NATOA CONFERENCE CALL June 8, 2005

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NATOA CONFERENCE CALLJune 8, 2005

• ADELPHIA BANKRUPTCY
• The Baller Herbst Law Group
• Miller Van Eaton
• Seward Kissel

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Overview

• PART I. BANKRUPTCY ISSUES
• Adelphias Asset Sale
• The Bankruptcy Process
• Bankruptcy Law Assumption and Assignment
• Anticipated Assumption and Assignment Process
• Conflicting Goals of Bankruptcy and Cable Laws
• Timeline of Bankruptcy Related Events
• PART II. CABLE TRANSFER ISSUES
• General Law
• Form 394
• Timing Issues
• Denial of Transfer Issues

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Bankruptcy Considerations

• Adelphias Asset Sale
• Adelphia to sell its assets to Comcast and Time
  Warner.
• Sale to include Adelphias contract rights under
  cable franchise agreements.
• Sale to be consummated through Adelphias Chapter
  11 plan of reorganization.
• Bankruptcy Court will oversee sale process, and
  sale will be governed by the Bankruptcy Code and
  Federal Rules of Bankruptcy Procedure.  

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Plan of Reorganization

• Plan of Reorganization (Plan) -- sets forth
  debtors plan to reorganize its business and
  emerge from bankruptcy.
•  Plan is voted on by the debtors creditors and
  equity holders and requires bankruptcy court
  approval.
•  Prior to approving the Plan, the bankruptcy
  court must approve debtors Disclosure Statement.
• Disclosure Statement provides detailed
  explanation of the Plan, and how
  parties-in-interest will be affected thereunder.

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Reorganization Plan Approval

• Debtor submits Plan and Disclosure Statement.
• Court holds hearing to determine whether
  Disclosure Statement provides adequate
  information for creditors and equity holders to
  vote.
• Bankruptcy Court approves disclosure statement.
• Debtor sends Plan and Disclosure Statement to
  creditors and equity holders and solicits votes.
• Debtor receives sufficient votes in favor of
  Plan.
• Court holds hearing to determine whether the Plan
  meets bankruptcy law requirements.
• Court approves Plan.

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Bankruptcy Law Assumption and Assignment

• Adelphia proposes to assume its rights under
  cable franchises and then assign rights to Time
  Warner and Comcast.
• Franchise agreements are typically executory
  contracts under bankruptcy law.
• Adelphia must assume the contract prior to
  assigning it.
• Assumption means reaffirmation of all contractual
  obligations.
• Prior to assumption Adelphia must cure
  outstanding defaults under contracts, or provide
  assurance of prompt cure compensate other
  parties for actual pecuniary loss from defaults
  and provide assurance of the assignees future
  performance.

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Anticipated Assumption and Assignment Process

• Assumption/assignment process will move at fast
  pace.
• Upon Plan filing, LFAs will have a short time to
  assess Adelphias defaults under franchise
  agreements.
• Adelphia will provide a Cure Notice proposing a
  cure amount to remedy defaults. Likely to be
  sent out in the Fall, before Plans expected
  confirmation.
• LFAs should be prepared to object to the proposed
  cure with supporting documentation, including
  interest and penalties, and proof of failure of
  non-monetary obligations.
• Cure amount negotiated between LFAs and
  Adelphia.
• Bankruptcy court will adjudicate disputes over
  cure amount.
• An LFAs failure to file a proof of claim should
  not affect its rights to receive a cure payment.

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Conflicting Goals of Bankruptcy and Cable Laws

• Bankruptcy process seeks to maximize the value of
  a debtors estate, which would favor Adelphias
  right to assign.
• Federal cable laws and state/local laws typically
  limit a franchisees ability to assign its
  contractual rights and obligations.
• Bankruptcy court may need to reconcile these
  conflicting goals.
• Bankruptcy process typically follows prompt
  deadlines.
• The 394 approval process is often more relaxed.
• Extensions of the 394 approval process should be
  made in conjunction with the bankruptcy process.

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Timeline of Bankruptcy Related Events

• Adelphias timeline is aggressive, albeit
  plausible.
• LFAs should immediately begin to review
  information provided by Adelphia, and request
  additional information to ascertain performance
  under the franchise.
• June 4, 2005 Adelphias Plan of Reorganization
  and Disclosure Statement to be filed (already
  occurred).
• June 20, 2005 Form 394 to be filed with LFAs.
• Late Summer 2005 Bankruptcy Court Hearing on
  Adelphias Disclosure Statement.
• 70 Days Prior to Plan Confirmation Hearing (Early
  September 2005) Adelphia to deliver list of
  contracts, including franchise agreements, to be
  assumed, and estimated cure costs.

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Timeline of Bankruptcy Related Events (contd)

• 40 Days Prior to Plan Confirmation Hearing (Early
  October 2005) Buyers to provide Adelphia with
  list of contracts, including franchise
  agreements, to be assumed by Adelphia and
  assigned to Buyer.
• 20 Days Prior to Plan Confirmation Hearing (Late
  October 2005) Adelphia to commence proceedings
  with the Bankruptcy Court to determine cure costs
  associated with assigned prepetition contracts.
• October 20, 2005 Expiration of Form 394 Period.
• Early-Mid November 2005 Plan Confirmation
  Hearing.
• Early 2006 Effective Date for Plan of
  Reorganization.

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LFA Authority to Accept/Reject Franchise Transfer

• Federal law Federal Cable Act, as amended (47
  U.S.C. 537)
• If approval required under franchise, LFA has 120
  days to act after receipt of information required
  by franchising authority and FCC.
• Transfer approved if no action within 120 days.
• No FCC jurisdiction to review local decisions.
• Effects on competition considered 47 U.S.C.
  533(d)(2)
• Limited LFA liability.

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LFA Authority to Accept/Reject Franchise Transfer

• State Law
• Common law approval not required if risk of not
  receiving full benefits of initial grant.
• Broad discretion in sovereign to not approve
  the transfer of a personal right
• Varies by state how common law standard has
  evolved/been interpreted.
• State statutes some states have specific state
  laws and standards dealing with transfers.
• Local Law
• Cable regulatory ordinance or franchise may limit
  scope of discretion.

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Form 394 What It Is, What it Isnt

• A request for approval must be accompanied by
  such information as is required in accordance
  with Commission regulations 47 U.S.C. 537
• FCC developed Form 394
• The proposed transferor/transferee is required to
  submit Form 394 to the LFA
• Form 394 provides information on legal, technical
  and financial qualifications of transferee.
• LFA can request additional information

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120 Days To Do What?

• Within the initial 30 days of receipt of Form 394
  a LFA is required to notify the cable operator if
  it questions the accuracy of the information
  provided. 47 C.F.R. 76.502
• Additional Information Santa Cruz case
• FCC has suggested that request for additional
  information does not toll 120 day period
• Negotiations on terms/conditions of transfer
• Non-compliance
• Renewal
• Inadequacies of buyer

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120 Days To Do What? (cont)

• Transfer Agreement
• Obligations of seller
• Obligations of buyer
• Franchise amendments
• Extension of 120 day period
• LFA denial without prejudice to restart 120
  clock?

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What Happens If LFA Denies Transfer?

• Resubmit new Form 394?
• Dispute over authority/terms required by LFA?
• Broad discretion of LFA to set terms Santa
  Cruz.
• Bankruptcy Court Cure hearing
• Interaction of Bankruptcy Process With Transfer
• Bankruptcy Court Preemption? Expect Adelphia to
  push for such preemption.
• Cable Act Jurisdiction in Federal District
  Court
• Comcast/Time Warner Not the Only Potential Buyers