders (and their respective affiliates) as a group on such date.
10. Trade Secrets; Work Products, Etc. Except in connection with the
performance of his or her duties hereunder, Employee hereby expressly covenants
and agrees that Employee will not at any time while employed by the Company or
thereafter, exploit, use, sell, publish, disclose, communicate or divulge to any
person or Entity, other than the Company and its subsidiaries, either directly
or indirectly, any trade secrets or confidential information, knowledge or data
regarding the Company or any of its subsidiaries or Affiliates or any of their
respective officers, directors or employees including, without limitation, the
existence and terms of this Agreement, other than such information, knowledge or
data which has been released by the Company or such subsidiaries, Affiliates or
others to the public (except that with respect to the terms of this Agreement
Employee may communicate such terms to Employee's spouse and Employee's
attorneys and financial advisors). Notwithstanding the foregoing, Employee may
disclose such trade secrets or confidential information, knowledge, data or
terms when required to do so by a court or government agency or legislative body
of competent jurisdiction, provided Employee first notifies the Company orally
and in writing as promptly as possible of such requirement so that the Company
may either seek an appropriate protective order or waive compliance with the
provisions of this Section, and provided further that if, in the absence of such
protective order or waiver, Employee is nevertheless, in the written opinion of
his or her counsel, reasonably acceptable to the Company, addressed to and
delivered to the Company, otherwise required to disclose such information to any
such court, government agency or legislative body or else stand liable for
contempt or suffer other material penalty, Employee may disclose such
information in such case without liability hereunder so long as such disclosure
does not exceed that required by such court, government agency or legislative
body.
Employee hereby grants and assigns to the Company all rights (including,
without limitation, any copyright or patent) in the results and proceeds of all
services provided by Employee hereunder and all such services shall be subject
in all respects to the supervision, control and direction of the Company. Any
work in connection with such services shall be considered "work made for hire"
under the Copyright Law of 1976 or any successor thereof, and the Company shall
be the owner of such work as if the Company were the author of such work.
11. Non-Compete, Solicitation. Employee hereby expressly covenants and
agrees that:
(a) Employee will not at any time during the Term of employment and for
a period of one year following the date a notice of termination of Employee's
employment is terminated (i.e., Employee is no longer considered an employee for
payroll purposes) as provided herein, be or become an officer, director, partner
or employee of or consultant to or act in any managerial capacity with or own
any equity interest in any Entity (an "Affiliated Person") which is a
"Competitive Business Entity" (as such term is defined on Exhibit B hereto);
provide , however, that (i) ownership of less than 1% of the outstanding
equity securities of any Entity listed on any national securities exchange or
traded on the National Association of Securities Dealers Automated Quotation
System shall not be prohibited hereby, and (ii) in the event Employee is
terminated pursuant to Section 6(b) and notice of termination is so given to
Employee following the occurrence of a Change in Control, Employee is hereby
permitted to accept employment with any Founding Stockholder and such employment
shall not violate the provisions of this Section 11.
(b) Employee will not at any time during the Term of employment and for
a period of one year after the date Employee's employment is terminated as
provided herein, solicit (or assist or encourage the solicitation of) any
employee of the Company or any of its subsidiaries or Affiliates to work for
Employee or for any Entity in which Employee owns or expects to own more than a
1 % equity interest or for which Employee serves or expects to serve as an
Affiliated Person.
For the purposes of this Section 11(b), the term "solicit any
employee" shall mean Employee's contacting, or providing information to others
who may be expected to contact, any employee of the Company or any of its
subsidiaries or Affiliates regarding their employment status, job satisfaction,
interest in seeking employment with Employee or any Affiliated Person or any
related matter, but shall not include general print advertising for personnel or
responding to an unsolicited request for a personal recommendation for or
evaluation of an employee of the Company or any of its subsidiaries or
Affiliates.
12. Documents, Conduct. Employee hereby expressly covenants and
agrees that:
(a) Following termination of Employee's employment with the
Company for any reason or at any time upon the Company's request, Employee will
promptly return to the Company all property of the Company and its subsidiaries
and Affiliates in his or her possession or control (whether maintained at his or
her office, home or elsewhere), including, without limitation, all copies of all
management studies, business or strategic plans, budgets, notebooks and other
printed, typed or written materials, documents, diaries, calendars and data of
or relating to the Company or its subsidiaries or Affiliates or their respective
personnel or affairs; and
(b) Employee will not at any time denigrate, ridicule or
intentionally criticize the Company or any of its subsidiaries or Affiliates or
any of their respective products, properties, employees, officers or directors,
including, without limitation, by way of news inter-views, or the expression of
personal views, opinions or judgements to the news media.
13. Breach by Employee. Employee hereby expressly covenants and
agrees that the Company will suffer irreparable damage in the event any
provisions of Sections 10, 11 and 12 are not performed or are otherwise breached
and that the Company shall be entitled as a matter of right to an injunction or
injunctions and other relief to prevent a breach or violation by Employee and to
secure its enforcement of Section 10, 11 and 12 resort to such equitable relief,
however, shall not constitute a waiver of any other rights or remedies which the
Company may have.
14. Representations.
(a) Employee represents and warrants to the Company that this
Agreement is legal, valid and binding upon Employee and Employee is not a party
to any agreement or understanding which would prevent the fulfillment by
Employee of the terms of this Agreement. Employee has consulted with his or her
legal, tax, financial and other advisors, to the extent desired, prior to
execution and delivery of this Agreement.
(b) The Company represents and warrants to Employee that this
Agreement is legal, valid and binding upon the Company and the Company is not a
party to any agreement or understanding which would prevent the fulfillment by
the Company of the terms of this Agreement.
15. Notice. Any notice required or permitted to be given hereunder shall be
in writing (except where required to be given orally) and shall be sufficiently
given or sent by registered or certified mail or delivered, in person, if to
Employee at the address set forth on the last paragraph hereof, or at such other
address as Employee shall designate by written notice to the Company, and if to
the Company at 10475 Park Meadows Drive, Littleton, CO 80124, attention of the
Secretary or at such other address as the Company shall designate by written
notice to Employee.
16. Successors and Assigns. This Agreement is personal in its nature and
neither of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any right or obligations hereunder; provided however,
that the provisions hereof shall inure to the benefit of, and be binding upon,
any successor of the Company, whether by merger, consolidation, transfer of all
or substantially all of the assets of the Company, or otherwise.
17. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York, irrespective of
its conflicts of law rules, except for the By-laws referred to in Section 26,
which shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware.
To the extent that any applicable state or Federal law, rule or
regulation confers upon Employee any greater benefit or right than that set
forth in this Agreement, such law, rule or regulation shall control in lieu of
the provisions hereof relating to such benefit or right.
18. Mitigation. Employee shall have no obligation to mitigate damages in
the event of termination of Employee's employment under this Agreement under
Section 5(a), 6(b) or 7, other than as necessary to prevent the Company from
losing any tax deductions to which it otherwise would have been entitled for any
payments deemed to be "contingent on a change" under the Code and any payments
received by Employee hereunder shall not be offset or reduced in any way by any
other earnings or payments which may be received by Employee from any source,
except as provided by this Section 18. It is acknowledged and agreed that any
payment which may be made by the Company to Employee under Section 5(b), 6(b) or
7 is in the nature of severance and is not a penalty payment.
19. Withholding. All payments required to be paid by the Company to
Employee under this Agreement will be paid in accordance with the payroll
practices of the Company or the terms of the Benefit Plans, as the case may be,
and will be subject to withholding taxes, social security and other payroll
deductions in accordance with the Company's policies applicable to employees at
Employee's level and the terms of the Benefit Plan.
20. Complete Understanding . This Agreement supersedes any prior contracts,
understandings, discussions and agreements relating to employment between
Employee, on the one hand, and the Company and its subsidiaries and Affiliates,
on the other, and constitutes the complete understanding between the parties
with respect to the subject matter hereof. No statement, representation,
warranty or covenant has been made by either party with respect thereto except
as expressly set forth herein.
21. Modification, Waiver. This Agreement cannot be changed, modified or
amended and no provision or requirement hereof may be waived without the consent
in writing of both the parties hereto. No waiver by either party at any time of
any breach by the other party of any condition or provision of this Agreement
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. Subject to Section 28, no policy,
procedure or practice of the Company whether now or hereafter in effect shall be
deemed to modify, amend or supersede any provision of this Agreement except as
contemplated or provided otherwise in this Agreement.
22. Headings. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
23. Use of Likeness. The Company and TWI shall have the right to use
Employee's name, biography and likeness in connection with their respective
businesses and that of their subsidiaries and Affiliates, but not for use as a
direct endorsement.
24. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
25. Set-off. The Company and its subsidiaries and Affiliates shall have no
right to set-off payments owed to Employee hereunder against amounts owed or
claimed to be owed by Employee to the Company or its subsidiaries or Affiliates
under this Agreement or otherwise.
26. Indemnification. The Company shall indemnify Employee to no lesser
extent than provided in the Company's By-laws on the date hereof (the provisions
of which are hereby incorporated by reference herein), notwithstanding any
changes or amendments to such By-laws after the date hereof adversely affecting,
limiting or reducing such indemnification.
27. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
28. Change . Subject to Section 5, the Company and its subsidiaries and
Affiliates are entitled to amend, modify, terminate or otherwise change at any
time or from time to time any and all Benefit Plans and policies, practices or
procedures referred to in this Agreement, and all references herein to such
Benefit Plans and policies, practices and procedures shall be to such as from
time to time in effect prior to a Change in Control except as otherwise
specifically herein provided.
29. Beneficiaries. Whenever this Agreement provides for any payment to the
Employee's estate, such payment may be made instead to such beneficiary or
beneficiaries as the Employee may designate in writing (using the form of
Beneficiary Designation attached hereto as Exhibit C) and file with the Company.
The Employee shall have the right to revoke such Beneficiary Designation and
redesignate a beneficiary by filing with the Company (and any applicable
insurance company) a later dated Beneficiary Designation to such effect.
IN WITNESS WHEREOF, Employee and the Company have caused this Agreement
to be executed as of the date first above written.
TIME WARNER TELECOM INC.
By: /s/Larissa L. Herda
--------------------------------
Name: Larissa L. Herda
Title: President & Chief Executive
Officer
Agreed to and accepted as of
the date first above written
/s/David Rayner
------------------------------
Name: David Rayner
Title: Chief Financial officer
Address for Notices:
7361 S. HOMESTEADER DR
MORRISON,CO 80465
EXHIBIT B
"Competitive Business Entity" shall mean any Entity which is engaged,
either directly or indirectly, in the ownership, operation or management of any
business that provides to customers at any location within the United States (or
its territories and dependencies) any telecommunications, any internet access
services or any other transport or network services for internet protocol based
information.
All capitalized terms used herein shall have the meanings provided in the
Employment Agreement to which this Exhibit B is attached.
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
Employment Agreement made as of January 17, 2000, effective as of January
1, 2000, between TIME WARNER TELECOM INC., a Delaware corporation (the
"Company"), and the employee whose name appears on the last page hereof (the
"Employee"). The Company shall employ the Employee on the following terms and
conditions:
1. Term. The Company hereby employs Employee and Employee hereby accepts
such employment upon the terms and conditions hereof for an initial term
commencing on January 1, 2000 (the "Effective Date") and ending, subject to
renewal or termination as provided herein, on the December 31 immediately prior
to the fourth anniversary of the Effective Date (the "Initial Term"); provided,
however, that this Agreement shall automatically continue for successive one
month periods thereafter (each such period being an "Additional Term") unless
either party has delivered written notice of termination to the other party no
later than six months prior to the end of the Initial Term or 60 days prior to
the end of any Additional Term. Sections 8, 10 through 22 and 24 through 28
shall survive any termination of Employee's employment under this Agreement. The
Employee hereby covenants that as of the Effective Date any agreement between
Employee and the Company, Time Warner Cable, US WEST, Inc. or MediaOne Group,
Inc., respectively, or any of their affiliates, entered into prior to the date
hereof, relating to Employee's employment with such entity, shall terminate as
of, or have been terminated prior to, the Effective Date.
2. Duties. Employee shall serve as Senior Vice President, Sales or subject
to Section 5, in such other senior management position as the Company shall
determine. Subject to the foregoing, Employee shall perform such duties as may
be assigned by the Company to Employee from time to time, and shall travel for
business purposes to the extent reasonably necessary or appropriate in the
performance of such duties.
Employee shall perform such duties on a full time basis (subject to the
Company's written
policies on vacations, illness, government service, etc. applicable to employees
at Employee's level in effect from time to time), provided, however, that
Employee shall not be precluded from devoting such time to personal affairs as
shall not interfere with the performance of his or her duties hereunder. In
performing his or her duties hereunder, Employee shall comply with the Company's
policies and procedures in effect from time to time. Unless Employee otherwise
consents, the headquarters for the performance of Employee's services shall be
the principal executive offices of the Company in the Denver, Colorado area,
subject to such reasonable travel as may be appropriate or required in the
performance of Employee's duties in the business of the Company.
3. Compensation. The Company shall pay or cause to be paid to Employee,
during the term of employment, an annual salary in respect of each calendar year
at the rate of not less than $185,500.00 per annum. The Company may increase,
but not decrease, such annual salary at any time and from time to time during
the term of employment. In addition to annual salary, Employee may be entitled
to receive an annual bonus in respect of each calendar year based on a target
percentage of the salary paid to Employee during such calendar year of 75%.
Subject to Section 5, and the second paragraph of this Section 3, Employee
acknowledges that his or her actual annual bonus may vary and range from 0% to
150% of the target amount, depending on actual performance of the Company and
Employee.
Subject to Section 5 and the second sentence of this Section 3, the
Company shall determine, in its sole discretion, the amount of any salary
increase, the amount of any annual bonus and whether to increase the target
percentage of Employee's annual bonus. The payment of any bonus compensation
shall be made in accordance with the Company's then current practices and
policies, including without limitation, less the usual required payroll
deductions and withholding.
The Company shall pay or reimburse Employee, in accordance with Company
policies applicable to employees at Employee's level, for all travel,
entertainment and other business expenses actually incurred or paid by Employee
in the performance of his or her duties hereunder,
if properly substantiated and submitted.
4. Benefits. Employee shall be eligible to participate in any pension,
profit-sharing, employee stock ownership, vacation, insurance, hospitalization,
medical, health, disability and other employee benefit or welfare plan, program
or policy whether now existing or established hereafter (collectively, the
"Benefit Plans"), to the extent that employees at Employee's level are generally
deemed eligible under the general provisions thereof The Company reserves the
right to amend or cancel any such Benefit Plan in its sole discretion.
5. Termination by Employee Following a Change in Control.
(a) Provided that notice of termination has not previously been given
under any other Section hereof, Employee shall have the right to terminate his
or her employment with the Company under this Agreement for cause upon 30 days
prior written notice delivered to the Company at any time within 180 days after
Employee has actual knowledge of the occurrence of any of the following events
following a Change in Control, indicating in such notice which event has
occurred:
A. A change in the location of Employee's office or of the
Company's principal executive offices to a place which is more than 50 miles
from the location of Employee's office or the location of the Company's
principal executive offices immediately prior to the occurrence of a Change in
Control;
B. A material reduction in Employee's decision-making,
budgetary, operating, staff and other responsibilities, taken as a whole, from
such responsibilities immediately prior to the occurrence of a Change in
Control, or a change in the person or persons to whom Employee reported
immediately prior to the occurrence of a Change in Control, to a person or
persons of lesser rank, title or responsibility; or
C. Any material breach of this Agreement by the Company.
(b) Upon the expiration of the 30-day notice period provided in
Section 5(a), Employee shall be relieved of his or her management position with
the Company and his or her duties hereunder. In the notice delivered by Employee
to the Company pursuant to Section 5(a), Employee shall elect either (A) to
terminate his or her employment with the Company, in which case Employee shall
receive: (x) subject to the terms thereof, all benefits which may be due to
Employee under the provisions of any Benefit Plan; and (y) in a lump sum
severance payment, within 30 days following the effective date of such
termination, the present value (using the discount rate described below) of an
amount equal to the sum of the annual salary at the rate in effect on the date
of termination of employment or immediately prior to the Change in Control,
whichever is greater, plus an annual bonus in a minimum amount equal to
Employee's then applicable target bonus amount or the Employee's applicable
target bonus amount in effect immediately prior to the Change in Control,
whichever is greater, for the remainder of the existing term of this Agreement,
without any further renewal or continuation, provided that such amount shall be
not less than the sum of such salary and bonus pro rated for an 18-month period;
or (B) to remain an employee of the Company for a period (as determined by
Employee) of up to 18 months following the date notice of termination is given
by Employee pursuant to Section 5(a), in which case Employee shall be relieved
of his or her management position with the Company and his or her duties
hereunder, and shall (i) continue to receive both salary, based on a rate equal
to his or her annual rate in effect on the date of giving notice of termination
of employment or immediately prior to the Change in Control, whichever is
greater, and annual bonuses in respect of such period (in each case payable
within 30 days after the end of the respective calendar year and prorated for
any portion of a year), each such bonus to be based on an amount equal to
Employee's then applicable target bonus amount or the Employee's applicable
target bonus amount in effect immediately prior to the Change in Control,
whichever is greater, and (ii) receive a discounted lump sum payment pursuant to
Section 5(b)(A)(y) for any portion of the Initial Term remaining after such
period; provided, however, that if Employee accepts full-time employment with
any other corporation, partnership, trust, government or other
entity ("Entity") during such period or notifies the Company in writing of his
or her intention to terminate his or her employment during such period, Employee
shall cease to be an employee of the Company effective upon the commencement of
such employment, or the effective date of such termination as specified by
Employee in such notice, and shall be entitled to receive, subject to the terms
thereof, all benefits due to Employee under the provisions of any Benefit Plan
and a discounted lump sum cash payment for the balance of the salary and bonuses
Employee would have been entitled to receive pursuant to this Section 5(b)(B)
had Employee remained on the Company's payroll until the end of the Initial Tenn
or such 18 month period, whichever is greater; provided, further, however, that
Employee shall not be entitled to receive any such lump sum cash payment if he
or she accepts full-time employment with any subsidiary or Affiliate of the
Company. For purposes of this Agreement, the term "Affiliate" shall mean an
Entity which, directly or indirectly, controls, is controlled by or is under
common control with, the Company or Time Warner Inc. ("TWI").
In addition, whether Employee elects 5(b)(A) or 5(b)(B), for a period
of the earlier of one year from the date of termination of employment or the
date Employee is eligible to receive health benefits by virtue of other
employment, Employee shall receive continued eligibility and enrollment
(including family coverage, if any), without a premium charge therefor, in
hospital, medical and dental insurance plans providing substantially equivalent
benefit coverage to those plans in which Employee was enrolled immediately prior
to the Change in Control unless waived in writing by Employee (or, in the event
such coverage cannot be provided, substantially similar benefits).
Any lump sum payments required to be made pursuant to this Section
5(b) shall be discounted to present value from the times at which such amounts
would have been paid absent any such termination at an annual discount rate for
the relevant period equal to the "applicable Federal rate" (within the meaning
of Section 1274(d) of the Internal Revenue Code of 1986 (the "Code")),
compounded semi-annually, in effect on the date of such termination, the use of
which rate
is hereby elected by the Company and Employee pursuant to Treas. Reg. (S)
1.280G-1Q/A32 (provided that in the event such election is not permitted, such
other rate determined as of such other date as is applicable for determining
present value under Section 280G of the Code shall be used).
6. Termination by Company.
(a) For Cause. Provided that notice of termination has not previously
been given under any other Section hereof, the Company shall have the right to
terminate Employee's employment for cause upon written notice to Employee at any
time. In such event, Employee's employment with the Company shall terminate
immediately and Employee shall be entitled to receive (i) any earned and unpaid
salary accrued through the date of such termination, and (ii) subject to the
terms thereof, any benefits which may be due to Employee under the provisions of
any Benefit Plan. Employee hereby disclaims any right to receive a pro rata
portion of his or her annual bonus with respect to the year in which such
termination occurs. For purposes hereof, "cause" shall mean termination by
action of the Company's Board of Directors or any committee thereof because of
Employee's conviction (treating a nolo contendere plea as a conviction) of a
felony (whether or not any right to appeal has been exercised) or willful
refusal without proper cause to perform his or her obligations under this
Agreement or because of Employee's material breach of the covenants provided for
in Sections 10, 11 and 12 of this Agreement. In the event (i) such termination
is because of the Employee's willful refusal without proper cause to perform any
one or more of his obligations under this Agreement, (ii) such notice is the
first such notice of termination for any reason delivered by the Company to the
Employee under this Section 6(a), and (iii) within 10 days following the date of
such notice the Employee shall cease his or her refusal and shall use his or her
best efforts to perform such obligations, the termination shall not be
effective.
(b) Other. Provided that notice of termination has not previously
been given under any other Section hereof, the Company shall have the right at
any time to terminate Employee's employment under this Agreement without cause,
by giving written notice thereof to Employee.
(i) If such notice is so given to Employee, Employee shall be
entitled to receive, subject to the terms thereof, all benefits which may be due
to Employee under the provisions of any Benefit Plan and to elect, within 30
days after receiving such notice, to receive either a lump sum severance payment
in the amount, and upon the terms and conditions, provided in Section 5(b)(A)
and calculated as set forth in the last paragraph of Section 5(b), or to remain
an employee of the Company upon the terms and conditions provided in Section
5(b)(B); provided, however, that (i) any reference therein to Section 5(a) shall
be deemed for purposes of this Section 6(b) to be a reference to this Section
6(b)(i), and (ii) if a Change in Control has not occurred, then (x) Employee's
salary shall be determined with reference to his or her then current annual
salary and (y) Employee's annual bonus shall equal at least the Employee's
target amount immediately prior to Employee's termination under this Section
6(b)(i).
(ii) For the period beginning when Employee receives notice of
termination from the Company pursuant to this Section 6(b), and ending six
months thereafter, Employee will, without charge to Employee, have use of
reasonable office space and reasonable office facilities at Employee's principal
job location immediately prior to his or her termination of employment, or other
location reasonably close to such location, together with reasonable secretarial
services in each case appropriate to an employee of Employee's position and
responsibilities prior to such termination of employment but taking into account
Employee's reduced need for such office space and secretarial services. Employee
will continue to be eligible to participate in the Company's Benefit Plans and
to receive, subject to the terms thereof, all benefits, which are received by
other employees at Employee's level thereunder other than options or similar
equity-based or incentive awards.
(iii) In the event that Employee's employment is terminated prior
to the occurrence of a Change in Control, or more than three years following a
Change in Control, then, in partial consideration for the Company's obligation
to make the payments described in this Section 6(b), Employee shall execute and
deliver to the Company a release in the form as set forth in Exhibit A. The
Company shall deliver such release to Employee at the time the Company delivers
notice of termination pursuant to this Section 6(b). Employee shall execute and
deliver such release to the Secretary of the Company within 21 days of receipt
of notice of termination. If Employee shall fail to execute and deliver to the
Company such release within 30 days of Employee's receipt thereof from the
Company, Employee's employment with the Company shall terminate effective at the
end of such 30-day period and Employee shall receive, in lieu of the severance
arrangements described in Section 6(b), a lump sum cash payment in an amount
determined in accordance with the personnel policies of the Company then
applicable.
7. Death, Disability.
(a) Death. If Employee shall die while employed by the Company,
Employee's employment under this Agreement shall thereupon terminate and
Employee's estate or beneficiaries, as the case may be, shall be entitled to
receive as promptly as practicable but in any event within 30 days after
reasonably satisfactory evidence of Employee's death is received by the Company
(i) any earned and unpaid salary accrued to Employee through the period ending
30 days following the date of Employee's death and a pro rata portion of the
target annual bonus amount in effect immediately prior to Employee's death; and
(ii) subject to the terms thereof, any benefits which may be due to Employee's
estate or beneficiaries under the provisions of any Benefit Plan.
(b) Disability. Provided that notice of termination has not previously
been given under any Section hereof, if employee becomes ill or is injured or
disabled during the term of this Agreement such that Employee fails to perform
all or substantially all the duties to be rendered hereunder and such failure
continues for a period in excess of 26 consecutive weeks (a "Disability"),
the Company may terminate the employment of Employee under this Agreement upon
written notice to Employee at any time and thereupon Employee shall be entitled
to receive (i) any earned and unpaid salary accrued through the date of such
termination; (ii) subject to the terms thereof, any benefits which may be due to
Employee under the provisions of any Benefit Plan; and (iii) a lump sum cash
payment equal to the sum of 75% of Employee's then current annual salary and
then applicable target annual bonus amount prorated for an 18-month period, less
the amount of any disability insurance proceeds payable to Employee under any
disability insurance policy or program covering Employee.
8. Stock Options, and Other Incentive Awards. Upon Employee's termination
of employment with the Company for any reason, Employee's rights to benefits and
payments under any stock options, restricted shares or other incentive plans
shall be determined in accordance with the terms and provisions of such plans
and any agreements under which such stock options, restricted shares or other
awards were granted.
9. Change in Control. For purposes of this Agreement, a "Change in Control"
of the Company shall be deemed to have occurred at such time as TWI, MediaOne
Group, Inc. and Advance/Newhouse Partnership (and their respective affiliates)
(collectively, the "Founding Stockholders") as a group cease to have the ability
to elect a majority of the Board of Directors of the Company (other than the
chief executive officer of the Company and independent directors; provided that
independent directors shall be included in calculating whether the foregoing
majority requirement is satisfied if the directors nominated by the Founding
Stockholders (and their respective affiliates) do not constitute a majority of
the committee that selects the Board of Directors' nominees for independent
representatives) and a "person" or "group" (within the meaning of Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (other than the Founding Stockholders and their respective affiliates)
has become the ultimate "beneficial owner" (as defined in Rule l3d-3 under the
Exchange Act) of more than 35% of the total voting
power of the voting interests of the Company on a fully diluted basis and such
ownership represents a greater percentage of the total voting power of the
voting interests of the Company, on a fully diluted basis, than is held by the
Founding Stockholders (and their respective affiliates) as a group on such date.
10. Trade Secrets; Work Products, Etc. Except in connection with the
performance of his or her duties hereunder, Employee hereby expressly covenants
and agrees that Employee will not at any time while employed by the Company or
thereafter, exploit, use, sell, publish, disclose, communicate or divulge to any
person or Entity, other than the Company and its subsidiaries, either directly
or indirectly, any trade secrets or confidential information, knowledge or data
regarding the Company or any of its subsidiaries or Affiliates or any of their
respective officers, directors or employees including, without limitation, the
existence and terms of this Agreement, other than such information, knowledge or
data which has been released by the Company or such subsidiaries, Affiliates or
others to the public (except that with respect to the terms of this Agreement
Employee may communicate such terms to Employee's spouse and Employee's
attorneys and financial advisors). Notwithstanding the foregoing, Employee may
disclose such trade secrets or confidential information, knowledge, data or
terms when required to do so by a court or government agency or legislative body
of competent jurisdiction, provided Employee first notifies the Company orally
and in writing as promptly as possible of such requirement so that the Company
may either seek an appropriate protective order or waive compliance with the
provisions of this Section, and provided further that if, in the absence of such
protective order or waiver, Employee is nevertheless, in the written opinion of
his or her counsel, reasonably acceptable to the Company, addressed to and
delivered to the Company, otherwise required to disclose such information to any
such court, government agency or legislative body or else stand liable for
contempt or suffer other material penalty, Employee may disclose such
information in such case without liability hereunder so long as such disclosure
does not exceed that required by such court, government agency or legislative
body.
Employee hereby grants and assigns to the Company all rights (including,
without limitation, any copyright or patent) in the results and proceeds of all
services provided by Employee hereunder and all such services shall be subject
in all respects to the supervision, control and direction of the Company. Any
work in connection with such services shall be considered "work made for hire"
under the Copyright Law of 1976 or any successor thereof, and the Company shall
be the owner of such work as if the Company were the author of such work.
11. Non-Compete; Solicitation. Employee hereby expressly covenants and
agrees that:
(a) Employee will not at any time during the Term of employment and
for a period of one year following the date a notice of termination of
Employee's employment is terminated (i.e., Employee is no longer considered an
employee for payroll purposes) as provided herein, be or become an officer,
director, partner or employee of or consultant to or act in any managerial
capacity with or own any equity interest in any Entity (an "Affiliated Person")
which is a "Competitive Business Entity" (as such term is defined on Exhibit B
hereto); provided, however, that (i) ownership of less than 1% of the
outstanding equity securities of any Entity listed on any national securities
exchange or traded on the National Association of Securities Dealers Automated
Quotation System shall not be prohibited hereby, and (ii) in the event Employee
is terminated pursuant to Section 6(b) and notice of termination is so given to
Employee following the occurrence of a Change in Control, Employee is hereby
permitted to accept employment with any Founding Stockholder and such employment
shall not violate the provisions of this Section 11.
(b) Employee will not at any time during the Term of employment and
for a period of one year after the date Employee's employment is terminated as
provided herein, solicit (or assist or encourage the solicitation of) any
employee of the Company or any of its subsidiaries or Affiliates to work for
Employee or for any Entity in which Employee owns or expects to own more than a
1% equity interest or for which Employee serves or expects to serve as an
Affiliated Person.
For the purposes of this Section 11(b), the term "solicit any
employee" shall mean Employee's contacting, or providing information to others
who may be expected to contact, any employee of the Company or any of its
subsidiaries or Affiliates regarding their employment status, job satisfaction,
interest in seeking employment with Employee or any Affiliated Person or any
related matter, but shall not include general print advertising for personnel or
responding to an unsolicited request for a personal recommendation for or
evaluation of an employee of the Company or any of its subsidiaries or
Affiliates.
12. Documents; Conduct. Employee hereby expressly covenants and agrees
that:
(a) Following termination of Employee's employment with the
Company for any reason or at any time upon the Company's request, Employee will
promptly return to the Company all property of the Company and its subsidiaries
and Affiliates in his or her possession or control (whether maintained at his or
her office, home or elsewhere), including, without limitation, all copies of all
management studies, business or strategic plans, budgets, notebooks and other
printed, typed or written materials, documents, diaries, calendars and data of
or relating to the Company or its subsidiaries or Affiliates or their respective
personnel or affairs; and
(b) Employee will not at any time denigrate, ridicule or
intentionally criticize the Company or any of its subsidiaries or Affiliates or
any of their respective products, properties, employees, officers or directors,
including, without limitation, by way of news interviews, or the expression of
personal views, opinions or judgments to the news media.
13. Breach by Employee. Employee hereby expressly covenants and agrees
that the Company will suffer irreparable damage in the event any provisions of
Sections 10, 11 and 12 are not performed or are otherwise breached and that the
Company shall be entitled as a matter of right to an injunction or injunctions
and other relief to prevent a breach or violation by Employee and to secure its
enforcement of Section 10, 11 and 12 resort to such equitable relief, however,
shall not constitute a waiver of any other rights or remedies which the Company
may have.
14. Representations.
(a) Employee represents and warrants to the Company that this Agreement
is legal, valid and binding upon Employee and Employee is not a party to any
agreement or understanding which would prevent the fulfillment by Employee of
the terms of this Agreement. Employee has consulted with his or her legal, tax,
financial and other advisors, to the extent desired, prior to execution and
delivery of this Agreement.
(b) The Company represents and warrants to Employee that this Agreement
is legal, valid and binding upon the Company and the Company is not a party to
any agreement or understanding which would prevent the fulfillment by the
Company of the terms of this Agreement.
15. Notice. Any notice required or permitted to be given hereunder shall be
in writing (except where required to be given orally) and shall be sufficiently
given or sent by registered or certified mail or delivered, in person, if to
Employee at the address set forth on the last paragraph hereof, or at such other
address as Employee shall designate by written notice to the Company, and if to
the Company at 10475 Park Meadows Drive, Littleton, CO 80124, attention of the
Secretary or at such other address as the Company shall designate by written
notice to Employee.
16. Successors and Assigns. This Agreement is personal in its nature and
neither of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any right or obligations hereunder; provided however,
that the provisions hereof shall inure to the benefit of, and be binding upon,
any successor of the Company, whether by merger, consolidation, transfer of all
or substantially all of the assets of the Company, or otherwise.
17. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York, irrespective of
its conflicts of law rules, except for the By-laws referred to in Section 26,
which shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware.
To the extent that any applicable state or Federal law, rule or
regulation confers upon Employee any greater benefit or right than that set
forth in this Agreement, such law, rule or regulation shall control in lieu of
the provisions hereof relating to such benefit or right.
18. Mitigation. Employee shall have no obligation to mitigate damages in
the event of termination of Employee's employment under this Agreement under
Section 5(a), 6(b) or 7, other than as necessary to prevent the Company from
losing any tax deductions to which it otherwise would have been entitled for any
payments deemed to be "contingent on a change" under the Code and any payments
received by Employee hereunder shall not be offset or reduced in any way by any
other earnings or payments which may be received by Employee from any source,
except as provided by this Section 18. It is acknowledged and agreed that any
payment which may be made by the Company to Employee under Section 5(b), 6(b) or
7 is in the nature of severance and is not a penalty payment.
19. Withholding. All payments required to be paid by the Company to
Employee under this Agreement will be paid in accordance with the payroll
practices of the Company or the terms of the Benefit Plans, as the case may be,
and will be subject to withholding taxes, social security and other payroll
deductions in accordance with the Company's policies applicable to employees at
Employee's level and the terms of the Benefit Plan.
20. Complete Understanding. This Agreement supersedes any prior contracts,
understandings, discussions and agreements relating to employment between
Employee, on the one hand, and the Company and its subsidiaries and Affiliates,
on the other, and constitutes the complete understanding between the parties
with respect to the subject matter hereof. No statement, representation,
warranty or covenant has been made by either party with respect thereto except
as expressly set forth herein.
21. Modification; Waiver. This Agreement cannot be changed, modified or
amended and no provision or requirement hereof may be waived without the consent
in writing of both the parties hereto. No waiver by either party at any time of
any breach by the other party of any condition or provision of this Agreement
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. Subject to Section 28, no policy,
procedure or practice of the Company whether now or hereafter in effect shall be
deemed to modify, amend or supersede any provision of this Agreement except as
contemplated or provided otherwise in this Agreement.
22. Heading . The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
23. Use of Likeness. The Company and TWI shall have the right to use
Employee's name, biography and likeness in connection with their respective
businesses and that of their subsidiaries and Affiliates, but not for use as a
direct endorsement.
24. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
25. Set-off. The Company and its subsidiaries and Affiliates shall have no
right to set-off payments owed to Employee hereunder against amounts owed or
claimed to be owed by Employee to the Company or its subsidiaries or Affiliates
under this Agreement or otherwise.
26. Indemnification. The Company shall indemnify Employee to no lesser
extent than provided in the Company's By-laws on the date hereof (the provisions
of which are hereby incorporated by reference herein), notwithstanding any
changes or amendments to such By-laws after the date hereof adversely affecting,
limiting or reducing such indemnification.
27. Counterparts. This Agreement maybe executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
28. Changes. Subject to Section 5, the Company and its subsidiaries and
Affiliates are entitled to amend, modify, terminate or otherwise change at any
time or from time to time any and all Benefit Plans and policies, practices or
procedures referred to in this Agreement, and all references herein to such
Benefit Plans and policies, practices and procedures shall be to such as from
time to time in effect prior to a Change in Control except as otherwise
specifically herein provided.
29. Beneficiaries. Whenever this Agreement provides for any payment to the
Employee's estate, such payment may be made instead to such beneficiary or
beneficiaries as the Employee may designate in writing (using the form of
Beneficiary Designation attached hereto as Exhibit C) and file with the Company.
The Employee shall have the right to revoke such Beneficiary Designation and
redesignate a beneficiary by filing with the Company (and any applicable
insurance company) a later dated Beneficiary Designation to such effect.
IN WITNESS WHEREOF, Employee and the Company have caused this Agreement
to be executed as of the date first above written.
TIME WARNER TELECOM INC.
By: /s/Larissa L. Herda
------------------------------------
Name: Larissa L.Herda
Title: President and Chief Executive
Officer
Agreed to and accepted as of
the date first above written
/s/John T. Blount
-----------------------------------
Name: John T. Blount
Title: Senior Vice President, Sales
Address for Notices:
510 CASTLE PINES DR. SO
CASTLE ROCK, CO
80104
EXHIBIT B
"Competitive Business Entity" shall mean any Entity which is engaged,
either directly or indirectly, in the ownership, operation or management of any
business that provides to customers at any location within the United States (or
its territories and dependencies) any telecommunications, any internet access
services or any other transport or network services for internet protocol based
information.
All capitalized terms used herein shall have the meanings provided in the
Employment Agreement to which this Exhibit B is attached.
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
Employment Agreement dated as of November 22, 1999 (the "Effective Date"),
between TIME WARNER TELECOM INC, (the "Company"), and the employee whose name
appears on the last page hereof, (the "Employee"). The Company shall employ the
Employee on the following terms and conditions:
1. Term. The Company hereby employs Employee and Employee hereby accepts
such employment upon the terms and conditions hereof for an initial term
commencing on the effective date (the "Effective Date") and ending, subject to
renewal or termination as provided herein, on the third anniversary of the
Effective Date (the "Initial Term"); provided, however, that this Agreement
shall automatically continue for successive one month periods thereafter (each
such period being an "Additional Term") unless either party has delivered
written notice of termination to the other party no later than six months prior
to the end of the Initial Term or 60 days prior to the end of any Additional
Term. Sections 8, 10 through 22 and 24 through 28 shall survive any termination
of Employee's employment under this Agreement. The Employee hereby covenants
that as of the Effective Date any agreement between Employee and the Company,
Time Warner Cable, US WEST, Inc. ("US WEST") or MediaOne, respectively, or any
of their affiliates, entered into prior to the date hereof, relating to
Employee's employment with such entity, shall terminate as of, or have been
terminated prior to, the Effective Date.
2. Duties. Employee shall serve as Senior Vice President, Marketing and
Business Development, or subject to Section 5, in such other senior management
position as the Company shall determine. Subject to the foregoing, Employee
shall perform such duties as may be assigned by the Company to Employee from
time to time, and shall travel for business purposes to the extent reasonably
necessary or appropriate in the performance of such duties.
Employee shall perform such duties on a full time basis (subject to the
Company's written policies on vacations, illness, government service, etc.
applicable to employees at Employee's level in effect from time to time),
provided, however, that Employee shall not be precluded from devoting such time
to personal affairs as shall not interfere with the performance of his or her
duties hereunder. In performing his or her duties hereunder, Employee shall
comply with the Company's policies and procedures in effect from time to time.
Unless Employee otherwise consents, the headquarters for the performance of
Employee's services shall be the principal executive offices of the Company in
the Denver, Colorado area, subject to such reasonable travel as may be
appropriate or required in the performance of Employee's duties in the business
of the Company.
3. Compensation. The Company shall pay or cause to be paid to Employee,
during the term of employment, an annual salary in respect of each calendar year
at the rate of not less than $185,000 per annum. The Company may increase, but
not decrease, such annual salary at any time and from time to time during the
term of employment. In addition to annual salary, Employee may be entitled to
receive an annual bonus in respect of each calendar year based on a target
percentage of the salary paid to Employee during such calendar year of 50%.
Subject to Section 5, and the second paragraph of this Section 3, Employee
acknowledges that his or her actual annual bonus may vary and range from 0% to
150% of the target amount, depending on actual performance of the Company and
Employee.
Subject to Section 5 and the second sentence of this Section 3, the Company
shall determine, in its sole discretion, the amount of any salary increase, the
amount of any annual bonus and whether to increase the target percentage of
Employee's annual bonus. The payment of any bonus compensation shall be made in
accordance with the Company's then current practices and policies, including
without limitation, less the usual required payroll deductions and withholding.
The Company shall pay or reimburse Employee, in accordance with Company
policies applicable to employees at Employee's level, for all travel,
entertainment and other business expenses actually incurred or paid by Employee
in the performance of his or her duties hereunder, if properly substantiated and
submitted.
4. Benefits. Employee shall be eligible to participate in any pension,
profit-sharing, employee stock ownership, vacation, insurance, hospitalization,
medical, health, disability and other employee benefit or welfare plan, program
or policy whether now existing or established hereafter (collectively, the
"Benefit Plans"), to the extent that employees at Employee's level are generally
deemed eligible under the general provisions thereof. The Company reserves the
right to amend or cancel any such Benefit Plan in its sole discretion.
5. Termination by Employee Following a Change in Control.
(a) Provided that notice of termination has not previously been
given under any other Section hereof, Employee shall have the right to terminate
his or her employment with the Company under this Agreement for cause upon 30
days prior written notice delivered to the Company at any time within 180 days
after Employee has actual knowledge of the occurrence of any of the following
events following a Change in Control, indicating in such notice which event has
occurred:
A. A change in the location of Employee's office or of the
Company's principal executive offices to a place which is more than 50 miles
from the location of Employee's office or the location of the Company's
principal executive offices immediately prior to the occurrence of a Change in
Control;
B. A material reduction in Employee's decision-making,
budgetary, operating, staff and other responsibilities, taken as a whole, from
such responsibilities immediately prior to the occurrence of a Change in
Control, or a change in the
person or persons to whom Employee reported immediately prior to the occurrence
of a Change in Control, to a person or persons of lesser rank, title or
responsibility; or
C. Any material breach of this Agreement by the Company.
(b) Upon the expiration of the 30-day notice period provided in
Section 5(a), Employee shall be relieved of his or her management position with
the Company and his or her duties hereunder. In the notice delivered by Employee
to the Company pursuant to Section 5(a), Employee shall elect either (A) to
terminate his or her employment with the Company, in which case Employee shall
receive: (x) subject to the terms thereof, all benefits which may be due to
Employee under the provisions of any Benefit Plan; and (y) in a lump sum
severance payment, within 30 days following the effective date of such
termination, the present value (using the discount rate described below) of an
amount equal to the sum of the annual salary at the rate in effect on the date
of termination of employment or immediately prior to the Change in Control,
whichever is greater, plus an annual bonus in a minimum amount equal to
Employee's then applicable target bonus amount or the Employee's applicable
target bonus amount in effect immediately prior to the Change in Control,
whichever is greater, for the remainder of the existing term of this Agreement,
without any further renewal or continuation, provided that such amount shall be
not less than the sum of such salary and bonus pro rated for an 18-month period;
or (B) to remain an employee of the Company for a period (as determined by
Employee) of up to 18 months following the date notice of termination is given
by Employee pursuant to Section 5(a), in which case Employee shall be relieved
of his or her management position with the Company and his or her duties
hereunder, and shall (i) continue to receive both salary, based on a rate equal
to his or her annual rate in effect on the date of termination of employment or
immediately prior to the Change in Control, whichever is greater, and annual
bonuses in respect of such period (in each case payable within 30 days after the
end of the respective calendar year and prorated for any portion of a year),
each such bonus to be based on an amount equal to Employee's then applicable
target bonus amount or the Employee's applicable target bonus amount in effect
immediately prior to the Change in
Control, whichever is greater, and (ii) receive a discounted lump sum payment
pursuant to Section 5(b)(A)(y) for any portion of the term of employment
remaining after such period; provided, however, that if Employee accepts full-
time employment with any other corporation, partnership, trust, government or
other entity ("Entity") during such period or notifies the Company in writing of
his or her intention to terminate his or her employment during such period,
Employee shall cease to be an employee of the Company effective upon the
commencement of such employment, or the effective date of such termination as
specified by Employee in such notice, and shall be entitled to receive, subject
to the terms thereof, all benefits due to Employee under the provisions of any
Benefit Plan and a discounted lump sum cash payment for the balance of the
salary and bonuses Employee would have been entitled to receive pursuant to this
Section 5(b)(B) had Employee remained on the Company's payroll until the end of
the Initial Term or such 18 month period, whichever is greater; provided,
further, however, that Employee shall not be entitled to receive any such lump
sum cash payment if he or she accepts full-time employment with any subsidiary
or Affiliate of the Company. For purposes of this Agreement, the term
"Affiliate" shall mean an Entity which, directly or indirectly, controls, is
controlled by or is under common control with, the Company or TWI.
In addition, whether Employee elects 5(b)(A) or 5(b)(B), for a period of
the earlier of one year from the date of termination of employment or the date
Employee is eligible to receive health benefits by virtue of other employment,
Employee shall receive continued eligibility and enrollment (including family
coverage, if any), without a premium charge therefor, in hospital, medical and
dental insurance plans providing substantially equivalent benefit coverage to
those plans in which Employee was enrolled immediately prior to the Change in
Control unless waived in writing by Employee (or, in the event such coverage
cannot be provided, substantially similar benefits).
Any lump sum payments required to be made pursuant to this Section 5(b)
shall be discounted to present value from the times at which such amounts would
have been paid absent any such termination at an annual discount rate for the
relevant period equal to the "applicable Federal rate" (within the meaning of
Section 1274(d) of the Internal Revenue Code of 1986 (the "Code")), compounded
semi-annually, in effect on the date of such termination, the use of which rate
is hereby elected by the Company and Employee pursuant to Treas. Reg. (S)
1.280G-1Q/A32 (provided that in the event such election is not permitted, such
other rate determined as of such other date as is applicable for determining
present value under Section 280G of the Code shall be used).
6. Termination by Company.
(a) For Cause. Provided that notice of termination has not
previously been given under any other Section hereof, the Company shall have the
right to terminate Employee's employment for cause upon written notice to
Employee at any time. In such event, Employee's employment with the Company
shall terminate immediately and Employee shall be entitled to receive (i) any
earned and unpaid salary accrued through the date of such termination, and (ii)
subject to the terms thereof, any benefits which may be due to Employee under
the provisions of any Benefit Plan. Employee hereby disclaims any right to
receive a pro rata portion of his or her annual bonus with respect to the year
in which such termination occurs. For purposes hereof, "cause" shall mean
termination by action of the Company's Board of Directors or any committee
thereof because of Employee's conviction (treating a nolo contenders plea as a
conviction) of a felony (whether or not any right to appeal has been exercised)
or willful refusal without proper cause to perform his or her obligations under
this Agreement or because of Employee's material breach of the covenants
provided for in Sections 10, 11 and 12 of this Agreement. In the event (i) such
termination is because of the Employee's willful refusal without proper cause
to perform any one or more of his obligations under this Agreement, (ii) such
notice is the first such notice of termination for any reason delivered by the
Company to the Employee under this Section 6(a), and (iii) within 10 days
following the
date of such notice the Employee shall cease his or her refusal and shall use
his or her best efforts to perform such obligations, the termination shall not
be effective.
(b) Other. Provided that notice of termination has not previously
been given under any other Section hereof, the Company shall have the right at
any time to terminate Employee's employment under this Agreement without cause,
by giving written notice thereof to Employee.
(i) If such notice is so given to Employee, Employee shall be
entitled to receive, subject to the terms thereof, all benefits which may be due
to Employee under the provisions of any Benefit Plan and to elect, within 30
days after receiving such notice, to receive either a lump sum severance payment
in the amount, and upon the terms and conditions, provided in Section 5(b)(A)
and calculated as set forth in the last paragraph of Section 5(b), or to remain
an employee of the Company upon the terms and conditions provided in Section
5(b)(B); provided, however, that (i) any reference therein to Section 5(a) shall
be deemed for purposes of this Section 6(b) to be a reference to this Section
6(b)(i), and (ii) if a Change in Control has not occurred, then (x) Employee's
salary shall be determined with reference to his or her then current annual
salary and (y) Employee's annual bonus shall equal at least the Employee's
target amount immediately prior to Employee's termination under this Section
6(b)(i).
(ii) For the period beginning when Employee receives notice of
termination from the Company pursuant to this Section 6(b), and ending six
months thereafter, Employee will, without charge to Employee, have use of
reasonable office space and reasonable office facilities at Employee's principal
job location immediately prior to his or her termination of employment, or other
location reasonably close to such location, together with reasonable secretarial
services in each case appropriate to an employee of Employee's position and
responsibilities prior to such termination of employment but taking into account
Employee's reduced need for such office space and secretarial services. Employee
will continue to be eligible to participate in the Company's Benefit Plans and
to receive, subject to
the terms thereof, all benefits, which are received by other employees at
Employee's level thereunder other than options or similar equity-based or
incentive awards.
(iii) In the event that Employee's employment is terminated
prior to the occurrence of a Change in Control, or more than three years
following a Change in Control, then, in partial consideration for the Company's
obligation to make the payments described in this Section 6(b), Employee shall
execute and deliver to the Company a release in the form as set forth in Exhibit
A. The Company shall deliver such release to Employee at the time the Company
delivers notice of termination pursuant to this Section 6(b). Employee shall
execute and deliver such release to the Secretary of the Company within 21 days
of receipt of notice of termination. If Employee shall fail to execute and
deliver to the Company such release within 30 days of Employee's receipt thereof
from the Company, Employee's employment with the Company shall terminate
effective at the end of such 30-day period and Employee shall receive, in lieu
of the severance arrangements described in Section 6(b), a lump sum cash payment
in an amount determined in accordance with the personnel policies of the Company
then applicable.
7. Death; Disability.
(a) Death. If Employee shall die while employed by the Company,
Employee's employment under this Agreement shall thereupon terminate and
Employee's estate or beneficiaries, as the case may be, shall be entitled to
receive as promptly as practicable but in any event within 30 days after
reasonably satisfactory evidence of Employee's death is received by the Company
(i) any earned and unpaid salary accrued to Employee through the period ending
30 days following the date of Employee's death and a pro rata portion of the
target annual bonus amount in effect immediately prior to Employee's death; and
(ii) subject to the terms thereof, any benefits which may be due to Employee's
estate or beneficiaries under the provisions of any Benefit Plan.
(b) Disability. Provided that notice of termination has not
previously been given under any Section hereof, if employee becomes ill or is
injured or disabled during the term of this Agreement such that Employee fails
to perform all or substantially all the duties to be rendered hereunder and such
failure continues for a period in excess of 26 consecutive weeks (a
"Disability"), the Company may terminate the employment of Employee under this
Agreement upon written notice to Employee at any time and thereupon Employee
shall be entitled to receive (i) any earned and unpaid salary accrued through
the date of such termination; (ii) subject to the terms thereof, any benefits
which may be due to Employee under the provisions of any Benefit Plan; and (iii)
a lump sum cash payment equal to the sum of 75 % of Employee's then current
annual salary and then applicable target annual bonus amount prorated for an 18-
month period, less the amount of any disability insurance proceeds payable to
Employee under any disability insurance policy or program covering Employee.
8. Stock Options and Other Incentive Awards. Upon Employee's termination
of employment with the Company for any reason, Employee's rights to benefits and
payments under any stock options, restricted shares or other incentive plans
shall be determined in accordance with the terms and provisions of such plans
and any agreements under which such stock options, restricted shares or other
awards were granted.
9. Change in Control. For purposes of this Agreement, a "Change in
Control" of the Company shall be deemed to have occurred at such time as the
Founding Stockholders (and their respective affiliates) as a group cease to have
the ability to elect a majority of the directors on the Board of Directors of
the Company (other than the chief executive officer of the Company and
independent directors; provided that independent directors shall be included in
calculating whether the foregoing majority requirement is satisfied if the
directors nominated by the Founding Stockholders (and their respective
affiliates) do not constitute a majority of the committee that selects the Board
of Director's nominees for independent directors) and a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (other than the Founding
Stockholders and their respective affiliates) has become the ultimate
"beneficial owner" (as defined in Rule l3d-3 under the Exchange Act) of more
than 35% of the total voting power of the voting interests of the Company on a
fully diluted basis and such ownership represents a greater percentage of the
total voting power of the voting interests of the Company, on a fully diluted
basis, than is held by the Founding Stockholders (and their respective
affiliates) as a group on such date.
10. Trade Secrets; Work Products, Etc. Except in connection with the
performance of his or her duties hereunder, Employee hereby expressly covenants
and agrees that Employee will not at any time while employed by the Company or
thereafter, exploit, use, sell, publish, disclose, communicate or divulge to any
person or Entity, other than the Company and its subsidiaries, either directly
or indirectly, any trade secrets or confidential information, knowledge or data
regarding the Company or any of its subsidiaries or Affiliates or any of their
respective officers, directors or employees including, without limitation, the
existence and terms of this Agreement, other than such information, knowledge or
data which has been released by the Company or such subsidiaries, Affiliates or
others to the public (except that with respect to the terms of this Agreement
Employee may communicate such terms to Employee's spouse and Employee's
attorneys and financial advisors). Notwithstanding the foregoing, Employee may
disclose such trade secrets or confidential information, knowledge, data or
terms when required to do so by a court or government agency or legislative body
of competent jurisdiction, provided Employee first notifies the Company orally
and in writing as promptly as possible of such requirement so that the Company
may either seek an appropriate protective order or waive compliance with the
provisions of this Section, and provided further that if, in the absence of such
protective order or waiver, Employee is nevertheless, in the written opinion of
his or her counsel, reasonably acceptable to the Company, addressed to and
delivered to the Company, otherwise required to disclose such information to any
such court,
government agency or legislative body or else stand liable for contempt or
suffer other material penalty, Employee may disclose such information in such
case without liability hereunder so long as such disclosure does not exceed that
required by such court, government agency or legislative body.
Employee hereby grants and assigns to the Company all rights (including,
without limitation, any copyright or patent) in, the results and proceeds of all
services provided by Employee hereunder and all such services shall be subject
in all respects to the supervision, control and direction of the Company. Any
work in connection with such services shall be considered "work made for hire"
under the Copyright Law of 1976 or any successor thereof, and the Company shall
be the owner of such work as if the Company were the author of such work.
11. Non-Compete; Solicitation. Employee hereby expressly covenants and
agrees that:
(a) Employee will not at any time during the Tenn of employment and
for a period of one year following the date a notice of termination of
Employee's employment is effective as provided herein, be or become an officer,
director, partner or employee of or consultant to or act in any managerial
capacity with or own any equity interest in any Entity (an "Affiliated Person")
which is a "Competitive Business Entity" (as such term is defined on Exhibit B
hereto); provided, however, that (i) ownership of less than 1% of the
outstanding equity securities of any Entity listed on any national securities
exchange or traded on the National Association of Securities Dealers Automated
Quotation System shall not be prohibited hereby, and (ii) in the event Employee
is terminated pursuant to Section 6(b) and notice of termination is so given to
Employee following the occurrence of a Change in Control, Employee is hereby
permitted to accept employment with any Founding Stockholder and such employment
shall not violate the provisions of this Section 11.
(b) Employee will not at any time during the Term of employment and
for a period of one year after the date of a notice of termination of Employee's
employment is effective as provided herein, solicit (or assist or encourage the
solicitation of any employee of the Company or any of its subsidiaries or
Affiliates to work for Employee or for any Entity in which Employee owns or
expects to own more than a 1% equity interest or for which Employee serves or
expects to serve as an Affiliated Person.
For the purposes of this Section 11 (b), the term "solicit any
employee" shall mean Employee's contacting, or providing information to others
who may be expected to contact, any employee of the Company or any of its
subsidiaries or Affiliates regarding their employment status, job satisfaction,
interest in seeking employment with Employee or any Affiliated Person or any
related matter, but shall not include general print advertising for personnel or
responding to an unsolicited request for a personal recommendation for or
evaluation of an employee of the Company or any of its subsidiaries or
Affiliates.
12. Documents; Conduct. Employee hereby expressly covenants and agrees
that:
(a) Following termination of Employee's employment with the Company
for any reason or at any time upon the Company's request, Employee will promptly
return to the Company all property of the Company and its subsidiaries and
Affiliates in his or her possession or control (whether maintained at his or her
office, home or elsewhere), including, without limitation, all copies of all
management studies, business or strategic plans, budgets, notebooks and other
printed, typed or written materials, documents, diaries, calendars and data of
or relating to the Company or its subsidiaries or Affiliates or their respective
personnel or affairs; and
(b) Employee will not at any time denigrate, ridicule or
intentionally criticize the Company or any of its subsidiaries or Affiliates or
any of their respective products, properties, employees, officers or directors,
including, without limitation, by way of news interviews, or the expression of
personal views, opinions or judgments to the news media.
13. Breach by Employee. Employee hereby expressly covenants and agrees
that the Company will suffer irreparable damage in the event any provisions of
Sections 10, 11 and 12 are not performed or are otherwise breached and that the
Company shall be entitled as a matter of right to an injunction or injunctions
and other relief to prevent a breach or violation by Employee and to secure its
enforcement of Section 10, 11 and 12. Resort to such equitable relief, however,
shall not constitute a waiver of any other rights or remedies which the Company
may have.
14. Representations.
(a) Employee represents and warrants to the Company that this
Agreement is legal, valid and binding upon Employee and Employee is not a party
to any agreement or understanding which would prevent the fulfillment by
Employee of the terms of this Agreement. Employee has consulted with his or her
legal, tax, financial and other advisors, to the extent desired, prior to
execution and delivery of this Agreement.
(b) The Company represents and warrants to Employee that this
Agreement is legal, valid and binding upon the Company and the Company is not a
party to any agreement or understanding which would prevent the fulfillment by
the Company of the terms of this Agreement.
15. Notice. Any notice required or permitted to be given hereunder shall
be in writing (except where required to be given orally) and shall be
sufficiently given or sent by registered or certified mail or delivered, in
person, if to Employee at the address set forth on the last paragraph hereof, or
at such other address as Employee shall designate by written notice to the
Company, and if to the Company at 5700 S. Quebec Street, Greenwood Village, CO
80111, attention of the Secretary or at such other address as the Company shall
designate by written notice to Employee.
16. Successors and Assigns. This Agreement is personal in its nature and
neither of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any right or obligations hereunder; provided however,
that the provisions hereof shall inure to the benefit of, and be binding upon,
any successor of the Company, whether by merger, consolidation, transfer of all
or substantially all of the assets of the Company, or otherwise.
17. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York, irrespective of
its conflicts of law rules, except for the By-laws referred to in Section 26,
which shall be governed by and construed and enforced in accordance with the
laws of the State of Delaware.
To the extent that any applicable state or Federal law, rule or
regulation confers upon Employee any greater benefit or right than that set
forth in this Agreement, such law, rule or regulation shall control in lieu of
the provisions hereof relating to such benefit or right.
18. Mitigation. Employee shall have no obligation to mitigate damages in
the event of termination of Employee's employment under this Agreement under
Section 5(a), 6(b) or 7, other than as necessary to prevent the Company from
losing any tax deductions to which it otherwise would have been entitled for any
payments deemed to be "contingent on a change" under the Code and any payments
received by Employee hereunder shall not be offset or reduced in any way by any
other earnings or payments which may be received by Employee from any source,
except as provided by this Section 18. It is acknowledged and agreed that any
payment, which may be made by the Company to Employee under Section 5(b), 6(b),
or 7 is-in the nature of severance and is not a penalty payment.
19. Withholding. All payments required to be paid by the Company to
Employee under this Agreement will be paid in accordance with the payroll
practices of the Company or the terms of the Benefit Plans, as the case may be,
and will be subject to withholding taxes,
social security and other payroll deductions in accordance with the Company's
policies applicable to employees at Employee's level and the terms of the
Benefit Plan.
20. Complete Understanding. This Agreement supersedes any prior
contracts, understandings, discussions and agreements relating to employment
between Employee, on the one hand, and the Company and its subsidiaries and
Affiliates, on the other, and constitutes the complete understanding between the
parties with respect to the subject matter hereof. No statement, representation,
warranty or covenant has been made by either party with respect thereto except
as expressly set forth herein.
21. Modification; Waiver. This Agreement cannot be changed, modified or
amended and no provision or requirement hereof may be waived without the consent
in writing of both the parties hereto. No waiver by either party at any time of
any breach by the other party of any condition or provision of this Agreement
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. Subject to Section 28, no policy,
procedure or practice of the Company whether now or hereafter in effect shall be
deemed to modify, amend or supersede any provision of this Agreement except as
contemplated or provided otherwise in this Agreement.
22. Headings. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
23. Use of Likeness. The Company and TWI shall have the right to use
Employee's name, biography and likeness in connection with their respective
businesses and that of their subsidiaries and Affiliates, but not for use as a
direct endorsement.
24. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
25. Set-off. The Company and its subsidiaries and Affiliates shall have
no right to set-off payments owed to Employee hereunder against amounts owed or
claimed to be owed by Employee to the Company or its subsidiaries or Affiliates
under this Agreement or otherwise.
26. Indemnification. The Company shall indemnify Employee to no lesser
extent than provided in the Company's By-laws on the date hereof (the provisions
of which are hereby incorporated by reference herein), notwithstanding any
changes or amendments to such Bylaws after the date hereof adversely affecting,
limiting or reducing such indemnification.
27. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
28. Changes. Subject to Section 5, the Company and its subsidiaries and
Affiliates are entitled to amend, modify, terminate or otherwise change at any
time or from time to time any and all Benefit Plans and policies, practices or
procedures referred to in this Agreement, and all references herein to such
Benefit Plans and policies, practices and procedures shall be to such as from
time to time in effect prior to a Change in Control except as other-wise
specifically herein provided.
29. Beneficiaries. Whenever this Agreement provides for any payment to
the Employee's estate, such payment may be made instead to such beneficiary or
beneficiaries as the Employee may designate in writing (using the form of
Beneficiary Designation attached hereto as Exhibit C and filed with the Company.
The Employee shall have the right to revoke
such Beneficiary Designation and redesignate a beneficiary by filing with the
Company (and any applicable insurance company) a later dated Beneficiary
Designation to such effect.
IN WITNESS WHEREOF, Employee and the Company have caused this Agreement to be
executed as of the date first above written.
TIME WARNER TELECOM INC
By:________________________________
Name: Larissa L. Herda
Title: President and Chief Executive Officer
Agreed to and accepted as of
the date first above-written
/s/ Michael Rouleau
-----------------------
Name: Michael Rouleau
Title: Senior Vice President, Marketing and Business Development
Address for Notices:
3315 Klondike PL
Castle Rock, CO
80104
EXHIBIT B
"Competitive Business Entity" shall mean (i) any federal, state or local
authority empowered to grant, renew, modify or amend, or review the grant,
renewal, modification or amendment of, franchises to operate any competitive
local exchange carrier or to regulate the conduct of any such business in the
United States, except that a Competitive Business Entity shall not include any
such state or local authority that is so empowered with respect to franchises or
regulation of any such business in a state or region in which the Company does
not engage or, to the knowledge of Employee, does not have definitive plans to
engage, in the ownership, operation or management of such a business, and (ii)
any Entity which is engaged, either directly or indirectly, in the ownership,
operation or management of any business providing telecommunications services to
customers as a competitive local exchange carrier in any state of the United
States in which the Company engages or, to the knowledge of Employee, has
definitive plans to engage, in the ownership, operation or management of such a
business.
All capitalized terms used herein shall have the meanings provided in the
Employment Agreement to which this Exhibit B is attached.
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
Employment Agreement made as of January 17, 2000, effective as of January
1, 2000, between TIME WARNER TELECOM INC., a Delaware corporation (the
"Company"), and the employee whose name appears on the last page hereof (the
"Employee"). The Company shall employ the Employee on the following terms and
conditions:
1. Term. The Company hereby employs Employee and Employee hereby accepts
such employment upon the terms and conditions hereof for an initial term
commencing on January 1, 2000 (the "Effective Date") and ending, subject to
renewal or termination as provided herein, on the December 31 immediately prior
to the third anniversary of the Effective Date (the "Initial Term"); provided,
however, that this Agreement shall automatically continue for successive one
month periods thereafter (each such period being an "Additional Tenn") unless
either party has delivered written notice of termination to the other party no
later than six months prior to the end of the Initial Term or 60 days prior to
the end of any Additional Term. Sections 8, 10 through 22 and 24 through 28
shall survive any termination of Employee's employment under this Agreement. The
Employee hereby covenants that as of the Effective Date any agreement between
Employee and the Company, Time Warner Cable, US WEST, Inc. or MediaOne Group,
Inc., respectively, or any of their affiliates, entered into prior to the date
hereof, relating to Employee's employment with such entity, shall terminate as
of, or have been terminated prior to, the Effective Date.
2. Duties. Employee shall serve as Senior Vice President, Human
Resources or subject to Section 5, in such other senior management position as
the Company shall determine. Subject to the foregoing, Employee shall perform
such duties as may be assigned by the Company to Employee from time to time, and
shall travel for business purposes to the extent reasonably necessary or
appropriate in the performance of such duties.
Employee shall perform such duties on a ftill time basis (subject to the
Company's written
policies on vacations, illness, government service, etc. applicable to employees
at Employee's level in effect from time to time), provided, however that
Employee shall not be precluded from devoting such time to personal affairs as
shall not interfere with the performance of his or her duties hereunder. In
performing his or her duties hereunder, Employee shall comply with the Company's
policies and procedures in effect from time to time. Unless Employee otherwise
consents, the headquarters for the performance of Employee's services shall be
the principal executive offices of the Company in the Denver, Colorado area,
subject to such reasonable travel as may be appropriate or required in the
performance of Employee's duties in the business of the Company.
3. Compensation. The Company shall pay or cause to be paid to Employee,
during the tenn of employment, an annual salary in respect of each calendar year
at the rate of not less than $150,000.00 per annum. The Company may increase,
but not decrease, such annual salary at any time and from time to time during
the term of employment. In addition to annual salary, Employee may be entitled
to receive an annual bonus in respect of each calendar year based on a target
percentage of the salary paid to Employee during such calendar year of 50%.
Subject to Section 5, and the second paragraph of this Section 3, Employee
acknowledges that his or her actual annual bonus may vary and range from 0% to
150% of the target amount, depending on actual performance of the Company and
Employee.
Subject to Section 5 and the second sentence of this Section 3, the Company
shall determine, in its sole discretion, the amount of any salary increase, the
amount of any annual bonus and whether to increase the target percentage of
Employee's annual bonus. The payment of any bonus compensation shall be made in
accordance with the Company's then current practices and policies, including
without limitation, less the usual required payroll deductions and withholding.
The Company shall pay or reimburse Employee, in accordance with Company
policies applicable to employees at Employee's level, for all travel,
entertainment and other business expenses actually incurred or paid by Employee
in the performance of his or her duties hereunder,
if properly substantiated and submitted.
4. Benefits. Employee shall be eligible to participate in any pension,
profit-sharing, employee stock ownership, vacation, insurance, hospitalization,
medical, health, disability and other employee benefit or welfare plan, program
or policy whether now existing or established hereafter (collectively, the
"Benefit Plans"), to the extent that employees at Employee's level are generally
deemed eligible under the general provisions thereof. The Company reserves the
right to amend or cancel any such Benefit Plan in its sole discretion.
5. Termination by Employee Following a Change in Control.
(a) Provided that notice of termination has not previously been
given under any other Section hereof, Employee shall have the right to terminate
his or her employment with the Company under this Agreement for cause upon 30
days prior written notice delivered to the Company at any time within 180 days
after Employee has actual knowledge of the occurrence of any of the following
events following a Change in Control, indicating in such notice which event has
occurred:
A. A change in the location of Employee's office or of the
Company's principal executive offices to a place which is more than 50
miles from the location of Employee's office or the location of the
Company's principal executive offices immediately prior to the occurrence
of a Change in Control;
B. A material reduction in Employee's decision-making,
budgetary, operating, staff and other responsibilities, taken as a whole,
from such responsibilities immediately prior to the occurrence of a Change
in Control, or a change in the person or persons to whom Employee reported
immediately prior to the occurrence of a Change in Control, to a person or
persons of lesser rank, title or responsibility; or
C. Any material breach of this Agreement by the Company.
(b) Upon the expiration of the 30-day notice period provided in
Section 5(a), Employee shall be relieved of his or her management position with
the Company and his or her duties hereunder. In the notice delivered by Employee
to the Company pursuant to Section 5(a), Employee shall elect either (A) to
terminate his or her employment with the Company, in which case Employee shall
receive: (x) subject to the terms thereof, all benefits which may be due to
Employee under the provisions of any Benefit Plan; and (y) in a lump sum
severance payment, within 30 days following the effective date of such
termination, the present value (using the discount rate described below) of an
amount equal to the sum of the annual salary at the rate in effect on the date
of termination of employment or immediately prior to the Change in Control,
whichever is greater, plus an annual bonus in a minimum amount equal to
Employee's then applicable target bonus amount or the Employee's applicable
target bonus amount in effect immediately prior to the Change in Control,
whichever is greater, for the remainder of the existing term of this Agreement,
without any further renewal or continuation, provided that such amount shall be
not less than the sum of such salary and bonus pro rated for an 18-month period;
or (B) to remain an employee of the Company for a period (as determined by
Employee) of up to 18 months following the date notice of termination is given
by Employee pursuant to Section 5(a), in which case Employee shall be relieved
of his or her management position with the Company and his or her duties
hereunder, and shall (i) continue to receive both salary, based on a rate equal
to his or her annual rate in effect on the date of giving notice of termination
of employment or immediately prior to the Change in Control, whichever is
greater, and annual bonuses in respect of such period (in each case payable
within 30 days after the end of the respective calendar year and prorated for
any portion of a year), each such bonus to be based on an amount equal to
Employee's then applicable target bonus amount or the Employee's applicable
target bonus amount in effect immediately prior to the Change in Control,
whichever is greater, and (ii) receive a discounted lump sum payment pursuant to
Section 5(b)(A)(y) for any portion of the Initial Term remaining after such
period; provided, however, that if Employee accepts full-time employment with
any other corporation, partnership, trust, government or other
entity ("Entity") during such period or notifies the Company in writing of his
or her intention to terminate his or her employment during such period, Employee
shall cease to be an employee of the Company effective upon the commencement of
such employment, or the effective date of such termination as specified by
Employee in such notice, and shall be entitled to receive, subject to the terms
thereof, all benefits due to Employee under the provisions of any Benefit Plan
and a discounted lump sum cash payment for the balance of the salary and bonuses
Employee would have been entitled to receive pursuant to this Section 5(b)(B)
had Employee remained on the Company's payroll until the end of the Initial Tenn
or such 18 month period, whichever is greater; provided, further, however, that
Employee shall not be entitled to receive any such lump sum cash payment if he
or she accepts full-time employment with any subsidiary or Affiliate of the
Company. For purposes of this Agreement, the term "Affiliate" shall mean an
Entity which, directly or indirectly, controls, is controlled by or is under
common control with, the Company or Time Warner Inc. ("TWI").
In addition, whether Employee elects 5(b)(A) or 5(b)(B), for a period
of the earlier of one year from the date of termination of employment or the
date Employee is eligible to receive health benefits by virtue of other
employment, Employee shall receive continued eligibility and enrollment
(including family coverage, if any), without a premium charge therefor, in
hospital, medical and dental insurance plans providing substantially equivalent
benefit coverage to those plans in which Employee was enrolled immediately prior
to the Change in Control unless waived in writing by Employee (or, in the event
such coverage cannot be provided, substantially similar benefits).
Any lump sum payments required to be made pursuant to this Section
5(b) shall be discounted to present value from the times at which such amounts
would have been paid absent any such termination at an annual discount rate for
the relevant period equal to the "applicable Federal rate" (within the meaning
of Section 1274(d) of the Internal Revenue Code of 1986 (the "Code")),
compounded semi-annually, in effect on the date of such termination, the use of
which rate
is hereby elected by the Company and Employee pursuant to Treas. Reg. (S)
1.280G-1Q/A32 (provided that in the event such election is not permitted, such
other rate determined as of such other date as is applicable for determining
present value under Section 280G of the Code shall be used).
6. Termination by Company.
(a) For Cause. Provided that notice of termination has not
previously been given under any other Section hereof, the Company shall have the
right to terminate Employee's employment for cause upon written notice to
Employee at any time. In such event, Employee's employment with the Company
shall terminate immediately and Employee shall be entitled to receive (i) any
earned and unpaid salary accrued through the date of such termination, and (ii)
subject to the terms thereof, any benefits which may be due to Employee under
the provisions of any Benefit Plan. Employee hereby disclaims any right to
receive a pro rata portion of his or her annual bonus with respect to the year
in which such termination occurs. For purposes hereof, "cause" shall mean
termination by action of the Company's Board of Directors or any committee
thereof because of Employee's conviction (treating a nolo contendere plea as a
conviction) of a felony (whether or not any right to appeal has been exercised)
or willful refusal without proper cause to perform his or her obligations under
this Agreement or because of Employee's material breach of the covenants
provided for in Sections 10, 11 and 12 of this Agreement. In the event (i) such
termination is because of the Employee's willful refusal without proper cause to
perform any one or more of his obligations under this Agreement, (ii) such
notice is the first such notice of termination for any reason delivered by the
Company to the Employee under this Section 6(a), and (iii) within 10 days
following the date of such notice the Employee shall cease his or her refusal
and shall use his or her best efforts to perform such obligations, the
termination shall not be effective.
(b) Other. Provided that notice of termination has not previously
been given under any other Section hereof, the Company shall have the right at
any time to terminate Employee's employment under this Agreement without cause,
by giving written notice thereof to Employee.
(i) If such notice is so given to Employee, Employee shall be
entitled to receive, subject to the terms thereof, all benefits which may be due
to Employee under the provisions of any Benefit Plan and to elect, within 30
days after receiving such notice, to receive either a lump sum severance payment
in the amount, and upon the terms and conditions, provided in Section 5(b)(A)
and calculated as set forth in the last paragraph of Section 5(b), or to remain
an employee of the Company upon the terms and conditions provided in Section
5(b)(B); provided, however, that (i) any reference therein to Section 5(a) shall
be deemed for purposes of this Section 6(b) to be a reference to this Section
6(b)(i), and (ii) if a Change in Control has not occurred, then (x) Employee's
salary shall be determined with reference to his or her then current annual
salary and (y) Employee's annual bonus shall equal at least the Employee's
target amount immediately prior to Employee's termination under this Section
6(b)(i).
(ii) For the period beginning when Employee receives notice of
termination from the Company pursuant to this Section 6(b), and ending six
months thereafter, Employee will, without charge to Employee, have use of
reasonable office space and reasonable office facilities at Employee's principal
job location immediately prior to his or her termination of employment, or other
location reasonably close to such location, together with reasonable secretarial
services in each case appropriate to an employee of Employee's position and
responsibilities prior to such termination of employment but taking into account
Employee's reduced need for such office space and secretarial services. Employee
will continue to be eligible to participate in the Company's Benefit Plans and
to receive, subject to the terms thereof, all benefits, which are received by
other employees at Employee's level thereunder other than options or similar
equity-based or incentive awards.
(iii) In the event that Employee's employment is terminated
prior to the occurrence of a Change in Control, or more than three years
following a Change in Control, then, in partial consideration for the Company's
obligation to make the payments described in this Section 6(b), Employee shall
execute and deliver to the Company a release in the form as set forth in Exhibit
A. The Company shall deliver such release to Employee at the time the Company
delivers notice of termination pursuant to this Section 6(b). Employee shall
execute and deliver such release to the Secretary of the Company within 21 days
of receipt of notice of termination. If Employee shall fail to execute and
deliver to the Company such release within 30 days of Employee's receipt thereof
from the Company, Employee's employment with the Company shall terminate
effective at the end of such 30-day period and Employee shall receive, in lieu
of the severance arrangements described in Section 6(b), a lump sum cash payment
in an amount determined in accordance with the personnel policies of the Company
then applicable.
7. Death; Disability.
(a) Death. If Employee shall die while employed by the Company,
Employee's employment under this Agreement shall thereupon terminate and
Employee's estate or beneficiaries, as the case may be, shall be entitled to
receive as promptly as practicable but in any event within 30 days after
reasonably satisfactory evidence of Employee's death is received by the Company
(i) any earned and unpaid salary accrued to Employee through the period ending
30 days following the date of Employee's death and a pro rata portion of the
target annual bonus amount in effect immediately prior to Employee's death; and
(11) subject to the terms thereof, any benefits which may be due to Employee's
estate or beneficiaries under the provisions of any Benefit Plan.
(b) Disability. Provided that notice of termination has not
previously been given under any Section hereof, if employee becomes ill or is
injured or disabled during the term of this Agreement such that Employee fails
to perform all or substantially all the duties to be rendered hereunder and such
failure continues for a period in excess of 26 consecutive weeks (a
"Disability"),
the Company may terminate the employment of Employee under this Agreement upon
written notice to Employee at any time and thereupon Employee shall be entitled
to receive (i) any earned and unpaid salary accrued through the date of such
termination; (ii) subject to the terms thereof, any benefits which may be due to
Employee under the provisions of any Benefit Plan; and (ill) a lump sum cash
payment equal to the sum of 75% of Employee's then current annual salary and
then applicable target annual bonus amount prorated for an 18-month period, less
the amount of any disability insurance proceeds payable to Employee under any
disability insurance policy or program covering Employee.
8. Stock Options and Other Incentive Awards. Upon Employee's termination
of employment with the Company for any reason, Employee's rights to benefits and
payments under any stock options, restricted shares or other incentive plans
shall be determined in accordance with the terms and provisions of such plans
and any agreements under which such stock options, restricted shares or other
awards were granted.
9. Change in Control. For purposes of this Agreement, a "Change in
Control" of the Company shall be deemed to have occurred at such time as TWI,
MediaOne Group, Inc. and Advance/Newhouse Partnership (and their respective
affiliates) (collectively, the "Founding Stockholders") as a group cease to have
the ability to elect a majority of the Board of Directors of the Company (other
than the chief executive officer of the Company and independent directors;
provided that independent directors shall be included in calculating whether the
foregoing majority requirement is satisfied if the directors nominated by the
Founding Stockholders (and their respective affiliates) do not constitute a
majority of the committee that selects the Board of Directors' nominees for
independent representatives) and a "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (other than the Founding Stockholders and their respective
affiliates) has become the ultimate "beneficial owner" (as defined in Rule l3d-3
under the Exchange Act) of more than 35% of the total voting
power of the voting interests of the Company on a fully diluted basis and such
ownership represents a greater percentage of the total voting power of the
voting interests of the Company, on a fully diluted basis, than is held by the
Founding Stockholders (and their respective affiliates) as a group on such date.
10. Trade Secrets; Work Products, Etc. Except in connection with the
performance of his or her duties hereunder, Employee hereby expressly covenants
and agrees that Employee will not at any time while employed by the Company or
thereafter, exploit, use, sell, publish, disclose, communicate or divulge to any
person or Entity, other than the Company and its subsidiaries, either directly
or indirectly, any trade secrets or confidential information, knowledge or data
regarding the Company or any of its subsidiaries or Affiliates or any of their
respective officers, directors or employees including, without limitation, the
existence and terms of this Agreement, other than such information, knowledge or
data which has been released by the Company or such subsidiaries, Affiliates or
others to the public (except that with respect to the terms of this Agreement
Employee may communicate such terms to Employee's spouse and Employee's
attorneys and financial advisors). Notwithstanding the foregoing, Employee may
disclose such trade secrets or confidential information, knowledge, data or
terms when required to do so by a court or government agency or legislative body
of competent jurisdiction, provided Employee first notifies the Company orally
and in writing as promptly as possible of such requirement so that the Company
may either seek an appropriate protective order or waive compliance with the
provisions of this Section, and provided further that if, in the absence of such
protective order or waiver, Employee is nevertheless, in the written opinion of
his or her counsel, reasonably acceptable to the Company, addressed to and
delivered to the Company, otherwise required to disclose such information to any
such court, government agency or legislative body or else stand liable for
contempt or suffer other material penalty, Employee may disclose such
information in such case without liability hereunder so long as such disclosure
does not exceed that required by such court, government agency or legislative
body.
Employee hereby grants and assigns to the Company all rights (including,
without limitation, any copyright or patent) in the results and proceeds of all
services provided by Employee hereunder and all such services shall be subject
in all respects to the supervision, control and direction of the Company. Any
work in connection with such services shall be considered "work made for hire"
under the Copyright Law of 1976 or any successor thereof, and the Company shall
be the owner of such work as if the Company were the author of such work.
11. Non-Compete, Solicitation. Employee hereby expressly covenants and
agrees that:
(a) Employee will not at any time during the Tenn of employment and
for a period of one year following the date a notice of termination of
Employee's employment is terminated (i.e., Employee is no longer considered an
employee for payroll purposes) as provided herein, be or become an officer,
director, partner or employee of or consultant to or act in any managerial
capacity with or own any equity interest in any Entity (an "Affiliated Person")
which is a "Competitive Business Entity" (as such term is defined on Exhibit B
hereto); provided, however, that (i) ownership of less than 1% of the
outstanding equity securities of any Entity listed on any national securities
exchange or traded on the National Association of Securities Dealers Automated
Quotation System shall not be prohibited hereby, and (ii) in the event Employee
is terminated pursuant to Section 6(b) and notice of termination is so given to
Employee following the occurrence of a Change in Control, Employee is hereby
permitted to accept employment with any Founding Stockholder and such employment
shall not violate the provisions of this Section 11.
(b) Employee will not at any time during the Term of employment and
for a period of one year after the date Employee's employment is terminated as
provided herein, solicit (or assist or encourage the solicitation of) any
employee of the Company or any of its subsidiaries or Affiliates to work for
Employee or for any Entity in which Employee owns or expects to own more than a
1% equity interest or for which Employee serves or expects to serve as an
Affiliated Person.
For the purposes of this Section 11(b), the term "solicit any
employee" shall mean Employee's contacting, or providing information to others
who may be expected to contact, any employee of the Company or any of its
subsidiaries or Affiliates regarding their employment status, job satisfaction,
interest in seeking employment with Employee or any Affiliated Person or any
related matter, but shall not include general print advertising for personnel or
responding to an unsolicited request for a personal recommendation for or
evaluation of an employee of the Company or any of its subsidiaries or
Affiliates.
12. Documents; Conduct. Employee hereby expressly covenants and agrees
that:
(a) Following termination of Employee's employment with the Company
for any reason or at any time upon the Company's request, Employee will promptly
return to the Company all property of the Company and its subsidiaries and
Affiliates in his or her possession or control (whether maintained at his or her
office, home or elsewhere), including, without limitation, all copies of all
management studies, business or strategic plans, budgets, notebooks and other
printed, typed or written materials, documents, diaries, calendars and data of
or relating to the Company or its subsidiaries or Affiliates or their respective
personnel or affairs; and
(b) Employee will not at any time denigrate, ridicule or
intentionally criticize the Company or any of its subsidiaries or Affiliates or
any of their respective products, properties, employees, officers or directors,
including, without limitation, by way of news interviews, or the expression of
personal views, opinions or judgments to the news media.
13. Breach by Employee . Employee hereby expressly covenants and agrees
that the Company will suffer irreparable damage in the event any provisions of
Sections 10, 11 and 12 are not performed or are otherwise breached and that the
Company shall be entitled as a matter of right to an injunction or injunctions
and other relief to prevent a breach or violation by Employee and to secure its
enforcement of Section 10, 11 and 12 resort to such equitable relief, however,
shall not constitute a waiver of any other rights or remedies which the Company
may have.
14. Representations.
(a) Employee represents and warrants to the Company that this
Agreement is legal, valid and binding upon Employee and Employee is not a party
to any agreement or understanding which would prevent the fulfillment by
Employee of the terms of this Agreement. Employee has consulted with his or her
legal, tax, financial and other advisors, to the extent desired, prior to
execution and delivery of this Agreement.
(b) The Company represents and warrants to Employee that this
Agreement is legal, valid and binding upon the Company and the Company is not a
party to any agreement or understanding which would prevent the fulfillment by
the Company of the terms of this Agreement.
15. Notice. Any notice required or permitted to be given hereunder shall
be in writing (except where required to be given orally) and shall be
sufficiently given or sent by registered or certified mail or delivered, in
person, if to Employee at the address set forth on the last paragraph hereof, or
at such other address as Employee shall designate by written notice to the
Company, and if to the Company at 10475 Park Meadows Drive, Littleton, CO 80124,
attention of the Secretary or at such other address as the Company shall
designate by written notice to Employee.
16. Successors and Assigns. This Agreement is personal in its nature and
neither of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any right or obligations hereunder; provided however,
that the provisions hereof shall inure to the benefit of, and be binding upon,
any successor of the Company, whether by merger, consolidation, transfer of all
or substantially all of the assets of the Company, or otherwise.
17. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York, irrespective of
its conflicts of law rules, except for the By-laws referred to in Section 26,
which shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware.
To the extent that any applicable state or Federal law, rule or
regulation confers upon Employee any greater benefit or right than that set
forth in this Agreement, such law, rule or regulation shall control in lieu of
the provisions hereof relating to such benefit or right.
18. Mitigation. Employee shall have no obligation to mitigate damages in
the event of termination of Employee's employment under this Agreement under
Section 5(a), 6(b) or 7, other than as necessary to prevent the Company from
losing any tax deductions to which it otherwise would have been entitled for any
payments deemed to be "contingent on a change" under the Code and any payments
received by Employee hereunder shall not be offset or reduced in any way by any
other earnings or payments which may be received by Employee from any source,
except as provided by this Section 18. It is acknowledged and agreed that any
payment which may be made by the Company to Employee under Section 5(b), 6(b) or
7 is in the nature of severance and is not a penalty payment.
19. Withholding. All payments required to be paid by the Company to
Employee under this Agreement will be paid in accordance with the payroll
practices of the Company or the terms of the Benefit Plans, as the case may be,
and will be subject to withholding taxes, social security and other payroll
deductions in accordance with the Company's policies applicable to employees at
Employee's level and the terms of the Benefit Plan.
20. Complete Understanding. This Agreement supersedes any prior
contracts, understandings, discussions and agreements relating to employment
between Employee, on the one hand, and the Company and its subsidiaries and
Affiliates, on the other, and constitutes the complete understanding between the
parties with respect to the subject matter hereof. No statement, representation,
warranty or covenant has been made by either party with respect thereto except
as expressly set forth herein.
21. Modification; Waiver. This Agreement cannot be changed, modified or
amended and no provision or requirement hereof may be waived without the consent
in writing of both the parties hereto. No waiver by either party at any time of
any breach by the other party of any condition or provision of this Agreement
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. Subject to Section 28, no policy,
procedure or practice of the Company whether now or hereafter in effect shall be
deemed to modify, amend or supersede any provision of this Agreement except as
contemplated or provided otherwise in this Agreement.
22. Headings. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
23. Use of Likeness. The Company and TWI shall have the right to use
Employee's name, biography and likeness in connection with their respective
businesses and that of their subsidiaries and Affiliates, but not for use as a
direct endorsement.
24. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
25. Set-off. The Company and its subsidiaries and Affiliates shall have
no right to set-off payments owed to Employee hereunder against amounts owed or
claimed to be owed by Employee to the Company or its subsidiaries or Affiliates
under this Agreement or otherwise.
26. Indemnification. The Company shall indemnify Employee to no lesser
extent than provided in the Company's By-laws on the date hereof (the provisions
of which are hereby incorporated by reference herein), notwithstanding any
changes or amendments to such By-laws after the date hereof adversely affecting,
limiting or reducing such indemnification.
27. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
28. Changes. Subject to Section 5, the Company and its subsidiaries and
Affiliates are entitled to amend, modify, terminate or otherwise change at any
time or from time to time any and all Benefit Plans and policies, practices or
procedures referred to in this Agreement, and all references herein to such
Benefit Plans and policies, practices and procedures shall be to such as from
time to time in effect prior to a Change in Control except as otherwise
specifically herein provided.
29. Beneficiaries. Whenever this Agreement provides for any payment to the
Employee's estate, such payment may be made instead to such beneficiary or
beneficiaries as the Employee may designate in writing (using the form of
Beneficiary Designation attached hereto as Exhibit C) and file with the Company.
The Employee shall have the right to revoke such Beneficiary Designation and
redesignate a beneficiary by filing with the Company (and any applicable
insurance company) a later dated Beneficiary Designation to such effect.
IN WITNESS WHEREOF, Employee and the Company have caused this Agreement
to be executed as of the date first above written.
TIME WARNER TELECOM INC.
By: /s/Larissa L. Herda
----------------------------------
Name: Larissa L. Herda
Title: President & Chief Executive
Officer
Agreed to and accepted as of
the date first above written
Address for Notices:
7590 Argonnest
Aurora, Co 80010
EXHIBIT B
"Competitive Business Entity" shall mean any Entity which is engaged,
either directly or indirectly, in the ownership, operation or management of any
business that provides to customers at any location within the United States (or
its territories and dependencies) any telecommunications, any internet access
services or any other transport or network services for internet protocol based
information.
All capitalized terms used herein shall have the meanings provided in the
Employment Agreement to which this Exhibit B is attached.
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
Employment Agreement made as of January 17,2000, effective as of January 1,
2000, between TIME WARNER TELECOM INC., a Delaware corporation (the "Company"),
and the employee whose name appears on the last page hereof (the "Employee").
The Company shall employ the Employee on the following terms and conditions:
1. Term. The Company hereby employs Employee and Employee hereby accepts
such employment upon the terms and conditions hereof for an initial term
commencing on January 1, 2000 (the "Effective Date") and ending, subject to
renewal or termination as provided herein, on the December 31 immediately prior
to the third anniversary of the Effective Date (the "Initial Term"); provided,
however, that this Agreement shall automatically continue for successive one
month periods thereafter (each such period being an "Additional Term") unless
either party has delivered written notice of termination to the other party no
later than six months prior to the end of the Initial Term or 60 days prior to
the end of any Additional Term. Sections 8, 10 through 22 and 24 through 28
shall survive any termination of Employee's employment under this Agreement. The
Employee hereby covenants that as of the Effective Date any agreement between
Employee and the Company, Time Warner Cable, US WEST, Inc. or MediaOne Group,
Inc., respectively, or any of their affiliates, entered into prior to the date
hereof, relating to Employee's employment with such entity, shall terminate as
of, or have been terminated prior to, the Effective Date.
2. Duties. Employee shall serve as Senior Vice President, Technical
Operations or subject to Section 5, in such other senior management position as
the Company shall determine. Subject to the foregoing, Employee shall perform
such duties as may be assigned by the Company to Employee from time to time, and
shall travel for business purposes to the extent reasonably necessary or
appropriate in the performance of such duties.
Employee shall perform such duties on a full time basis (subject to the
Company's written
policies on vacations, illness, government service, etc. applicable to employees
at Employee's level in effect from time to time), provided, however, that
Employee shall not be precluded from devoting such time to personal affairs as
shall not interfere with the performance of his or her duties hereunder. In
performing his or her duties hereunder, Employee shall comply with the Company's
policies and procedures in effect from time to time. Unless Employee otherwise
consents, the headquarters for the performance of Employee's services shall be
the principal executive offices of the Company in the Denver, Colorado area,
subject to such reasonable travel as may be appropriate or required in the
performance of Employee's duties in the business of the Company.
3. Compensation. The Company shall pay or cause to be paid to Employee,
during the term of employment, an annual salary in respect of each calendar year
at the rate of not less than $172,291.57 per annum. The Company may increase,
but not decrease, such annual salary at any time and from time to time during
the term of employment. In addition to annual salary, Employee may be entitled
to receive an annual bonus in respect of each calendar year based on a target
percentage of the salary paid to Employee during such calendar year of 50%.
Subject to Section 5, and the second paragraph of this Section 3, Employee
acknowledges that his or her actual annual bonus may vary and range from 0% to
150% of the target amount, depending on actual performance of the Company and
Employee.
Subject to Section 5 and the second sentence of this Section 3, the Company
shall determine, in its sole discretion, the amount of any salary increase, the
amount of any annual bonus and whether to increase the target percentage of
Employee's annual bonus. The payment of any bonus compensation shall be made in
accordance with the Company's then current practices and policies, including
without limitation, less the usual required payroll deductions and withholding.
The Company shall pay or reimburse Employee, in accordance with Company
policies applicable to employees at Employee's level, for all travel,
entertainment and other business expenses actually incurred or paid by Employee
in the performance of his or her duties hereunder,
if properly substantiated and submitted.
4. Benefits. Employee shall be eligible to participate in any pension,
profit-sharing, employee stock ownership, vacation, insurance, hospitalization,
medical, health, disability and other employee benefit or welfare plan, program
or policy whether now existing or established hereafter (collectively, the
"Benefit Plans"), to the extent that employees at Employee's level are generally
deemed eligible under the general provisions thereof The Company reserves the
right to amend or cancel any such Benefit Plan in its sole discretion.
5. Termination by Employee Following a Change in Control.
(a) Provided that notice of termination has not previously been given
under any other Section hereof, Employee shall have the right to terminate his
or her employment with the Company under this Agreement for cause upon 30 days
prior written notice delivered to the Company at any time within 180 days after
Employee has actual knowledge of the occurrence of any of the following events
following a Change in Control, indicating in such notice which event has
occurred:
A. A change in the location of Employee's office or of the
Company's principal executive offices to a place which is more than 50 miles
from the location of Employee's office or the location of the Company's
principal executive offices immediately prior to the occurrence of a Change in
Control;
B. A material reduction in Employee's decision-making,
budgetary, operating, staff and other responsibilities, taken as a whole, from
such responsibilities immediately prior to the occurrence of a Change in
Control, or a change in the person or persons to whom Employee reported
immediately prior to the occurrence of a Change in Control, to a person or
persons of lesser rank, title or responsibility; or
C. Any material breach of this Agreement by the Company.
(b) Upon the expiration of the 30-day notice period provided in
Section 5(a), Employee shall be relieved of his or her management position with
the Company and his or her duties hereunder. In the notice delivered by Employee
to the Company pursuant to Section 5(a), Employee shall elect either (A) to
terminate his or her employment with the Company, in which case Employee shall
receive: (x) subject to the terms thereof, all benefits which may be due to
Employee under the provisions of any Benefit Plan; and (y) in a lump sum
severance payment, within 30 days following the effective date of such
termination, the present value (using the discount rate described below) of an
amount equal to the sum of the annual salary at the rate in effect on the date
of termination of employment or immediately prior to the Change in Control,
whichever is greater, plus an annual bonus in a minimum amount equal to
Employee's then applicable target bonus amount or the Employee's applicable
target bonus amount in effect immediately prior to the Change in Control,
whichever is greater, for the remainder of the existing term of this Agreement,
without any further renewal or continuation, provided that such amount shall be
not less than the sum of such salary and bonus pro rated for an 18-month period;
or (B) to remain an employee of the Company for a period (as determined by
Employee) of up to 18 months following the date notice of termination is given
by Employee pursuant to Section 5(a), in which case Employee shall be relieved
of his or her management position with the Company and his or her duties
hereunder, and shall (i) continue to receive both salary, based on a rate equal
to his or her annual rate in effect on the date of giving notice of termination
of employment or immediately prior to the Change in Control, whichever is
greater, and annual bonuses in respect of such period (in each case payable
within 30 days after the end of the respective calendar year and prorated for
any portion of a year), each such bonus to be based on an amount equal to
Employee's then applicable target bonus amount or the Employee's applicable
target bonus amount in effect immediately prior to the Change in Control,
whichever is greater, and (ii) receive a discounted lump sum payment pursuant to
Section 5(b)(A)(y) for any portion of the Initial Term remaining after such
period; provided, however, that if Employee accepts full-time employment with
any other corporation, partnership, trust, government or other
entity ("Entity") during such period or notifies the Company in writing of his
or her intention to terminate his or her employment during such period, Employee
shall cease to be an employee of the Company effective upon the commencement of
such employment, or the effective date of such termination as specified by
Employee in such notice, and shall be entitled to receive, subject to the terms
thereof, all benefits due to Employee under the provisions of any Benefit Plan
and a discounted lump sum cash payment for the balance of the salary and bonuses
Employee would have been entitled to receive pursuant to this Section 5(b)(B)
had Employee remained on the Company's payroll until the end of the Initial Term
or such 18 month period, whichever is greater; provided, further, however, that
Employee shall not be entitled to receive any such lump sum cash payment if he
or she accepts full-time employment with any subsidiary or Affiliate of the
Company. For purposes of this Agreement, the term "Affiliate" shall mean an
Entity which, directly or indirectly, controls, is controlled by or is under
common control with, the Company or Time Warner Inc. ("TWI").
In addition, whether Employee elects 5(b)(A) or 5(b)(B), for a period
of the earlier of one year from the date of termination of employment or the
date Employee is eligible to receive health benefits by virtue of other
employment, Employee shall receive continued eligibility and enrollment
(including family coverage, if any), without a premium charge therefor, in
hospital, medical and dental insurance plans providing substantially equivalent
benefit coverage to those plans in which Employee was enrolled immediately prior
to the Change in Control unless waived in writing by Employee (or, in the event
such coverage cannot be provided, substantially similar benefits).
Any lump sum payments required to be made pursuant to this Section
5(b) shall be discounted to present value from the times at which such amounts
would have been paid absent any such termination at an annual discount rate for
the relevant period equal to the "applicable Federal rate" (within the meaning
of Section 1274(d) of the Internal Revenue Code of 1986 (the "Code")),
compounded semi-annually, in effect on the date of such termination, the use of
which rate
is hereby elected by the Company and Employee pursuant to Treas. Reg. (S)
1.280G-1Q/A32 (provided that in the event such election is not permitted, such
other rate determined as of such other date as is applicable for determining
present value under Section 280G of the Code shall be used).
6. Termination by Company.
(a) For Cause. Provided that notice of termination has not previously
been given under any other Section hereof, the Company shall have the right to
terminate Employee's employment for cause upon written notice to Employee at any
time. In such event, Employee's employment with the Company shall terminate
immediately and Employee shall be entitled to receive (i) any earned and unpaid
salary accrued through the date of such termination, and (ii) subject to the
terms thereof, any benefits which may be due to Employee under the provisions of
any Benefit Plan. Employee hereby disclaims any right to receive a pro rata
portion of his or her annual bonus with respect to the year in which such
termination occurs. For purposes hereof, "cause" shall mean termination by
action of the Company's Board of Directors or any committee thereof because of
Employee's conviction (treating a nolo contendere plea as a conviction) of a
felony (whether or not any right to appeal has been exercised) or willful
refusal without proper cause to perform his or her obligations under this
Agreement or because of Employee's material breach of the covenants provided for
in Sections 10, 11 and 12 of this Agreement. In the event (i) such termination
is because of the Employee's willful refusal without proper cause to perform any
one or more of his obligations under this Agreement, (ii) such notice is the
first such notice of termination for any reason delivered by the Company to the
Employee under this Section 6(a), and (iii) within 10 days following the date of
such notice the Employee shall cease his or her refusal and shall use his or her
best efforts to perform such obligations, the termination shall not be
effective.
(b) Other. Provided that notice of termination has not previously been
given under any other Section hereof, the Company shall have the right at any
time to terminate Employee's employment under this Agreement without cause, by
giving written notice thereof to Employee.
(1) If such notice is so given to Employee, Employee shall be
entitled to receive, subject to the terms thereof, all benefits which may be due
to Employee under the provisions of any Benefit Plan and to elect, within 30
days after receiving such notice, to receive either a lump sum severance payment
in the amount, and upon the terms and conditions, provided in Section 5(b)(A)
and calculated as set forth in the last paragraph of Section 5(b), or to remain
an employee of the Company upon the terms and conditions provided in Section
5(b)(B); provided, however, that (i) any reference therein to Section 5(a) shall
be deemed for purposes of this Section 6(b) to be a reference to this Section
6(b)(i), and (ii) if a Change in Control has not occurred, then (x) Employee's
salary shall be determined with reference to his or her then current annual
salary and (y) Employee's annual bonus shall equal at least the Employee's
target amount immediately prior to Employee's termination under this Section
6(b)(i).
(ii) For the period beginning when Employee receives notice of
termination from the Company pursuant to this Section 6(b), and ending six
months thereafter, Employee will, without charge to Employee, have use of
reasonable office space and reasonable office facilities at Employee's principal
job location immediately prior to his or her termination of employment, or other
location reasonably close to such location, together with reasonable secretarial
services in each case appropriate to an employee of Employee's position and
responsibilities prior to such termination of employment but taking into account
Employee's reduced need for such office space and secretarial services. Employee
will continue to be eligible to participate in the Company's Benefit Plans and
to receive, subject to the terms thereof, all benefits, which are received by
other employees at Employee's level thereunder other than options or similar
equity-based or incentive awards.
(iii) In the event that Employee's employment is terminated prior to
the occurrence of a Change in Control, or more than three years following a
Change in Control, then, in partial consideration for the Company's obligation
to make the payments described in this Section 6(b), Employee shall execute and
deliver to the Company a release in the form as set forth in Exhibit A. The
Company shall deliver such release to Employee at the time the Company delivers
notice of termination pursuant to this Section 6(b). Employee shall execute and
deliver such release to the Secretary of the Company within 21 days of receipt
of notice of termination. If Employee shall fail to execute and deliver to the
Company such release within 30 days of Employee's receipt thereof from the
Company, Employee's employment with the Company shall terminate effective at the
end of such 30-day period and Employee shall receive, in lieu of the severance
arrangements described in Section 6(b), a lump sum cash payment in an amount
determined in accordance with the personnel policies of the Company then
applicable.
7. Death, Disability.
(a) Death. If Employee shall die while employed by the Company,
Employee's employment under this Agreement shall thereupon terminate and
Employee's estate or beneficiaries, as the case may be, shall be entitled to
receive as promptly as practicable but in any event within 30 days after
reasonably satisfactory evidence of Employee's death is received by the Company
(1) any earned and unpaid salary accrued to Employee through the period ending
30 days following the date of Employee's death and a pro rata portion of the
target annual bonus amount in effect immediately prior to Employee's death; and
(ii) subject to the terms thereof, any benefits which may be due to Employee's
estate or beneficiaries under the provisions of any Benefit Plan.
(b) Disability. Provided that notice of termination has not previously
been given under any Section hereof, if employee becomes ill or is injured or
disabled during the term of this Agreement such that Employee fails to perform
all or substantially all the duties to be rendered hereunder and such failure
continues for a period in excess of 26 consecutive weeks (a "Disability"),
the Company may terminate the employment of Employee under this Agreement upon
written notice to Employee at any time and thereupon Employee shall be entitled
to receive (i) any earned and unpaid salary accrued through the date of such
termination; (ii) subject to the terms thereof, any benefits which may be due to
Employee under the provisions of any Benefit Plan; and (iii) a lump sum cash
payment equal to the sum of 75% of Employee's then current annual salary and
then applicable target annual bonus amount prorated for an 18-month period, less
the amount of any disability insurance proceeds payable to Employee under any
disability insurance policy or program covering Employee.
8. Stock Options and Other Incentive Awards. Upon Employee's termination of
employment with the Company for any reason, Employee's rights to benefits and
payments under any stock options, restricted shares or other incentive plans
shall be determined in accordance with the terms and provisions of such plans
and any agreements under which such stock options, restricted shares or other
awards were granted.
9. Change in Control. For purposes of this Agreement, a "Change in Control"
of the Company shall be deemed to have occurred at such time as TWI, MediaOne
Group, Inc. and Advance/Newhouse Partnership (and their respective affiliates)
(collectively, the "Founding Stockholders") as a group cease to have the ability
to elect a majority of the Board of Directors of the Company (other than the
chief executive officer of the Company and independent directors; provided that
independent directors shall be included in calculating whether the foregoing
majority requirement is satisfied if the directors nominated by the Founding
Stockholders (and their respective affiliates) do not constitute a majority of
the committee that selects the Board of Directors' nominees for independent
representatives) and a "person" or "group" (within the meaning of Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (other than the Founding Stockholders and their respective affiliates)
has become the ultimate "beneficial owner" (as defined in Rule l3d-3 under the
Exchange Act) of more than 35% of the total voting
power of the voting interests of the Company on a fully diluted basis and such
ownership represents a greater percentage of the total voting power of the
voting interests of the Company, on a fully diluted basis, than is held by the
Founding Stockholders (and their respective affiliates) as a group on such date.
10. Trade Secrets; Work Products, Etc. Except in connection with the
performance of his or her duties hereunder, Employee hereby expressly covenants
and agrees that Employee will not at any time while employed by the Company or
thereafter, exploit, use, sell, publish, disclose, communicate or divulge to any
person or Entity, other than the Company and its subsidiaries, either directly
or indirectly, any trade secrets or confidential information, knowledge or data
regarding the Company or any of its subsidiaries or Affiliates or any of their
respective officers, directors or employees including, without limitation, the
existence and terms of this Agreement, other than such information, knowledge or
data which has been released by the Company or such subsidiaries, Affiliates or
others to the public (except that with respect to the terms of this Agreement
Employee may communicate such terms to Employee's spouse and Employee's
attorneys and financial advisors). Notwithstanding the foregoing, Employee may
disclose such trade secrets or confidential information, knowledge, data or
terms when required to do so by a court or government agency or legislative body
of competent jurisdiction, provided Employee first notifies the Company orally
and in writing as promptly as possible of such requirement so that the Company
may either seek an appropriate protective order or waive compliance with the
provisions of this Section, and provided further that if, in the absence of
such protective order or waiver, Employee is nevertheless, in the written
opinion of his or her counsel, reasonably acceptable to the Company, addressed
to and delivered to the Company, otherwise required to disclose such information
to any such court, government agency or legislative body or else stand liable
for contempt or suffer other material penalty, Employee may disclose such
information in such case without liability hereunder so long as such disclosure
does not exceed that required by such court, government agency or legislative
body.
Employee hereby grants and assigns to the Company all rights (including,
without limitation, any copyright or patent) in the results and proceeds of all
services provided by Employee hereunder and all such services shall be subject
in all respects to the supervision, control and direction of the Company. Any
work in connection with such services shall be considered "work made for hire"
under the Copyright Law of 1976 or any successor thereof, and the Company shall
be the owner of such work as if the Company were the author of such work.
11. Non-Compete; Solicitation. Employee hereby expressly covenants and
agrees that:
(a) Employee will not at any time during the Term of employment and for
a period of one year following the date a notice of termination of Employee's
employment is terminated Employee is no longer considered an employee for
payroll purposes) as provided herein, be or become an officer, director, partner
or employee of or consultant to or act in any managerial capacity with or own
any equity interest in any Entity (an "Affiliated Person") which is a
"Competitive Business Entity" (as such term is defined on Exhibit B hereto);
provided , however, that (i) ownership of less than 1% of the outstanding equity
securities of any Entity listed on any national securities exchange or traded on
the National Association of Securities Dealers Automated Quotation System shall
not be prohibited hereby, and (ii) in the event Employee is terminated pursuant
to Section 6(b) and notice of termination is so given to Employee following the
occurrence of a Change in Control, Employee is hereby permitted to accept
employment with any Founding Stockholder and such employment shall not violate
the provisions of this Section 11.
(b) Employee will not at any time during the Term of employment and for
a period of one year after the date Employee's employment is terminated as
provided herein, solicit (or assist or encourage the solicitation of) any
employee of the Company or any of its subsidiaries or Affiliates to work for
Employee or for any Entity in which Employee owns or expects to own more than a
1 % equity interest or for which Employee serves or expects to serve as an
Affiliated Person.
For the purposes of this Section 11(b), the term "solicit any
employee" shall mean Employee's contacting, or providing information to others
who may be expected to contact, any employee of the Company or any of its
subsidiaries or Affiliates regarding their employment status, job satisfaction,
interest in seeking employment with Employee or any Affiliated Person or any
related matter, but shall not include general print advertising for personnel or
responding to an unsolicited request for a personal recommendation for or
evaluation of an employee of the Company or any of its subsidiaries or
Affiliates.
12. Documents; Conduct. Employee hereby expressly covenants and
agrees that:
(a) Following termination of Employee's employment with the
Company for any reason or at any time upon the Company's request, Employee will
promptly return to the Company all property of the Company and its subsidiaries
and Affiliates in his or her possession or control (whether maintained at his or
her office, home or elsewhere), including, without limitation, all copies of all
management studies, business or strategic plans, budgets, notebooks and other
printed, typed or written materials, documents, diaries, calendars and data of
or relating to the Company or its subsidiaries or Affiliates or their respective
personnel or affairs; and
(b) Employee will not at any time denigrate, ridicule or
intentionally criticize the Company or any of its subsidiaries or Affiliates or
any of their respective products, properties, employees, officers or directors,
including, without limitation, by way of news interviews, or the expression of
personal views, opinions or judgments to the news media.
13. Breach by Employee. Employee hereby expressly covenants and
agrees that the Company will suffer irreparable damage in the event any
provisions of Sections 10, 11 and 12 are not performed or are otherwise breached
and that the Company shall be entitled as a matter of right to an injunction or
injunctions and other relief to prevent a breach or violation by Employee and to
secure its enforcement of Section 10, 11 and 12 resort to such equitable relief,
however, shall not constitute a waiver of any other rights or remedies which the
Company may have.
14. Representations.
(a) Employee represents and warrants to the Company that this Agreement
is legal, valid and binding upon Employee and Employee is not a party to any
agreement or understanding which would prevent the fulfillment by Employee of
the terms of this Agreement. Employee has consulted with his or her legal, tax,
financial and other advisors, to the extent desired, prior to execution and
delivery of this Agreement.
(b) The Company represents and warrants to Employee that this Agreement
is legal, valid and binding upon the Company and the Company is not a party to
any agreement or understanding which would prevent the fulfillment by the
Company of the terms of this Agreement.
15. Notice. Any notice required or permitted to be given hereunder shall be
in writing (except where required to be given orally) and shall be sufficiently
given or sent by registered or certified mail or delivered, in person, if to
Employee at the address set forth on the last paragraph hereof, or at such other
address as Employee shall designate by written notice to the Company, and if to
the Company at 10475 Park Meadows Drive, Littleton, CO 80124, attention of the
Secretary or at such other address as the Company shall designate by written
notice to Employee.
16. Successors and Assigns. This Agreement is personal in its nature and
neither of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any right or obligations hereunder; provided however,
that the provisions hereof shall inure to the benefit of, and be binding upon,
any successor of the Company, whether by merger, consolidation, transfer of all
or substantially all of the assets of the Company, or otherwise.
17. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York, irrespective of
its conflicts of law rules, except for the By-laws referred to in Section 26,
which shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware.
To the extent that any applicable state or Federal law, rule or
regulation confers upon Employee any greater benefit or right than that set
forth in this Agreement, such law, rule or regulation shall control in lieu of
the provisions hereof relating to such benefit or right.
18. Mitigation. Employee shall have no obligation to mitigate damages in
the event of termination of Employee's employment under this Agreement under
Section 5(a), 6(b) or 7, other than as necessary to prevent the Company from
losing any tax deductions to which it otherwise would have been entitled for any
payments deemed to be "contingent on a change" under the Code and any payments
received by Employee hereunder shall not be offset or reduced in any way by any
other earnings or payments which may be received by Employee from any source,
except as provided by this Section 18. It is acknowledged and agreed that any
payment which may be made by the Company to Employee under Section 5(b), 6(b) or
7 is in the nature of severance and is not a penalty payment.
19. Withholding. All payments required to be paid by the Company to
Employee under this Agreement will be paid in accordance with the payroll
practices of the Company or the terms of the Benefit Plans, as the case may be,
and will be subject to withholding taxes, social security and other payroll
deductions in accordance with the Company's policies applicable to employees at
Employee's level and the terms of the Benefit Plan.
20. Complete Understanding. This Agreement supersedes any prior contracts,
understandings, discussions and agreements relating to employment between
Employee, on the one hand, and the Company and its subsidiaries and Affiliates,
on the other, and constitutes the complete understanding between the parties
with respect to the subject matter hereof. No statement, representation,
warranty or covenant has been made by either party with respect thereto except
as expressly set forth herein.
21. Modification, Waiver. This Agreement cannot be changed, modified or
amended and no provision or requirement hereof may be waived without the consent
in writing of both the parties hereto. No waiver by either party at any time of
any breach by the other party of any condition or provision of this Agreement
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. Subject to Section 28, no policy,
procedure or practice of the Company whether now or hereafter in effect shall be
deemed to modify, amend or supersede any provision of this Agreement except as
contemplated or provided otherwise in this Agreement.
22. Heading . The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
23. Use of Likeness. The Company and TWI shall have the right to use
Employee's name, biography and likeness in connection with their respective
businesses and that of their subsidiaries and Affiliates, but not for use as a
direct endorsement.
24. Validity . The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
25. Set-off. The Company and its subsidiaries and Affiliates shall have no
right to set-off payments owed to Employee hereunder against amounts owed or
claimed to be owed by Employee to the Company or its subsidiaries or Affiliates
under this Agreement or otherwise.
26. Indemnification. The Company shall indemnify Employee to no lesser
extent than provided in the Company's By-laws on the date hereof (the provisions
of which are hereby incorporated by reference herein), notwithstanding any
changes or amendments to such By-laws after the date hereof adversely affecting,
limiting or reducing such indemnification.
27. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
28. Changes. Subject to Section 5, the Company and its subsidiaries and
Affiliates are entitled to amend, modify, terminate or otherwise change at any
time or from time to time any and all Benefit Plans and policies, practices or
procedures referred to in this Agreement, and all references herein to such
Benefit Plans and policies, practices and procedures shall be to such as from
time to time in effect prior to a Change in Control except as otherwise
specifically herein provided.
29. Beneficiaries. Whenever this Agreement provides for any payment to the
Employee's estate, such payment may be made instead to such beneficiary or
beneficiaries as the Employee may designate in writing (using the form of
Beneficiary Designation attached hereto as Exhibit C) and file with the Company.
The Employee shall have the right to revoke such Beneficiary Designation and
redesignate a beneficiary by filing with the Company (and any applicable
insurance company) a later dated Beneficiary Designation to such effect.
IN WITNESS WHEREOF, Employee and the Company have caused this Agreement
to be executed as of the date first above written.
TIME WARNER TELECOM INC.
By: /s/Larissa L. Herda
----------------------------------
Name: Larissa L. Herda
Title: President & Chief Executive
Officer
Agreed to and accepted as of
the date first above written
Address for Notices:
1147 E. Jesse Court
Highlands Ranch, Co
80126
EXHIBIT B
"Competitive Business Entity" shall mean any Entity which is engaged,
either directly or indirectly, in the ownership, operation or management of any
business that provides to customers at any location within the United States (or
its territories and dependencies) any telecommunications, any internet access
services or any other transport or network services for internet protocol based
information.
All capitalized terms used herein shall have the meanings provided in the
Employment Agreement to which this Exhibit B is attached.
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following registration
statements of Time Warner Telecom Inc. and in the related prospectuses of our
report dated February 4, 2000, with respect to the consolidated financial
statements of Time Warner Telecom Inc. included in this Annual Report (Form 10-
K) for the year ended December 31, 1999:
1. Registration Statement on Form S-8 (No. 333-49439) pertaining to the Time
Warner Telecom Inc. 1998 Stock Option Plan
2. Registration Statement on Form S-8 (No. 333-91963) pertaining to the Time
Warner Telecom 2000 Qualified Stock Purchase Plan
/s/ ERNST & YOUNG LLP
Denver, Colorado
March 17, 2000
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