-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C4XJXgAQP8ydJ6rvuu2N7Sg+vOdY/QO8fV6w3qJ/GesdQRMHy6DVwjNa3w3sqdUG IwlRyMHy5Q3VXMszLxu7eA== 0000950117-96-000528.txt : 19960524 0000950117-96-000528.hdr.sgml : 19960524 ACCESSION NUMBER: 0000950117-96-000528 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 19960523 SROS: AMEX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIME WARNER INC CENTRAL INDEX KEY: 0000736157 STANDARD INDUSTRIAL CLASSIFICATION: PERIODICALS: PUBLISHING OR PUBLISHING AND PRINTING [2721] IRS NUMBER: 131388520 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-04339 FILM NUMBER: 96571277 BUSINESS ADDRESS: STREET 1: TIME & LIFE BLDG ROCKFELLER CENTER STREET 2: 75 ROCKEFELLER PLAZA CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2124848000 FORMER COMPANY: FORMER CONFORMED NAME: TIME INC /DE/ DATE OF NAME CHANGE: 19890801 S-4 1 TIME WARNER INC. AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 1996 REGISTRATION NO. 33- ________________________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ TIME WARNER INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 7812 13-1388520 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
------------------------ 75 ROCKEFELLER PLAZA NEW YORK, NEW YORK 10019 (212) 484-8000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ PETER R. HAJE, ESQ. 75 ROCKEFELLER PLAZA NEW YORK, NEW YORK 10019 (212) 484-7580 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ WITH A COPY TO: ROBERT B. SCHUMER, ESQ. PAUL, WEISS, RIFKIND, WHARTON & GARRISON 1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019 (212) 373-3097 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If the Securities registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] If any of the Securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, please check the following box. [X] ------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE TO BE REGISTERED BE REGISTERED PER UNIT(1) OFFERING PRICE(1) 10 1/4% Series M Exchangeable Preferred Stock.............. 1.6 million shares(2) $1,000 $1.6 billion 10 1/4% Series L Exchangeable Preferred Stock.............. (3) (4) (4) 10 1/4% Senior Subordinated Debentures due 2011............ (5) (4) (4) AMOUNT OF TITLE OF EACH CLASS OF SECURITIES REGISTRATION TO BE REGISTERED FEE 10 1/4% Series M Exchangeable Preferred Stock.............. $551,724 10 1/4% Series L Exchangeable Preferred Stock.............. (4) 10 1/4% Senior Subordinated Debentures due 2011............ (4)
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457. (2) The maximum number of shares of Series M Exchangeable Preferred Stock that may be issued pursuant to this Registration Statement. This Registration Statement also relates to an indeterminate number of shares of Series M Exchangeable Preferred Stock that may be issued as dividends payable on shares of Series M Exchangeable Preferred Stock pursuant to the terms thereof. (3) The Series M Exchangeable Preferred Stock is exchangeable for the Series L Exchangeable Preferred Stock in certain circumstances. This Registration Statement relates to an indeterminate number of shares of Series L Exchangeable Preferred Stock that may be issued (i) in exchange for Series M Exchangeable Preferred Stock and (ii) as dividends payable on shares of Series L Exchangeable Preferred Stock pursuant to the terms thereof. (4) Pursuant to Rule 457(i) of the Securities Act of 1933, as amended, no additional registration fee is payable in respect thereof. (5) The Series L Exchangeable Preferred Stock is exchangeable for the Senior Subordinated Debentures due 2011 in certain circumstances. This Registration Statement relates to an indeterminate principal amount of Senior Subordinated Debentures that may be issued (i) in exchange for Series L Exchangeable Preferred Stock and (ii) as interest payable on such debentures pursuant to the terms thereof. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ________________________________________________________________________________ CROSS REFERENCE SHEET LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY PART I OF FORM S-4
ITEM NO. CAPTION LOCATION IN PROSPECTUS - -------- ------------------------------------------------------------------ ------------------------------------ 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus.............................................. Facing Page of Registration Statement; Cross-Reference Sheet; Outside Front and Inside Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus........... Inside Front Cover Pages of Prospectus; Available Information 3. Risk Factors, Ratio of Earnings to Fixed Charges, and Other Information..................................................... Prospectus Summary; Risk Factors; The Company; Selected Historical and Pro Forma Financial Information; Consolidated Capitalization 4. Terms of the Transaction.......................................... Prospectus Summary; The Exchange Offer; The Company; Description of Series M Preferred Stock; Certain Federal Income Tax Considerations 5. Pro Forma Financial Information................................... Not Applicable 6. Material Contracts with the Company being Acquired................ Not Applicable 7. Additional Information Required for Reoffering by Persons and Parties Deemed to be Underwriters............................... Plan of Distribution 8. Interests of Named Experts and Counsel............................ Legal Opinion; Experts 9. Disclosure of Commission Position on Indemnification for Securities Act Liabilities...................................... Not Applicable 10. Information with Respect to S-3 Registrants....................... Incorporation of Certain Documents by Reference; Recent Developments 11. Incorporation of Certain Information by Reference................. Incorporation of Certain Documents by Reference 12. Information with Respect to S-2 or S-3 Registrants................ Not Applicable 13. Incorporation of Certain Information by Reference................. Not Applicable 14. Information with Respect to Registrants Other than S-3 or S-2 Registrants..................................................... Not Applicable 15. Information with Respect to S-3 Companies......................... Not Applicable 16. Information with Respect to S-2 or S-3 Companies.................. Not Applicable 17. Information with Respect to Companies Other than S-2 or S-3 Companies....................................................... Not Applicable 18. Information if Proxies, Consents or Authorizations are to Be Solicited....................................................... Not Applicable 19. Information if Proxies, Consents or Authorizations are Not to Be Solicited, or in an Exchange Offer.............................. Summary; The Exchange Offer; Description of Series M Preferred Stock; Certain Federal Income Tax Considerations; Incorporation of Certain Documents by Reference
SUBJECT TO COMPLETION, DATED , 1996 PROSPECTUS OFFER TO EXCHANGE ALL OUTSTANDING SHARES OF 10 1/4% SERIES K EXCHANGEABLE PREFERRED STOCK FOR SHARES OF 10 1/4% SERIES M EXCHANGEABLE PREFERRED STOCK OF TIME WARNER INC. ------------------------ THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1996, UNLESS EXTENDED ------------------------ Time Warner Inc., a Delaware corporation (the 'Company'), hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and the accompanying letter of transmittal (the 'Letter of Transmittal,' and together with this Prospectus, the 'Exchange Offer'), to exchange shares of its 10 1/4% Series M Exchangeable Preferred Stock, par value $1.00 per share (the 'Series M Preferred Stock'), for any and all of the outstanding shares of 10 1/4% Series K Exchangeable Preferred Stock, par value $1.00 per share (the 'Series K Preferred Stock'), of the Company. The terms of the Series M Preferred Stock are substantially identical to the terms of the Series K Preferred Stock, except that the shares of Series M Preferred Stock will have been registered under the Securities Act of 1933, as amended (the 'Securities Act'), and will not contain terms restricting the transfer of such shares. The Company will accept for exchange any and all shares of Series K Preferred Stock that are validly tendered on or prior to 5:00 p.m., New York City time, on the date the Exchange Offer expires, which will be , 1996, unless the Exchange Offer is extended (the 'Expiration Date'). Tenders of shares of Series K Preferred Stock may be withdrawn at any time prior to 5:00 p.m., New York City time, on the business day prior to the Expiration Date. The Exchange Offer is not conditioned upon any minimum number of shares of Series K Preferred Stock being tendered for exchange. However, the Exchange Offer is subject to certain conditions which may be waived by the Company and to the terms and provisions of the Registration Rights Agreement. See 'Exchange Offer.' The Company has agreed to pay the expenses of the Exchange Offer. Holders of shares of Series K Preferred Stock whose shares of Series K Preferred Stock are not tendered and accepted in the Exchange Offer will continue to hold such shares of Series K Preferred Stock. Following consummation of the Exchange Offer, the holders of shares of Series K Preferred Stock will continue to be subject to the existing restrictions upon transfer thereof and, except as provided herein, the Company will have no further obligation to such holders to provide for the registration under the Securities Act of the shares of Series K Preferred Stock held by them. (cover continued on next page) - ---------------------------------------------------------- SEE 'RISK FACTORS' FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE SERIES M PREFERRED STOCK. The Company will not receive any proceeds from this Exchange Offer and no underwriter is being utilized in connection with the Exchange Offer. THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ The date of this Prospectus is , 1996. INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY OR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. (cover continued from previous page) The Series K Preferred Stock was issued and sold on April 11, 1996 in a transaction not registered under the Securities Act, in reliance upon the exemption provided in Section 4(2) of the Securities Act. Accordingly, the Series K Preferred Stock may not be reoffered, resold or otherwise pledged, hypothecated or transferred in the United States unless so registered or unless an applicable exemption from the registration requirements of the Securities Act is available. Shares of Series M Preferred Stock are being offered hereby in order to satisfy the obligations of the Company under the registration rights agreement relating to the Series K Preferred Stock (the 'Registration Rights Agreement'). See 'The Exchange Offer -- Purpose of the Exchange Offer.' Based on no-action letters issued by the staff of the Securities and Exchange Commission (the 'Commission') to third parties, the Company believes shares of Series M Preferred Stock to be issued in exchange for shares of Series K Preferred Stock pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by holders thereof (other than (i) a broker-dealer who purchases such shares of Series K Preferred Stock directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) a person that is an 'affiliate' of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such shares of Series M Preferred Stock are acquired in the ordinary course of such holders' business and such holders have no arrangements with any person to participate in the distribution of such shares of Series M Preferred Stock. Eligible holders wishing to accept the Exchange Offer must represent to the Company that such conditions have been met. Each broker-dealer that receives shares of Series M Preferred Stock for its own account in exchange for shares of Series K Preferred Stock acquired as a result of market-making or other trading activities must acknowledge that it will deliver a prospectus in connection with any resale of such shares of Series M Preferred Stock. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an 'underwriter' within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of shares of Series M Preferred Stock received in exchange for shares of Series K Preferred Stock acquired by such broker-dealer as a result of market-making activities or other trading activities. For a period of 90 days following the consummation of the Exchange Offer, the Company has agreed to use its best efforts to make this Prospectus available to broker-dealers who have identified themselves as such for use in connection with such resales. See 'Plan of Distribution.' Dividends on the Series M Preferred Stock, at the rate of 10 1/4% per annum, are cumulative and payable quarterly in arrears on March 30, June 30, September 30 and December 30 of each year, commencing on (the 'First Dividend Payment Date'). Holders of Series K Preferred Stock whose shares of Series K Preferred Stock are accepted for exchange will be deemed to have waived the right to receive any payment in respect of any unpaid dividends on the Series K Preferred Stock that have accumulated or accrued to the date of the issuance of the Series M Preferred Stock. Consequently, on the First Dividend Payment Date holders who exchange their shares of Series K Preferred Stock for Series M Preferred Stock will receive the same dividends on the Series M Preferred Stock that holders of the Series K Preferred Stock who do not accept the Exchange Offer will receive on the Series K Preferred Stock. Dividends on the Series M Preferred Stock may be paid in cash or by issuing fully paid and nonassessable shares of Series M Preferred Stock as described herein. THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF SERIES K PREFERRED STOCK IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION. There can be no assurance that an active public or private market for the Series M Preferred Stock will develop. Whether or not a market for the Series M Preferred Stock should develop, the shares of Series M Preferred Stock could trade at a discount from their aggregate liquidation preference. The Company does not intend to list the Series M Preferred Stock on a national securities exchange or to apply for quotation of the Series M Preferred Stock through the National Association of Securities Dealers Automated Quotation System. To the extent shares of Series K Preferred Stock are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted shares of Series K Preferred Stock could be adversely affected. The Company has been advised by the Initial Purchasers (as defined herein) that they intend to make a market in the Series M Preferred Stock; however, such entities are under no obligation to do so and any market making activities with respect to the Series M Preferred Stock may be discontinued at any time. 2 AVAILABLE INFORMATION The Company has filed with the Commission a registration statement relating to the Series M Preferred Stock offered hereby (together with all amendments and exhibits, referred to as the 'Registration Statement') under the Securities Act. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information, reference is hereby made to the Registration Statement. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed or incorporated by reference as an exhibit to the Registration Statement, reference is made to such exhibit for a more complete description thereof, and each such statement shall be deemed qualified in its entirety by such reference. The Registration Statement and the exhibits and schedules thereto may be inspected without charge and copied at prescribed rates at the Public Reference Section maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices located at Seven World Trade Center, 13th Floor, New York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street (Suite 1400), Chicago, Illinois 60661-2511. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the 'Exchange Act'), and in accordance therewith, files reports, proxy statements and other information with the Commission. Reports, proxy statements and other information filed by the Company with the Commission pursuant to the informational requirements of the Exchange Act may be inspected without charge and copied at prescribed rates at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices located at Seven World Trade Center, 13th Floor, New York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street (Suite 1400), Chicago, Illinois 60661; and copies of such material may be obtained upon written request addressed to the Public Reference Section of the Commission, at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such reports, proxy statements and other information may also be inspected at the offices of the New York Stock Exchange, Inc. ('NYSE'), 20 Broad Street, New York, New York, and the Pacific Stock Exchange Incorporated ('PSE'), 233 South Beaudry Avenue, Los Angeles, California 90012 and 301 Pine Street, San Francisco, California, on which one or more of the Company's securities are listed. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Company hereby incorporates by reference in this Prospectus the following documents or information filed with the Commission: (a) the Company's Current Report on Form 8-K dated May 15, 1996 (the 'May 15, 1996 8-K'); (b) the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1996 (the 'First Quarter 10-Q'); (c) the Company's Current Reports on Form 8-K dated April 11, 1996, April 4, 1996, April 2, 1996, March 25, 1996, March 22, 1996 and January 4, 1996; (d) the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (the '10-K'); (e) the description of the Company's Common Stock contained in Item 4 of the Company's Registration Statement on Form 8-B filed with the Commission on December 8, 1983, pursuant to Section 12(b) of the Exchange Act, as amended from time to time; (f) the description of the rights issued to stockholders of the Company pursuant to the Rights Agreement, dated as of January 20, 1994, between the Company and Chemical Bank, as Rights Agent, contained in Item 1 of the Company's Registration Statement on Form 8-A filed with the Commission on January 24, 1994; (g) the TWE Partnership Agreement included as Exhibit (A) to the Company's Current Report on Form 8-K dated October 29, 1991, Exhibit 10(b) and Exhibit 10(c) to the Company's 3 Current Report on Form 8-K dated July 14, 1992 and Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993; and (h) all documents and reports filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering made hereby. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other document subsequently filed with the Commission which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL OF THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN BUT NOT DELIVERED HEREWITH (NOT INCLUDING THE EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS). REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO: SHAREHOLDER RELATIONS, TIME WARNER INC., 75 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10019 (TELEPHONE NUMBER: (212) 484-6971). NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE EXCHANGE AGENT. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, NOR BOTH TOGETHER, CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. 4 PROSPECTUS SUMMARY The following summary information is qualified in its entirety by reference to the more detailed information and financial statements (including the notes thereto) appearing elsewhere in this Prospectus and in the documents incorporated by reference in this Prospectus. Capitalized terms used in this Prospectus and not otherwise defined herein shall have the meanings set forth in the Glossary of Significant Terms beginning on page G-1. THE COMPANY GENERAL The Company is the world's leading media company, and has interests in three fundamental areas of business: Entertainment, consisting principally of interests in recorded music and music publishing, filmed entertainment, broadcasting, theme parks and cable television programming; News and Information, consisting principally of interests in magazine publishing, book publishing and direct marketing; and Telecommunications, consisting principally of interests in cable television systems. The Company is a holding company and its assets consist primarily of investments in its consolidated and unconsolidated subsidiaries, including Time Warner Entertainment Company, L.P., a Delaware limited partnership ('TWE'). TWE Substantially all of the Company's interests in filmed entertainment, broadcasting, theme parks and cable television programming and a majority of its interests in cable television systems are held through TWE. TWE was formed as a Delaware limited partnership in February 1992 pursuant to an Agreement of Limited Partnership, dated as of October 29, 1991, as amended from time to time (the 'TWE Partnership Agreement'). The Company and certain wholly owned subsidiaries of the Company collectively own 74.49% of the pro rata priority capital interests in TWE (the 'TWE Series A Capital') and the residual equity partnership interests in TWE (the 'TWE Residual Capital'). The 25.51% of the TWE Series A Capital and TWE Residual Capital not owned by the Company and its subsidiaries are held by a wholly owned subsidiary of U S WEST, Inc., a Delaware corporation ('U S WEST'). Certain wholly owned subsidiaries of the Company (the 'Time Warner General Partners') also own 100% of the priority capital interests senior to the TWE Series A Capital (the 'TWE Senior Capital') and the priority capital interests that are junior to the TWE Series A Capital (the 'TWE Series B Capital'). The TWE Residual Capital, together with the TWE Contingent Capital (as defined herein) and any other interests which may be issued in the future, which are junior to the TWE Series B Capital, are sometimes referred to as 'TWE Junior Capital.' See 'TWE Partnership Interests.' TBS TRANSACTION In September 1995, the Company announced that it had agreed to merge with Turner Broadcasting System, Inc. ('TBS'), a diversified information and entertainment company, by acquiring the approximate 80% interest in TBS that the Company does not already own. The Company has entered into an Amended and Restated Agreement and Plan of Merger dated as of September 22, 1995 (as amended from time to time, the 'Merger Agreement'), to provide for the merger of each of the Company and TBS with separate subsidiaries of a holding company ('New Time Warner') to be named Time Warner Inc. (the 'TBS Transaction'). Pursuant to the TBS Transaction, the issued and outstanding shares of each class of the capital stock of the Company, including the Series K Preferred Stock and the Series M Preferred Stock, are to be converted into shares of a substantially identical class of capital stock of New Time Warner. The TBS Transaction and the related transactions are subject to customary closing conditions, including approval of the shareholders of TBS and the Company, all necessary approvals of the Federal Communications Commission (the 'FCC') and appropriate antitrust 5 approvals. There can be no assurance that all these approvals can be obtained, or in the case of governmental approvals, if obtained, will not be conditioned upon changes to the terms of the Merger Agreement. The holders of the Series M Preferred Stock will not be entitled to vote on the TBS Transaction. For a further discussion of the TBS Transaction and related transactions, and certain litigation relating thereto (including litigation with U S WEST (the 'U S WEST Litigation')), reference is made to the 10-K and First Quarter 10-Q, which are incorporated herein by reference. TWE PARTNERSHIP INTERESTS Each partner's interest in TWE consists of the initial priority capital and residual equity amounts that were assigned to that partner or its predecessor based on the estimated fair value of the net assets each contributed to TWE, as adjusted for the fair value of certain assets distributed by TWE to the Time Warner General Partners in 1993 which were not subsequently reacquired by TWE in 1995 ('Contributed Capital'), plus, with respect to the priority capital interests only, any undistributed priority capital return. The priority capital return consists of net partnership income allocated to date in accordance with the provisions of the TWE Partnership Agreement and the right to be allocated additional partnership income which, together with any previously allocated net partnership income, provide for the various priority capital rates of return specified in the table below. The sum of Contributed Capital and the undistributed priority capital return is referred to as 'Cumulative Priority Capital.' The ultimate realization of Cumulative Priority Capital could be affected by the fair value of TWE, which is subject to fluctuation. See 'Risk Factors.' A summary of the priority of Contributed Capital, the Company's ownership of Contributed Capital and Cumulative Priority Capital at March 31, 1996 and priority capital rates of return thereon is as set forth below.
CUMULATIVE PRIORITY PRIORITY CAPITAL AT CAPITAL % OWNED BY CONTRIBUTED MARCH 31, RATES THE PRIORITY OF CONTRIBUTED CAPITAL CAPITAL(a) 1996 OF RETURN(b) COMPANY - --------------------------------- ----------- ---------- ------------ ---------- (BILLIONS) (% PER ANNUM COMPOUNDED QUARTERLY) TWE Senior Capital............... $1.4 $1.5(c) 8.00% 100.00% TWE Series A Capital............. 5.6 9.0 13.00(d) 74.49 TWE Series B Capital............. 2.9(g) 4.7 13.25(e) 100.00 TWE Residual Capital............. 3.3(g) 3.3(f) -- (f) 74.49%
- ------------ (a) Excludes partnership income or loss allocated thereto and is subject to any special income allocations for tax purposes. (b) Income allocations related to priority capital rates of return are based on partnership income after any special income allocations for tax purposes. (c) Net of $366 million of partnership income distributed in 1995 representing the priority capital return thereon through June 30, 1995. (d) 11.00% to the extent concurrently distributed. (e) 11.25% to the extent concurrently distributed. (f) TWE Residual Capital is not entitled to stated priority rates of return and, as such, the Cumulative Priority Capital relating thereto is equal to the Contributed Capital relating thereto. However, in the case of certain events such as the liquidation or dissolution of TWE, the TWE Residual Capital is entitled to any excess of the then fair value of the net assets of TWE over the aggregate amount of Cumulative Priority Capital and special tax allocations. (footnotes continued on next page) 6 (footnotes continued from previous page) (g) The Contributed Capital relating to the TWE Series B Capital has priority over the priority returns on the TWE Series A Capital. The Contributed Capital relating to the TWE Residual Capital has priority over the priority returns on the TWE Series B Capital and the TWE Series A Capital. ------------------------ For a further discussion of the TWE Partnership Interests, including allocations of partnership income and loss and distributions, see 'TWE Partnership Interests.' ------------------------ As used in this Prospectus, unless the context otherwise requires, the term 'Company' refers to Time Warner Inc. and its consolidated and unconsolidated subsidiaries, including TWE. Following the TBS Transaction, unless the context otherwise requires, references to the Company in its capacity as issuer of the Securities (as defined herein) will be deemed to be references to New Time Warner. For financial reporting purposes, the Company does not consolidate the results of operations of the Entertainment Group, consisting principally of TWE, with the Company's results of operations. TWE holds substantially all of the Company's interests in filmed entertainment, broadcasting, theme parks and cable television programming and a majority of the Company's interests in cable television systems. Although TWE manages substantially all the cable systems owned by the Company, TWE and a joint venture ('TWE-Advance/Newhouse Partnership') between TWE and Advance/Newhouse Partnership ('Advance/Newhouse'), the results of operations of the cable systems owned by the Company's consolidated subsidiaries are included in the Company's consolidated results, while the results of operations of the cable systems owned by TWE and the TWE-Advance/Newhouse Partnership are included in the consolidated results of the Entertainment Group. See 'Selected Historical and Pro Forma Financial Information.' The Company's principal executive offices are located at 75 Rockefeller Plaza, New York, New York 10019, and its telephone number is (212) 484-8000. 7 THE EXCHANGE OFFER Securities Offered..................... 1.6 million shares of 10 1/4% Series M Exchangeable Preferred Stock. The terms of the Series M Preferred Stock are substantially identical to the terms of the Series K Preferred Stock except that the Series M Preferred Stock will have been registered under the Securities Act and will not contain terms restricting the transfer of such stock. See 'Description of Series M Preferred Stock.' The Exchange Offer..................... Shares of Series M Preferred Stock are being offered in exchange for any and all of the outstanding shares of Series K Preferred Stock (on a share for share basis). As of the date hereof, 1.6 million shares of Series K Preferred Stock with an aggregate liquidation preference of $1.6 billion are issued and outstanding. The Company is making the Exchange Offer in order to satisfy its obligations under the Registration Rights Agreement. For a description of the procedures for tendering, see 'Exchange Offer -- Procedures for Tendering Series K Preferred Stock.' Expiration Date; Withdrawal............ The Exchange Offer will expire at 5:00 p.m., New York City time, on , 1996, or such later date and time to which it may be extended in the sole discretion of the Company (the 'Expiration Date'). Shares of Series K Preferred Stock tendered pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. Any shares of Series K Preferred Stock not accepted for exchange for any reason will be returned without expense to the tendering holders thereof as promptly as practicable after the expiration or termination of the Exchange Offer. See 'Exchange Offer -- Expiration Date; Extensions; Termination; Amendments' and 'Exchange Offer Withdrawal Rights.' Conditions to Exchange Offer........... The Exchange Offer is subject to certain conditions. See 'Exchange Offer -- Certain Conditions to the Exchange Offer.' The Exchange Offer is not conditioned upon any minimum number of shares of Series K Preferred Stock being tendered for exchange. Certain Federal Income Tax Considerations....................... The exchange of the Series K Preferred Stock for the Series M Preferred Stock should not be a taxable event to the holder for federal income tax purposes, and the holder should not recognize any taxable gain or loss as a result of such exchange. See 'Certain Federal Income Tax Considerations.' Untendered Series K Preferred Stock.... Upon consummation of the Exchange Offer, the holders of Series K Preferred Stock, if any, will have no further registration or other rights under the Registration Rights Agreement, except as provided herein. Holders of shares of Series K Preferred Stock who do not tender their shares of Series K Preferred Stock in the Exchange Offer or whose shares of Series K Preferred Stock are not accepted for exchange will continue to hold such shares of Series K Preferred Stock and will be entitled to all the rights and preferences thereof and will be subject to all the limitations applicable thereto, except for any such rights or limitations which, by their terms, terminate or cease to be effective as a result of this Exchange Offer. All untendered and tendered but unaccepted shares of Series K Preferred Stock will continue to be subject to the restrictions on transfer provided therein. To the extent that shares of Series K Preferred Stock are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted shares of Series K Preferred Stock could be adversely affected.
8 TERMS OF THE SERIES M PREFERRED STOCK The terms of the Series M Preferred Stock are substantially identical to the terms of the Series K Preferred Stock. Dividends.............................. Holders of the Series M Preferred Stock are entitled, when, as and if declared by the Board of Directors of the Company out of funds legally available therefor, to receive dividends on each outstanding share of Series M Preferred Stock, at the rate of 10 1/4% per annum. Dividends on the Series M Preferred Stock are payable quarterly in arrears on March 30, June 30, September 30 and December 30 of each year (each, a 'Dividend Payment Date'), commencing on the First Dividend Payment Date to holders of record on the immediately preceding March 10, June 10, September 10 and December 10, respectively (each, a 'Record Date'). Dividends on the Series M Preferred Stock will be cumulative (whether or not earned or declared) from the date of issuance of the Series M Preferred Stock. Dividends which are not declared and paid when due will compound quarterly at the dividend rate. Dividends may, at the option of the Company, be paid on any Dividend Payment Date in cash or by issuing fully paid and nonassessable shares of Series M Preferred Stock with an aggregate liquidation preference equal to the amount of such dividends; provided, however, that dividends shall be paid (i) in cash, to the extent of an amount equal to the Pro Rata Percentage as of the Preceding Record Date, multiplied by the amount of cash distributions, excluding certain Tax Distributions, if any, received by the Company (and its subsidiaries) on or after the Preceding Record Date to, but not including, the current Record Date with respect to its TWE Series B Capital and any TWE Junior Capital, and (ii) in Series M Preferred Stock or cash, at the Company's option, to the extent of any balance. At March 31, 1996, if 1.6 million shares of Series M Preferred Stock had been outstanding at such date, the Pro Rata Percentage would have been 34.0%. See 'TWE Partnership Interests.' TWE's ability to make distributions is subject to certain restrictions. See 'Description of Series M Preferred Stock -- Dividends' and 'Risk Factors -- Limitations on Dividends and Other Payments.' Holders of Series K Preferred Stock whose shares of Series K Preferred Stock are accepted for exchange will be deemed to have waived the right to receive any payment in respect of any unpaid dividends on the Series K Preferred Stock that have accumulated or accrued to the date of issuance of the Series M Preferred Stock. Consequently, on the First Dividend Payment Date holders who exchange their shares of Series K Preferred Stock for Series M Preferred Stock will receive the same dividends on the Series M Preferred Stock that holders of the Series K Preferred Stock who do not accept the Exchange Offer will receive on the Series K Preferred Stock. Liquidation Preference................. $1,000 per share. Voting Rights.......................... Holders of the Series M Preferred Stock have no general voting rights except as provided by law and as provided in the Certificate of Designation therefor. Upon the failure of the Company to (i) pay dividends on the Series M Preferred Stock in cash or, to the extent permitted by its terms, by the issuance of additional shares of Series M Preferred Stock, for more than six consecutive quarterly dividend periods or (ii) discharge any redemption or exchange obligation with respect to the Series M Preferred Stock, the size of the Company's Board of Directors will be increased by two directors, and holders of the outstanding shares of Series M Preferred Stock, voting or
9 consenting, as the case may be, together as a class with the holders of any shares of Parity Stock as to which dividends are similarly in arrears or unpaid or the Company has failed to satisfy its redemption or exchange obligation, and to which similar voting rights apply, will be entitled to elect two directors to fill the newly created directorships. The Company may not issue any new class of capital stock senior to the Series M Preferred Stock without the approval of the holders of at least a majority of the shares of Series M Preferred Stock then outstanding, voting or consenting, as the case may be, separately as a class. See 'Description of Series M Preferred Stock -- Voting Rights.' Optional Redemption.................... The Series M Preferred Stock may not be redeemed at the option of the Company prior to July 1, 2006. Thereafter, the Series M Preferred Stock will be redeemable at any time, in whole or in part, at the option of the Company, initially at 105.125% of the liquidation preference, declining to 100% of the liquidation preference on or after July 1, 2010, in each case plus accumulated and accrued and unpaid dividends; provided, however, that no optional redemption shall be made unless the Company shall have obtained a Rating Confirmation with respect to such redemption. The Company's ability to effect an optional redemption is subject to the legal availability at the Company of funds therefor. See 'Description of Series M Preferred Stock -- Optional Redemption' and 'Description of Series M Preferred Stock -- General.' Mandatory Redemption................... On July 1 of 2012, 2013, 2014 and 2015 (each, a 'Mandatory Redemption Date'), the Company is required to redeem the Redeemable Number of shares of Series M Preferred Stock at the Mandatory Redemption Price. On July 1, 2016 (the 'Final Redemption Date'), the Company is required to redeem all of the then out standing shares of Series M Preferred Stock at the lesser of the Mandatory Redemption Amount and the Mandatory Redemption Price; provided that if the Company does not obtain a TWE Valuation within 150 days following the final Series B Redemption Date or if the TWE Series B Capital has been fully redeemed in accordance with the TWE Partnership Agreement, the Company shall redeem the outstanding Series M Preferred Stock at the Mandatory Redemption Price. Upon redemption of the Series M Preferred Stock on the Final Redemption Date, the Company's obligations with respect thereto will be discharged, and if such redemption is effected at the Mandatory Redemption Amount, holders of shares of Series M Preferred Stock may have received less than the liquidation preference thereof plus accumulated and accrued and unpaid dividends thereon. See 'Risk Factors.' The Company's obligation to redeem the Series M Preferred Stock is subject to the legal availability at the Company of funds therefor. See 'Description of Series M Preferred Stock -- Mandatory Redemption.' Redemption Upon Insolvency of TWE.................... In the event of the liquidation, winding up or dissolution of TWE as a result of the Insolvency of TWE, the Series M Preferred Stock will be mandatorily redeemable on the Insolvency Redemption Date at the Insolvency Redemption Amount. Upon such a redemption of Series M Preferred Stock, the Company's obligations with respect thereto will be discharged and holders of Series M Preferred Stock may have received less than the liquidation preference thereof plus accumulated and accrued and unpaid dividends thereon. The Company's obligations to redeem the Series M Preferred Stock upon an Insolvency of TWE is subject to the legal availability at the
10 Company of funds therefor. See 'Description of Series M Preferred Stock -- Redemption Upon Insolvency of TWE' and 'Risk Factors.' Reorganization of TWE.................. Upon a Reorganization of TWE, the Company shall, within 90 days, make a public announcement that, on the Reorganization Redemption/Exchange Date, it intends to either (i) exchange each outstanding share of Series M Preferred Stock for shares of Series L Preferred Stock having an aggregate liquidation preference equal to the liquidation preference of such share of Series M Preferred Stock plus the accumulated and accrued and unpaid dividends thereon at the date of exchange (a 'Reorganization Exchange'), or (ii) redeem the outstanding shares of Series M Preferred Stock at the Reorganization Redemption Price (a 'Reorganization Redemption'); provided, however, that the Company may not effect a Reorganization Redemption prior to July 1, 2011 unless the Company shall have obtained a Rating Confirmation with respect thereto; and provided further that the Company may not effect a Reorganization Exchange on or after July 1, 2011. The Company's ability to effect a Reorganization Redemption is subject to the legal availability at the Company of funds therefor. See 'Description of Series M Preferred Stock -- Reorganization of TWE.' Change of Control...................... Upon a Change of Control of the Company, the Company shall offer to purchase all or any part of the outstanding Series M Preferred Stock at 101% of the liquidation preference thereof, plus accumulated and accrued and unpaid dividends thereon. The Company's obligation to offer to purchase the Series M Preferred Stock is subject to the legal availability at the Company of funds therefor. See 'Description of Series M Preferred Stock -- Change of Control.' Ranking................................ The Series M Preferred Stock will rank pari passu with the Series K Preferred Stock and all other classes of Parity Stock and will rank senior to all classes of Junior Stock. See 'Description of Series M Preferred Stock -- Ranking.' Insolvency of the Company.............. In the event of a liquidation, winding-up, dissolution or bankruptcy of the Company, the holders of the Series M Preferred Stock will be entitled to their pro rata portion of the assets of the Company available for distribution to holders of Parity Stock up to the amount of the liquidation preference of the Series M Preferred Stock plus accumulated and accrued and unpaid dividends thereon. See 'Description of Series M Preferred Stock -- Liquidation Preference' and 'Risk Factors.' Covenants.............................. The Certificate of Designation imposes certain restrictions on the ability of the Company to (i) declare dividends or make distributions with respect to, or purchase, redeem or exchange, any Junior Stock or Parity Stock, except in or for Junior Stock, if full cumulative dividends have not been paid on, or redemption or exchange obligations have not been satisfied with respect to, the Series M Preferred Stock, in cash or, to the extent permitted by its terms, by the issuance of additional shares of Series M Preferred Stock or (ii) consolidate or merge with or into or sell all or substantially all of its assets to any person or entity. Without limiting the generality of the foregoing, the TBS Transaction will not require the affirmative vote or consent of the holders of the Series M Preferred Stock. If the TBS Transaction is consummated, the Series M Preferred Stock will be converted into a substantially identical class of preferred stock of New Time Warner. See 'Description of Series M Preferred Stock -- Dividends' and 'Description of Series M Preferred Stock -- Merger, Consolidation and Sale of Assets.'
11 TERMS OF SERIES L PREFERRED STOCK Dividends.............................. Holders of the Series L Preferred Stock are entitled, when, as and if declared by the Board of Directors of the Company, out of funds legally available therefor, to receive dividends on each outstanding share of the Series L Preferred Stock, at the rate of 10 1/4% per annum. Dividends on the Series L Preferred Stock are payable quarterly in arrears on March 30, June 30, September 30 and December 30 of each year, commencing on the first Dividend Payment Date following the exchange of the Series M Preferred Stock for the Series L Preferred Stock to holders of record as of the immediately preceding March 15, June 15, September 15 and December 15, respectively. Dividends on the Series L Preferred Stock will be cumulative (whether or not earned or declared) from the date of issuance of the Series L Preferred Stock. Dividends which are not declared and paid when due will compound quarterly at the dividend rate. Until June 30, 2006 dividends may, at the option of the Company, be paid in cash or by issuing fully paid and nonassessable shares of Series L Preferred Stock with an aggregate liquidation preference equal to such dividends. Thereafter, dividends are payable only in cash. See 'Description of Series L Preferred Stock -- Dividends' and 'Risk Factors.' Liquidation Preference................. Same as Series M Preferred Stock. Voting Rights.......................... Same as Series M Preferred Stock. Optional Redemption.................... Same as Series M Preferred Stock. Mandatory Redemption................... The Company is required to redeem the outstanding shares of Series L Preferred Stock on July 1, 2011 at a price equal to the liquidation preference thereof, plus accumulated and accrued and unpaid dividends. The Company's obligation to redeem the Series L Preferred Stock is subject to the legal availability at the Company of funds therefor. See 'Description of Series L Preferred Stock -- Mandatory Redemption' and 'Risk Factors.' Exchange at Option of Company........................... The Company has the option on any Dividend Payment Date to exchange (the 'Debt Exchange'), in whole but not in part, the outstanding shares of Series L Preferred Stock for Senior Subordinated Debentures having a principal amount equal to the liquidation preference of the Series L Preferred Stock plus accrued and unpaid dividends thereon, provided that the Debt Exchange shall not be made unless all accumulated dividends have been paid in full and the Company shall have obtained a Rating Confirmation with respect thereto. The Company's ability to exchange the Series L Preferred Stock for the Senior Subordinated Debentures is subject to the legal availability at the Company of funds equal to the aggregate principal amount of the Senior Subordinated Debentures to be issued. See 'Description of Series L Preferred Stock -- Exchange at Option of Company.' Change of Control...................... Same as Series M Preferred Stock. Ranking................................ Same as Series M Preferred Stock. Covenants.............................. Same as Series M Preferred Stock. TERMS OF SENIOR SUBORDINATED DEBENTURES Maturity Date.......................... July 1, 2011. Interest............................... Interest will accrue at 10 1/4% per annum and be payable in arrears on June 30 and December 30 of each year, commencing with the first of such dates to occur after the date upon which Senior Subordinated Debentures are issued in exchange for the
12 Series L Preferred Stock ('Exchange Date'). Until June 30, 2006, interest may, at the option of the Company, be paid in cash or by issuing additional Senior Subordinated Debentures with a principal amount equal to such interest. Thereafter, interest on the Senior Subordinated Debentures must be paid in cash. See 'Description of Senior Subordinated Debentures -- Interest.' Optional Redemption.................... On and after July 1, 2006, the Senior Subordinated Debentures are redeemable at any time, in whole or in part, at the option of the Company, initially at 105.125% of the principal amount, declining to 100% of the principal amount on or after July 1, 2010, in each case plus accrued and unpaid interest; provided, however, that no optional redemption shall be made unless the Company shall obtain a Rating Confirmation with respect thereto. See 'Description of Senior Subordinated Debentures -- Optional Redemption.' Change of Control...................... Same as Series M Preferred Stock. Subordination.......................... The Senior Subordinated Debentures will be subordinated to all existing and future Senior Indebtedness (as defined herein) of the Company. The Senior Subordinated Debentures will rank pari passu with the Company's senior subordinated indebtedness outstanding from time to time (the 'Senior Subordinated Indebtedness') and will rank senior to all existing and future subordinated indebtedness of the Company that by its terms is subordinated to Senior Subordinated Indebtedness (the 'Subordinated Indebtedness'). At March 31, 1996 after adjusting to give pro forma effect to the Series K Refinancing (as defined herein), (i) the Company (excluding its subsidiaries) had outstanding approximately $8.3 billion of Senior Indebtedness and $977 million of Subordinated Indebtedness and (ii) the consolidated and unconsolidated subsidiaries of the Company had outstanding approximately $16.1 billion of liabilities (including indebtedness) which, insofar as the assets of those subsidiaries are concerned, would have been effectively senior to the Senior Subordinated Debentures. As of the date of this Prospectus, the Company has no Senior Subordinated Indebtedness. See 'Description of Senior Subordinated Debentures -- Subordination.' Certain Restrictions................... In the event of a default under the Senior Subordinated Debentures or any other Senior Subordinated Indebtedness (i) the Company shall not declare or pay any dividend on, make any distributions with respect to, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock, and (ii) the Company shall not make any payment of interest, principal or premium, if any, on, or repay, repurchase or redeem, any debt securities issued by the Company which rank pari passu with or junior to the Senior Subordinated Debentures; provided, however, that the foregoing restrictions shall not apply to any interest or dividend payments by the Company, where the interest or dividend is paid by way of the issuance of securities that rank junior to the Senior Subordinated Debentures. See 'Description of Senior Subordinated Debentures -- Subordination.' The Senior Subordinated Indenture (as defined herein) for the Senior Subordinated Debentures will, among other things, also contain restrictions (with certain exceptions) on the ability of the Company and certain of its subsidiaries to merge or consolidate with or transfer all or substantially all of their assets to another entity. The TBS Transaction is not subject to approval by the holders of the Senior Subordinated
13 Debentures. See 'Description of Senior Subordinated Debentures -- Consolidation, Merger and Sale.' The Senior Subordinated Indenture also will prohibit the Company from issuing any indebtedness that is senior in right of payment to the Senior Subordinated Debentures and expressly subordinate in right of payment to any other indebtedness of the Company. See 'Description of Senior Subordinated Debentures -- Covenants.'
14 RISK FACTORS LIMITATIONS ON DIVIDENDS AND OTHER PAYMENTS As a general matter, dividends declared by the Board of Directors on the Series M Preferred Stock need only be paid in cash to the extent of the Pro Rata Percentage of cash distributions, excluding certain Tax Distributions, to the Company (and its subsidiaries) with respect to the TWE Series B Capital and TWE Junior Capital. Under the TWE Partnership Agreement, distributions (other than Tax Distributions) with respect to the TWE Series B Capital may not be made prior to June 30, 1998. After June 30, 1998 such distributions are limited to an amount up to the priority return on the TWE Series B Capital accruing from June 30, 1998. There can be no assurance that sufficient partnership income will be allocated to the TWE Series B Capital to satisfy the entire priority return to which it is entitled (11.25% to the extent paid concurrently, and 13.25% otherwise). Further, the TWE Partnership Agreement provides for quarterly cash distributions on the TWE Series B Capital and TWE Junior Capital only out of Excess Cash (as defined herein), and subject to prior payments with respect to partnership interests that are senior thereto. See 'TWE Partnership Interests.' TWE is not currently generating Excess Cash and there can be no assurance that sufficient Excess Cash will be generated by TWE in the future to enable TWE to make distributions with respect to the TWE Series B Capital and/or the TWE Junior Capital such that cash dividends would be payable on the Series M Preferred Stock. In addition, under Delaware law, dividends on capital stock may only be paid out of funds legally available therefor. Payments in respect of mandatory redemption obligations with respect to the Series M Preferred Stock in 2012, 2013, 2014 and 2015 will be limited to an amount equal to the Pro Rata Percentage of any cash received by the Company (and its subsidiaries) in connection with the Series B Redemption occurring on June 30 of the calendar year immediately preceding the year in which such mandatory redemption is to be made and any cash received by the Company (and its subsidiaries) in respect of its TWE Junior Capital from such June 30 to the record date for such mandatory redemption of the Series M Preferred Stock. In the event that TWE has not redeemed the TWE Series B Capital in full, payments in respect of the final mandatory redemption obligation in 2016 with respect to the Series M Preferred Stock will only be made to the extent of an amount equal to the Pro Rata Percentage of the fair market value of TWE (net of taxes) attributable to the TWE Series B Capital and the TWE Junior Capital. There can be no assurance that such value will be sufficient to permit the Company to redeem the Series M Preferred Stock at the liquidation preference plus accumulated and accrued and unpaid dividends. In addition, payments in respect of all mandatory redemptions with respect to the Series M Preferred Stock are subject to the Company having funds legally available therefor. See 'Description of Series M Preferred Stock -- Mandatory Redemption.' Upon an insolvency of the Company, the rights of the holders of the Series M Preferred Stock will be subordinated to claims of creditors of the Company and its subsidiaries, including TWE, and the holders will no longer have the right to be paid to the extent of an amount equal to the Pro Rata Percentage of distributions on, or value attributable to, the TWE Series B Capital and TWE Junior Capital. Under the Credit Agreement, dated as of June 30, 1995, as amended (the 'TWE Credit Agreement'), TWE is not permitted to make distributions (other than Tax Distributions) unless, after giving effect to such distributions, TWE would be in compliance with specified leverage ratios and would otherwise not be in default under the TWE Credit Agreement. In addition, the Indenture, dated as of April 30, 1992, as amended (the 'TWE Indenture'), which governs TWE's $3.8 billion of outstanding public debt securities, prohibits TWE from making distributions if (i) TWE shall have failed to pay any interest on such debt securities and such failure shall be continuing or (ii) an 'event of default' shall have occurred and be continuing. Any payments by TWE in respect of its partnership interests may also be subject to restrictions imposed under credit agreements, indentures and other agreements entered into after the date hereof. HOLDING COMPANY STRUCTURE The Company is a holding company and its assets consist primarily of investments in its consolidated and unconsolidated subsidiaries, including TWE. The Company's ability to pay dividends on and redeem the Series M Preferred Stock and the Series L Preferred Stock, as well as its ability to 15 make interest and principal payments on the Senior Subordinated Debentures (which together with the Series M Preferred Stock and the Series L Preferred Stock, are collectively referred to as the 'Securities'), is dependent primarily upon the earnings of its consolidated and unconsolidated subsidiaries, including TWE, and the distribution or other payment of such earnings to the Company. The Company's rights and the rights of its stockholders and creditors, including holders of the Series M Preferred Stock, and if issued, the Series L Preferred Stock and the Senior Subordinated Debentures, to participate in the distribution of assets of any person in which the Company owns an equity interest (including TWE) upon such person's liquidation or reorganization will be subject to prior claims of such person's creditors, including trade creditors, except to the extent that the Company may itself be a creditor with recognized claims against such person (in which case the claims of the Company would still be subject to the prior claims of any secured creditor of such person and of any holder of indebtedness of such person that is senior to that held by the Company). Accordingly, the rights of holders of the Series M Preferred Stock, and if issued, the Series L Preferred Stock and the Senior Subordinated Debentures, will be effectively subordinated to such claims. EXCHANGE OFFER PROCEDURES Issuance of shares of Series M Preferred Stock in exchange for shares of Series K Preferred Stock pursuant to the Exchange Offer will be made only after a timely receipt by the Company of such shares of Series K Preferred Stock, a properly completed and duly executed Letter of Transmittal and all other required documents. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of shares of Series K Preferred Stock tendered for exchange will be determined by the Company in its sole discretion, which determination will be final and binding on all parties. Holders of shares of Series K Preferred Stock desiring to tender such shares of Series K Preferred Stock in exchange for shares of Series M Preferred Stock should allow sufficient time to ensure timely delivery. The Company is under no duty to give notification of defects or irregularities with respect to the tenders of shares of Series K Preferred Stock for exchange. Shares of Series K Preferred Stock that are not tendered or are tendered but not accepted will, following the consummation of the Exchange Offer, continue to be subject to the existing restrictions upon transfer thereof and, except as provided herein, the Company will have no further obligations to provide for the registration under the Securities Act of such shares of Series K Preferred Stock. In addition, any holder of Series K Preferred Stock who tenders in the Exchange Offer for the purpose of participating in a distribution of the Series M Preferred Stock may be deemed to have received restricted securities, and, if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. To the extent that shares of Series K Preferred Stock are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted shares of Series K Preferred Stock could be adversely affected. See 'Exchange Offer.' ABSENCE OF PUBLIC MARKET The Series M Preferred Stock is a new security for which there currently is no market. Although the Initial Purchasers have informed the Company that they currently intend to make a market in the Series M Preferred Stock, and if issued, the Series L Preferred Stock and the Senior Subordinated Debentures, they are not obligated to do so and any such market making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Securities. The Company does not intend to apply for listing of the Securities on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation System. CERTAIN FEDERAL INCOME TAX CONSEQUENCES See 'Certain Federal Income Tax Consequences.' 16 THE COMPANY GENERAL The Company is the world's leading media company, and has interests in three fundamental areas of business: Entertainment, consisting principally of interests in recorded music and music publishing, filmed entertainment, broadcasting, theme parks and cable television programming; News and Information, consisting principally of interests in magazine publishing, book publishing and direct marketing; and Telecommunications, consisting principally of interests in cable television systems. The Company was incorporated in the State of Delaware in August 1983 and is the successor to a New York corporation originally organized in 1922. The Company changed its name from Time Incorporated following its acquisition of 59.3% of the common stock of Warner Communications Inc. ('WCI') in July 1989. WCI became a wholly owned subsidiary of the Company in January 1990 upon the completion of the merger of WCI and a subsidiary of the Company. PUBLISHING The Company's publishing operations are conducted through wholly owned subsidiaries and include the publication of magazines such as TIME, PEOPLE, SPORTS ILLUSTRATED, FORTUNE, MONEY, ENTERTAINMENT WEEKLY, PARENTING and MARTHA STEWART LIVING and regional magazines such as SOUTHERN LIVING and SUNSET. The publication and distribution of books is conducted by Time Life Inc., Book-of-the-Month Club, Inc., Warner Books, Inc., Little, Brown and Company, Oxmoor House and Sunset Books. MUSIC The Company's worldwide music business is conducted through wholly owned subsidiaries and includes the production and sale of compact discs and cassette tapes marketed throughout the world under various labels, including the proprietary labels 'Warner Bros.,' 'Elektra,' 'Atlantic,' 'Reprise,' 'Sire,' 'EastWest,' 'WEA,' 'Teldec,' 'Erato' and 'Carrere.' The Company also owns 50% of the Columbia House Company, a direct marketer of compact discs, cassette tapes and videocassettes in the U.S. and Canada. The Company's music publishing subsidiaries, headed by Warner/Chappell, Inc., own or control the rights to many standard and contemporary compositions, and CPP/Belwin, Inc. and other subsidiaries market sheet music and song books throughout the world. FILMED ENTERTAINMENT The Company's filmed entertainment operations are conducted primarily as a division of TWE. These operations include Warner Bros. which produces and distributes feature motion pictures, television programming and animated programming for theatrical and television exhibition. Warner Home Video distributes home videocassettes and laser discs throughout the world. In addition, TWE is engaged in product licensing and the ownership and operation of retail stores, movie theaters and theme parks, including the management of TWE's interest in Six Flags Theme Parks. PROGRAMMING-HBO Programming-HBO, a division of TWE, consists principally of Home Box Office, which operates two pay television programming services, HBO and Cinemax. Home Box Office also has a number of international joint ventures, including HBO Ole in Latin America and a movie-based HBO service in Asia. The Home Box Office division also produces television programming and operates TVKO, an entity that produces boxing matches and other programming for pay-per-view. CABLE Time Warner Cable, a division of TWE, is the second largest multiple system cable operator in the United States. In addition, as a result of the recent acquisitions of Summit, KBLCOM and CVI, wholly owned subsidiaries of the Company own cable television systems that are managed by Time Warner 17 Cable. See 'Recent Developments.' As of December 31, 1995, the Company's wholly and partially owned cable systems served approximately 11.7 million subscribers. THE WB TELEVISION NETWORK Warner Bros., a division of TWE, launched The WB, a new national television network, which completed its first full year of broadcast operations in January 1996. Combining The WB's current broadcast affiliate line-up of 95 stations with the reach of Tribune Broadcasting Company's WGN Superstation, The WB's national coverage is more than 80% of all United States television households. SIX FLAGS THEME PARKS Six Flags Entertainment Corporation ('Six Flags'), in which TWE currently owns a 49% interest, operates 11 theme parks in seven locations, making it the second largest operator of theme parks in the United States and the leading operator of national system regional theme parks. Six Flags' theme parks include seven major ride-based theme parks, as well as three separately-gated water parks and one wild-life safari park. TWE TWE owns and operates substantially all of the Company's interests in filmed entertainment, broadcasting, theme parks and cable television programming and a majority of the Company's interests in cable television systems. As of the date of this Prospectus, the Company and certain wholly owned subsidiaries of the Company collectively own 74.49% of the TWE Series A Capital and the TWE Residual Capital and 100% of the TWE Senior Capital (which is senior to the TWE Series A Capital) and the TWE Series B Capital (which is junior to the TWE Series A Capital). A wholly owned subsidiary of U S WEST owns the 25.51% of the TWE Series A Capital and the TWE Residual Capital not owned by the Company and its wholly owned subsidiaries. See 'TWE Partnership Interests.' TWE is not consolidated with the Company for financial reporting purposes because of certain limited partnership approval rights related to TWE's interest in certain cable television systems. Although TWE manages substantially all the cable systems owned by the Company, TWE and the TWE-Advance/Newhouse Partnership, in which TWE owns a two-thirds interest, the results of operations of the cable systems owned by the Company's consolidated subsidiaries are included in the Company's consolidated results, while the results of operations of the cable systems owned by TWE and the TWE-Advance/Newhouse Partnership are included in TWE's consolidated results. TBS TRANSACTION In September 1995, the Company announced that it had agreed to merge with TBS by acquiring the approximately 80% interest in TBS not already owned by the Company. At March 31, 1996, the Company had economic and voting interests in TBS of approximately 19.4% and 6.4%, respectively. Pursuant to the Merger Agreement each of the Company and TBS would merge with separate subsidiaries of New Time Warner, a holding company. In connection with the TBS Transaction, the issued and outstanding shares of each class of the capital stock of the Company, including the Series K Preferred Stock and the Series M Preferred Stock, are to be converted into shares of a substantially identical class of capital stock of New Time Warner. TBS's business includes the ownership and operation of domestic and international entertainment networks (including TBS SuperStation, Turner Network Television, the Cartoon Network and TNT Latin America); the production and distribution of entertainment and news programming worldwide (including Turner Pictures, TBS Productions, Hanna-Barbera Cartoons, Castle Rock Entertainment, New Line Cinema, Cable News Network, Headline News and CNN International); and the ownership of two professional sports teams (the Atlanta Braves and the Atlanta Hawks). The TBS Transaction and the related transactions are subject to customary closing conditions, including approval of the shareholders of TBS and the Company, all necessary approvals of the FCC and appropriate antitrust approvals. There can be no assurance that all these 18 approvals can be obtained, or in the case of governmental approvals, if obtained, will not be conditioned upon changes to the terms of the Merger Agreement. For a further discussion of the TBS Transaction and related transactions, and certain litigation relating thereto (including the U S WEST Litigation), reference is made to the 10-K and the First Quarter 10-Q, which are incorporated herein by reference. TWE PARTNERSHIP INTERESTS The summary of the TWE Partnership Agreement provisions described below does not purport to be complete and is qualified in its entirety by the TWE Partnership Agreement which is incorporated by reference herein. PARTNERSHIP INTERESTS Each partner's interest in TWE consists of the initial priority capital and residual equity amounts that were assigned to that partner or its predecessor based on the estimated fair value of the net assets each contributed to TWE, as adjusted for the fair value of certain assets distributed by TWE to the Time Warner General Partners in 1993 which were not subsequently reacquired by TWE in 1995 ('Contributed Capital'), plus, with respect to the priority capital interests only, any undistributed priority capital return. The priority capital return consists of net partnership income allocated to date in accordance with the provisions of the TWE Partnership Agreement and the right to be allocated additional partnership income which, together with any previously allocated net partnership income, provides for the various priority capital rates of return specified in the table below. The sum of Contributed Capital and the undistributed priority capital return is referred to as 'Cumulative Priority Capital.' The ultimate realization of Cumulative Priority Capital could be affected by the fair value of TWE, which is subject to fluctuation. A summary of the priority of Contributed Capital, the Company's ownership of Contributed Capital and Cumulative Priority Capital at March 31, 1996 and priority capital rates of return thereon is as set forth below.
CUMULATIVE PRIORITY PRIORITY CAPITAL AT CAPITAL % OWNED PRIORITY OF CONTRIBUTED MARCH 31, RATES OF BY THE CONTRIBUTED CAPITAL CAPITAL(a) 1996 RETURN(b) COMPANY - ---------------------------------------------- ----------- ---------- ------------ -------- (% PER ANNUM COMPOUNDED (BILLIONS) QUARTERLY) TWE Senior Capital............................ $1.4 $1.5(c) 8.00% 100.00% TWE Series A Capital.......................... 5.6 9.0 13.00%(d) 74.49% TWE Series B Capital.......................... 2.9(g) 4.7 13.25%(e) 100.00% TWE Residual Capital.......................... 3.3(g) 3.3(f) -- (f) 74.49%
- ------------ (a) Excludes partnership income or loss allocated thereto and is subject to any special income allocations for tax purposes. (b) Income allocations related to priority capital rates of return are based on partnership income after any special income allocations for tax purposes. (c) Net of $366 million of partnership income distributed in 1995 representing the priority capital return thereon through June 30, 1995. (d) 11.00% to the extent concurrently distributed. (e) 11.25% to the extent concurrently distributed. (f) TWE Residual Capital is not entitled to stated priority rates of return and, as such, the Cumulative Priority Capital relating thereto is equal to the Contributed Capital. However, in the case of certain events such as the liquidation or dissolution of TWE, the TWE Residual Capital is entitled to any (footnotes continued on next page) 19 (footnotes continued from previous page) excess of the then fair value of the net assets of TWE over the aggregate amount of Cumulative Priority Capital and special tax allocations. (g) The Contributed Capital relating to the TWE Series B Capital has priority over the priority returns on the TWE Series A Capital. The Contributed Capital relating to the TWE Residual Capital has priority over the priority returns on the TWE Series B Capital and the TWE Series A Capital. ------------------------ Because Contributed Capital is based on the fair value of the net assets that each partner contributed to TWE, the aggregate of such amounts is significantly higher than TWE's partners' capital as reflected in the consolidated financial statements, which is based on the historical cost of the contributed net assets. For purposes of allocating partnership income or loss to the partners, partnership income or loss is based on the fair value of the net assets contributed to TWE and results in significantly less partnership income, or results in partnership losses, in contrast to the net income reported by TWE for financial statement purposes, which is also based on the historical cost of contributed net assets. If certain operating performance targets are achieved by TWE with respect to the five-year period ending December 31, 1996 and the ten-year period ending December 31, 2001, the Time Warner General Partners would be entitled to increased partnership interests (the 'TWE Contingent Capital'), which generally would be junior to the TWE Series B Capital but senior to the TWE Residual Capital. Although TWE is unable to determine whether it will satisfy the ten-year operating performance target at this time, it is not expected that the five-year target will be attained. U S WEST has an option (the 'U S WEST Option') to increase its share of the TWE Series A Capital and the TWE Residual Capital by up to 6.33%, depending on the operating performance of TWE's cable business. The option is exercisable between January 1, 1999 and on or about May 1, 2005 at a maximum exercise price of $1.25 billion to $1.8 billion, depending on the year of exercise. Either U S WEST or TWE may elect that the exercise price be paid with partnership interests rather than cash. The issuance of partnership interests upon exercise of the U S WEST Option may result in a dilution of the TWE Junior Capital owned by the Company, and accordingly, the rights of the holders of Series M Preferred Stock with respect to cash distributed thereon or value attributable thereto. ALLOCATIONS OF PARTNERSHIP INCOME AND LOSS Under the TWE Partnership Agreement, partnership income, to the extent earned, is first allocated to the partners' capital accounts so that the economic burden of income taxes is borne as though TWE were taxed as a corporation ('special income allocation for tax purposes'), then to the TWE Senior Capital, the TWE Series A Capital and the TWE Series B Capital, in order of priority, at rates of return ranging from 8% to 13.25% per annum, and finally to the TWE Residual Capital. Partnership losses generally are allocated first to eliminate prior allocations of partnership income to, and then to reduce the Contributed Capital relating to the TWE Residual Capital, the TWE Series B Capital and the TWE Series A Capital, in that order, then to reduce the Time Warner General Partners' TWE Senior Capital, including partnership income allocated thereto, and finally to reduce any special income allocation for tax purposes. To the extent partnership income is insufficient to satisfy all special allocations in a particular accounting period, the right to receive additional partnership income necessary to provide for the various priority capital rates of return is carried forward until satisfied out of future partnership income, including any partnership income that may result from any liquidation or dissolution of TWE. A liquidation, sale or dissolution of TWE, other than as a result of the Insolvency of TWE, will result in a Reorganization of TWE. See 'Description of Series M Preferred Stock -- Reorganization of TWE.' Under certain circumstances, there may be adjustments to the partners' capital accounts to reflect changes in the fair value of the assets of TWE. DISTRIBUTIONS Allocations of income to the partners' capital accounts do not result in the distribution of cash to the partners. Under the TWE Partnership Agreement, distributions of cash, including upon liquidation, 20 are required to be made first to the partners of TWE to permit them to pay taxes at statutory rates on their taxable income from TWE, including any special income allocation for tax purposes. Subject to any applicable contractual restrictions contained in the agreements governing the indebtedness of TWE, cash distributions (after Tax Distributions) will generally be made on a quarterly basis to the extent of Excess Cash as follows and in the following order of priority: (i) first, with respect to the TWE Senior Capital up to an amount equal to its priority return; (ii) second, with respect to the TWE Series A Capital, up to an amount (including any Tax Distributions thereon) equal to its priority return accruing from June 30, 1995; (iii) third, beginning June 30, 1998, with respect to the TWE Series B Capital up to an amount (including any Tax Distributions thereon) equal to its priority return accruing from June 30, 1998; (iv) fourth, with respect to TWE Contingent Capital, if any, up to an amount (including any Tax Distributions thereon) equal to its priority return and (v) thereafter, with respect to (and in proportion to) the TWE Residual Capital. 'Excess Cash' generally means the net income of TWE, as determined in accordance with generally accepted accounting principles, after adjusting for non-cash items, capital expenditures, investments, acquisitions, debt service requirements, changes in working capital and reserves for future operations, as determined by TWE's Board of Representatives. There can be no assurance that Excess Cash in any period will be sufficient to make cash distributions, including with respect to the TWE Series B Capital. See 'Risk Factors.' If the Class A Partners have not received aggregate distributions (generally from all sources) at least equal to $800 million by June 30, 1997, distributions (other than Tax Distributions) to the Time Warner General Partners with respect to their TWE Series A Capital and TWE Residual Capital will be deferred until such threshold is met. 'Class A Partners' include U S WEST, the Company and a wholly-owned subsidiary of the Company and exclude the Time Warner General Partners. Similarly, if the Class A Partners have not received aggregate distributions (generally from all sources) at least equal to $1.6 billion by June 30, 1998, distributions (other than Tax Distributions) to the Time Warner General Partners with respect to their TWE Series B Capital and TWE Contingent Capital will be deferred until such threshold is met. The TWE Senior Capital and, to the extent not previously distributed, partnership income allocated thereto, is required to be redeemed in three annual installments: 33 1/3% of the amount outstanding, on July 1, 1997; 50% of the amount outstanding, on July 1, 1998; and 100% of the amount outstanding, on July 1, 1999. In addition, the TWE Series A Capital and the TWE Series B Capital and, to the extent not previously distributed, partnership income allocated thereto, are to be redeemed out of available cash, on a pro rata basis, in five annual installments: 20% of the amounts outstanding, on June 30, 2011; 25% of the amounts outstanding, on June 30, 2012; 33 1/3% of the amounts outstanding, on June 30, 2013; 50% of the amounts outstanding, on June 30, 2014; and 100% of the amounts outstanding, on June 30, 2015. Such distributions with respect to the TWE Series B Capital are referred to as the 'Series B Redemptions' and the date of each Series B Redemption is referred to as the 'Series B Redemption Date.' There can be no assurance that TWE will have sufficient available cash to make any such distribution. To the extent any such distributions are not made in full on the scheduled distribution date, TWE will make up such shortfall prior to making any subsequently scheduled distributions. In addition, the TWE Partnership Agreement provides that the net proceeds of any sale of a division of TWE or a substantial portion thereof, or the cash available from any financing or refinancing of TWE's debt (in each case, less expenses and proceeds used to repay outstanding debt) will be required to be distributed with respect to the partners' partnership interests. Such a sale would constitute a Reorganization of TWE. See 'Description of Series M Preferred Stock -- Reorganization of TWE.' Under the TWE Credit Agreement, TWE is not permitted to make distributions (other than Tax Distributions) unless, after giving effect to such distributions, TWE would be in compliance with specified leverage ratios and would otherwise not be in default under the TWE Credit Agreement. In addition, the TWE Indenture prohibits TWE from making distributions if (i) TWE shall have failed to pay any interest on any debt securities issued under the TWE Indenture and such failure shall be continuing or (ii) an 'event of default' shall have occurred and be continuing. There can be no assurance that TWE will be permitted to make distributions with respect to the partnership interests 21 therein, including the TWE Series B Capital and the TWE Junior Capital, under the TWE Credit Agreement or the Indenture. RECENT DEVELOPMENTS The Company and TWE have recently completed, or have entered into, the transactions described below. On April 11, 1996, the Company issued the Series K Preferred Stock for approximately $1.552 billion of net proceeds. In April and May of 1996, the Company used approximately $1.265 billion of such proceeds to redeem all $250 million principal amount of its outstanding 8.75% Debentures due 2017 (plus redemption premiums and accrued interest thereon of $15 million) and to reduce bank debt of TWI Cable Inc. ('TWI Cable'), a wholly-owned subsidiary of the Company, by $1 billion. The remaining proceeds will be used by the Company to reduce approximately $287 million of other outstanding indebtedness. However, the Company has not yet determined which indebtedness it will repurchase, redeem or otherwise repay. The issuance of the Series K Preferred Stock and the use of the proceeds therefrom to reduce outstanding indebtedness of the Company are referred to herein as the 'Series K Refinancing.' On February 1, 1996, the Company redeemed the remaining $1.2 billion principal amount of 8.75% Convertible Subordinated Debentures due 2015 (the '8.75% Convertible Debentures') for $1.28 billion, including redemption premiums and accrued interest thereon (the 'February 1996 Redemption'). In addition, in September 1995, the Company redeemed approximately $1 billion principal amount of 8.75% Convertible Debentures for $1.06 billion, including redemption premiums and accrued interest thereon (the 'September 1995 Redemption'). The September 1995 Redemption was financed with (i) approximately $500 million of proceeds raised from the issuance in June 1995 of 7.75% notes due 2005, (ii) $363 million of net proceeds raised in August 1995 from the issuance of approximately 12.1 million Company-obligated mandatorily redeemable preferred securities of a subsidiary ('PERCS') that are redeemable for cash or, at the Company's option, approximately 12.1 million shares of Hasbro, Inc. common stock owned by the Company and that pay cash distributions at a rate of 4% per annum and (iii) available cash and equivalents (the '1995 Convertible Debt Refinancing'). The February 1996 Redemption was financed with (i) $557 million of net proceeds raised in December 1995 from the issuance of Company-obligated mandatorily redeemable preferred securities of a subsidiary (the 'Preferred Trust Securities') that pay cash distributions at a rate of 8 7/8% per annum and (ii) proceeds raised from the $750 million issuance of debentures in January 1996, consisting of (w) $400 million principal amount of 6.85% debentures due 2026, which are redeemable at the option of the holders thereof in 2003, (x) $200 million principal amount of 8.3% discount debentures due 2036, which do not pay cash interest until 2016, (y) $166 million principal amount of 7.48% debentures due 2008 and (z) $150 million principal amount of 8.05% debentures due 2016 (collectively referred to herein as the 'January 1996 Debentures'). The issuance of the Preferred Trust Securities and the January 1996 Debentures, together with the February 1996 Redemption are collectively referred to as the '1996 Convertible Debt Refinancing.' The 1995 Convertible Debt Refinancing and the 1996 Convertible Debt Refinancing are collectively referred to herein as the 'Convertible Debt Refinancings.' On January 4, 1996 (as previously reported on the Current Report on Form 8-K of the Company dated January 4, 1996), the Company completed its acquisition of Cablevision Industries Corporation ('CVI') and certain affiliated entities of CVI (the 'Gerry Companies'). CVI and the Gerry Companies owned cable television systems serving approximately 1.3 million subscribers (the 'CVI Acquisition'). On October 2, 1995 and September 5, 1995 (as previously reported on the Current Report on Form 8-K of the Company dated August 31, 1995), Toshiba Corporation ('Toshiba') and ITOCHU Corporation ('ITOCHU'), respectively, each exchanged (i) their 5.61% TWE Series A Capital and TWE Residual Capital interests, (ii) their 6.25% residual equity interests in TW Service Holding I, L.P. and TW Service Holding II, L.P., each of which owned certain assets related to the TWE businesses (the 'Time Warner Service Partnerships') and (iii) their options to increase their interests in TWE under certain circumstances for, in the case of ITOCHU, 8 million shares of two series of new convertible preferred stock ('Series G Preferred Stock' and 'Series H Preferred Stock') of the Company and, in the case of Toshiba, 7 million shares of new convertible preferred stock of Time Warner ('Series I 22 Preferred Stock') and $10 million in cash (the 'ITOCHU/Toshiba Transaction'). As a result of the ITOCHU/Toshiba Transaction, the Company and certain of its wholly-owned subsidiaries collectively now own 74.49% of the TWE Series A Capital and TWE Residual Capital and 100% of the TWE Senior Capital and TWE Series B Capital in TWE. A subsidiary of U S WEST owns the remaining 25.51% of the TWE Series A Capital and TWE Residual Capital. On September 22, 1995 (as previously reported on the Current Report on Form 8-K of the Company dated September 22, 1995), the Company announced that it had entered into the Merger Agreement which, as amended, provides for the merger of each of the Company and TBS with separate subsidiaries of New Time Warner, which will combine, for financial reporting purposes, the consolidated net assets and operating results of the Company and TBS. In connection therewith, the issued and outstanding shares of each class of the capital stock of the Company, including the Series K Preferred Stock and the Series M Preferred Stock, will be converted into shares of a substantially identical class of capital stock of New Time Warner. In addition, the Company has agreed to enter into certain agreements and related transactions with certain shareholders of TBS, including R. E. Turner and Liberty Media Corporation ('LMC'), an affiliate of Tele-Communications, Inc. The Merger Agreement and certain related agreements provide for the issuance by New Time Warner of approximately 172.8 million shares of common stock, par value $.01 per share (such holding company stock, or, prior to the formation of such holding company, the existing Company common stock, being referred to herein as the 'Common Stock') (including 50.6 million shares of a special class of non-redeemable Common Stock to be issued to LMC, the 'LMC Class Common Stock'), in exchange for the outstanding TBS capital stock, the issuance of approximately 13 million stock options to replace all outstanding TBS options and the assumption of TBS's indebtedness (which approximated $2.5 billion at March 31, 1996). As part of the TBS Transaction, LMC will receive an additional five million shares of LMC Class Common Stock pursuant to a separate option agreement (the 'Option Agreement'), which, together with the 50.6 million shares received pursuant to the TBS Transaction, will be placed in a voting trust or, in certain circumstances, exchanged for shares of another special class of non-voting, non-redeemable common stock of New Time Warner. On August 15, 1995, the Company redeemed all of its $1.8 billion principal amount of outstanding Redeemable Reset Notes due 2002 (the 'Reset Notes') in exchange for new securities (the 'Reset Notes Refinancing'), consisting of approximately $454 million aggregate principal amount of Floating Rate Notes due 2000, approximately $272 million aggregate principal amount of 7.975% Notes due 2004, approximately $545 million aggregate principal amount of 8.11% Debentures due 2006, and approximately $545 million aggregate principal amount of 8.18% Debentures due 2007. On July 6, 1995 (as previously reported on the Current Report on Form 8-K of the Company dated July 6, 1995), the Company acquired KBLCOM Incorporated ('KBLCOM') which owned cable television systems serving approximately 700,000 subscribers and a 50% interest in Paragon Communications ('Paragon'), which owned cable television systems serving an additional 972,000 subscribers (the 'KBLCOM Acquisition'). The other 50% interest in Paragon was already owned by TWE. On June 30, 1995, TWI Cable, TWE and the TWE-Advance/Newhouse Partnership executed a five-year revolving credit facility. Such credit facility enabled such entities to refinance certain indebtedness assumed in the Acquisitions (as defined herein), to refinance TWE's indebtedness under a pre-existing bank credit agreement and to finance the ongoing working capital, capital expenditure and other corporate needs of each borrower (the 'Bank Refinancing'). The Convertible Debt Refinancings, the Reset Notes Refinancing and the Bank Refinancing are referred to herein as the 'Debt Refinancings.' On June 23, 1995, (i) Six Flags was recapitalized, (ii) TWE sold 51% of its interest in Six Flags to an investment group led by Boston Ventures Management, Inc. and (iii) TWE granted certain licenses to Six Flags (collectively, the 'Six Flags Transaction'). On May 2, 1995, the Company acquired Summit Communications Group, Inc. ('Summit'), which owned cable television systems serving approximately 162,000 subscribers (the 'Summit Acquisition'). 23 On April 1, 1995 (as previously reported on the Current Report on Form 8-K of the Company dated April 1, 1995), TWE closed its transaction (the 'TWE-A/N Transaction') with Advance/Newhouse, pursuant to which TWE and Advance/Newhouse formed the TWE-Advance/ Newhouse Partnership, to which Advance/Newhouse and TWE contributed cable television systems (or interests therein) serving approximately 4.5 million subscribers, as well as certain foreign cable investments and certain programming investments that included Advance/Newhouse's 10% interest in Primestar Partners, L.P. TWE owns a two-thirds equity interest in the TWE-Advance/Newhouse Partnership and is the managing partner and Advance/Newhouse owns a one-third equity interest. During 1995, TWE entered into agreements to sell, or announced its intention to sell, 17 of its unclustered cable television systems serving approximately 180,000 subscribers, of which certain of the transactions closed during 1995 and the remaining transactions, which are not material, have closed or are expected to close in 1996 (the 'Unclustered Cable Transactions'). The Unclustered Cable Transactions and the Six Flags Transaction are referred to herein as the 'Asset Sale Transactions'; the Summit Acquisition, KBLCOM Acquisition and CVI Acquisition are referred to herein as the 'Acquisitions'; and the Acquisitions and the TWE-A/N Transaction are referred to herein as the 'Cable Transactions.' CONSOLIDATED CAPITALIZATION The consolidated historical and pro forma capitalization of the Company and the Company's Entertainment Group, consisting principally of TWE, at March 31, 1996, is set forth below. The Entertainment Group is not consolidated with the Company for financial reporting purposes. The consolidated as adjusted capitalization of the Company set forth in column (1) gives effect to the Series K Refinancing, as if such transaction occurred at such date; the consolidated pro forma capitalization of the Company set forth in column (2) gives effect to the TBS Transaction, as if such transaction occurred at such date; and the consolidated pro forma as adjusted capitalization of the Company set forth in column (3) gives effect to the transactions reflected in columns (1) and (2), as if such transactions occurred at such date. The pro forma capitalization is presented for informational purposes only and is not necessarily indicative of the future capitalization of the Company, any new holding company and the Entertainment Group. Capitalized terms are as defined and described in the 'Time Warner Inc. and Entertainment Group Pro Forma Consolidated Condensed Financial Statements' included in the May 15, 1996 8-K and incorporated herein by reference, or elsewhere herein. 24
TIME WARNER INC. ENTERTAINMENT GROUP -------------------------------------------------------- ------------------- (3) POST-TBS (2) PRO FORMA (1) POST-TBS AS HISTORICAL AS ADJUSTED(a) PRO FORMA(b) ADJUSTED(b) HISTORICAL ---------- -------------- ------------ ----------- ------------------- (MILLIONS) Long-term debt: Time Warner Debt: 7.45%, 7.75%, 7.95% and 7.975% notes....................... $ 1,769 $ 1,769 $ 1,769 $ 1,769 -- Floating rate notes due 2000 (6.2% interest rate)................... 454 454 454 454 -- 8.11% and 8.18% Debentures......... 1,090 1,090 1,090 1,090 -- Zero coupon convertible notes due 2012 (6.25% yield)(c)............ 590 590 590 590 -- Zero coupon convertible notes due 2013 (5% yield)(c)............... 1,032 1,032 1,032 1,032 -- 8.75%, 9.125% and 9.15% Debentures(d).................... 2,248 2,000 2,248 2,000 -- Debt due to TWE (6.4% interest rate)(e)......................... 400 400 400 400 -- 6.85%, 7.48% and 8.05% Debentures....................... 716 716 716 716 -- 8.30% Discount Debentures due 2036(c).......................... 35 35 35 35 -- Time Warner Cable Subsidiaries Debt: CVI 10 3/4% senior notes........... 300 300 300 300 -- CVI 9 1/4% senior debentures....................... 200 200 200 200 -- Summit 10 1/2% senior subordinated debentures....................... 140 140 140 140 -- New Credit Agreement (weighted average interest rate of 6.2% with respect to TWI Cable and 5.9% with respect to TWE and the TWE-A/N Partnership)(f)(g)....... 2,800 1,800 2,800 1,800 $ 1,740 TBS Debt: TBS credit agreement (weighted average interest rate of 6.4%)... -- -- 1,475 1,475 -- TBS 8 3/8% and 7.4% senior notes... -- -- 547 547 -- TBS 8.4% senior debentures......... -- -- 200 200 -- TBS zero coupon convertible notes due 2007 (7.25% yield)(c)........ -- -- 268 268 -- TBS other indebtedness............. -- -- 5 5 --
(table continued on next page) 25 (table continued from previous page)
TIME WARNER INC. ENTERTAINMENT GROUP -------------------------------------------------------- ------------------- (3) POST-TBS (2) PRO FORMA (1) POST-TBS AS HISTORICAL AS ADJUSTED(a) PRO FORMA(b) ADJUSTED(b) HISTORICAL ---------- -------------- ------------ ----------- ------------------- (MILLIONS) TWE Debt: TWE commercial paper (weighted average interest rate of 5.7%)(g)......................... -- -- -- -- 190 TWE 8 7/8%, 9 5/8% and 10.15% notes(g)......................... -- -- -- -- 1,197 TWE 7 1/4%, 8 3/8% and 8 3/8% debentures(g).................... -- -- -- -- 2,584 Other................................... 83 83 178 178 13 Reduction of debt with remaining proceeds from offering of Series K Preferred Stock(h).................... -- (287) -- (287) -- ---------- -------------- ------------ ----------- ---------- Subtotal................................ 11,857 10,322 14,447 12,912 5,724 Reclassification of debt due to TWE to investments in and amounts due to the Entertainment Group(e)............ (400) (400) (400) (400) -- ---------- -------------- ------------ ----------- ---------- Total long-term debt.......... 11,457 9,922 14,047 12,512 5,724 Company-obligated mandatorily redeemable preferred securities of subsidiaries holding solely subordinated notes and debentures of the Company............. 949 949 949 949 -- Series K Preferred Stock(i)............. -- 1,552 -- 1,552 -- Shareholders' equity: Preferred stock liquidation preference....................... 3,643 3,643 3,643 3,643 -- Equity applicable to common stock............................ 684 675 7,946 7,937 -- ---------- -------------- ------------ ----------- ---------- Total shareholders' equity.... 4,327 4,318 11,589 11,580 -- Time Warner General Partners' Senior Capital................... -- -- -- -- 1,454 Partners' capital.................. -- -- -- -- 6,604 ---------- -------------- ------------ ----------- ---------- Total capitalization.......... $ 16,733 $ 16,741 $ 26,585 $26,593 $13,782 ---------- -------------- ------------ ----------- ---------- ---------- -------------- ------------ ----------- ----------
- ------------ (a) Also reflects, on an as adjusted basis, the capitalization of the Company as a separate subsidiary of the new holding company after consummation of the TBS Transaction. See 'The Company -- TBS Transaction.' (b) Reflects, on a pro forma basis, the capitalization of the new holding company after consummation of the TBS Transaction (in which case the Company expects that the new holding company would provide guarantees of the Company's outstanding public debt). (c) The zero coupon convertible notes due 2012 and 2013 are reflected net of unamortized original issue discount of $1.061 billion and $1.383 billion, respectively. The 8.3% Discount Debentures due 2036 are reflected net of unamortized original issue discount of $165 million. The TBS zero coupon convertible notes due 2007 are reflected net of unamortized original issue discount of $314 million. (footnotes continued on next page) 26 (footnotes continued from previous page) (d) The $250 million principal amount of 8.75% Debentures due 2017 redeemed in connection with the Series K Refinancing are reflected net of unamortized original issue discount of $2 million. (e) The Company and TWE entered into a credit agreement in 1994 that allows the Company to borrow up to $400 million from TWE through September 15, 2000. Outstanding borrowings from TWE bear interest at LIBOR plus 1% per annum. For financial reporting purposes, the $400 million of currently outstanding loans from TWE to the Company have been reclassified and shown as a reduction in the Company's investments in and amounts due to the Entertainment Group. (f) The TWE Credit Agreement permits borrowings in an aggregate amount of up to $8.3 billion, with no scheduled reductions in credit availability prior to maturity. Borrowings are limited to $4 billion in the case of TWI Cable, $5 billion in the case of the TWE-Advance/Newhouse Partnership and $8.3 billion in the case of TWE, subject in each case to certain limitations and adjustments. Such borrowings bear interest at different rates for each of the three borrowers, generally equal to LIBOR plus a margin initially ranging from 50 to 87.5 basis points, which margin will vary based on the credit rating or financial leverage of the applicable borrower. Unused credit is available for general business purposes and to support any commercial paper borrowings. The TWE Credit Agreement contains certain covenants for each borrower relating to, among other things, additional indebtedness; liens on assets; cash flow coverage and leverage ratios; and loans, advances, distributions and other cash payments or transfers of assets from the borrowers to their respective partners or affiliates. (g) Except for borrowings by TWI Cable and the TWE-Advance/Newhouse Partnership under the TWE Credit Agreement, such indebtedness is guaranteed by certain subsidiaries of the Company which are the general partners of TWE. (h) Although the remaining net proceeds from the issuance of the Series K Preferred Stock will be used to reduce approximately $287 million of outstanding indebtedness of the Company, the Company has not yet determined which indebtedness it will repurchase, redeem or otherwise repay. The weighted average interest rate on the Company's outstanding indebtedness as of March 31, 1996 was approximately 7.5%. The weighted average maturity of the Company's outstanding indebtedness as of March 31, 1996 was approximately 13 years. (i) The shares of Series K Preferred Stock are to be exchanged for shares of Series M Preferred Stock. 27 SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION COMPANY SELECTED HISTORICAL FINANCIAL INFORMATION The selected historical financial information of the Company set forth below has been derived from and should be read in conjunction with the consolidated financial statements and other financial information of the Company contained in the 10-K and with the unaudited consolidated financial statements of the Company for the quarter ended March 31, 1996 contained in the First Quarter 10-Q, which are incorporated herein by reference. The selected historical financial information for all periods after 1992 reflect the deconsolidation of the Entertainment Group, principally TWE, effective January 1, 1993. Capitalized terms are as defined and described in such historical financial statements, or elsewhere herein. The selected historical financial information for 1996 reflects the issuance of 6.5 million shares of convertible preferred stock having an aggregate liquidation preference of $648 million in connection with the CVI Acquisition. The selected historical financial information for 1995 reflects the issuance of 29.3 million shares of convertible preferred stock having an aggregate liquidation preference of $2.926 billion in connection with (i) the KBLCOM Acquisition and the Summit Acquisition and (ii) the ITOCHU/Toshiba Transaction. The selected historical financial information for 1993 reflects the issuance of $6.1 billion of long-term debt and the use of $500 million of cash and equivalents for the exchange or redemption of preferred stock having an aggregate liquidation preference of $6.4 billion. The selected historical financial information for 1992 reflects the capitalization of TWE on June 30, 1992 and associated refinancings, and the acquisition of the 18.7% minority interest in American Television and Communications Corporation ('ATC') as of June 30, 1992, using the purchase method of accounting for business combinations. Per common share amounts and average common shares have been restated to give effect to the four-for-one common stock split that occurred on September 10, 1992.
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, ---------------------------------- ------------------------------------------------ 1996 1995 1995 1994 1993 1992 1991 --------------- --------------- ------ ------ ------ ------- ------- (MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS) OPERATING STATEMENT INFORMATION Revenues................................. $ 2,068 $ 1,817 $8,067 $7,396 $6,581 $13,070 $12,021 Depreciation and amortization............ 228 112 559 437 424 1,172 1,109 Business segment operating income(a)..... 110 138 697 713 591 1,343 1,154 Equity in pretax income of Entertainment Group.................................. 116 22 256 176 281 -- -- Interest and other, net.................. 296 155 877 724 718 882 966 Income (loss) before extraordinary item................................... (93) (47) (124) (91) (164) 86 (99) Net income (loss)(b)(c).................. (119) (47) (166) (91) (221) 86 (99) Net loss applicable to common shares (after preferred dividends)............ (153) (50) (218) (104) (339) (542) (692) Per share of common stock: Loss before extraordinary items..... $ (0.32) $ (0.13) $ (.46) $ (.27) $ (.75) $ (1.46) $ (2.40) Net loss(b)(c)...................... $ (0.39) $ (0.13) $ (.57) $ (.27) $ (.90) $ (1.46) $ (2.40) Dividends........................... $ .09 $ .09 $ .36 $ .35 $ .31 $ .265 $ .25 Average common shares(c)................. 391.7 379.5 383.8 378.9 374.7 371.0 288.2 Ratio of earnings to fixed charges (deficiency in the coverage of fixed charges by earnings before fixed charges)(d)............................ $ (76) 1.0x 1.1x 1.1x 1.1x 1.4x 1.1x Ratio of earnings to combined fixed charges and preferred stock dividends (deficiency in the coverage of combined fixed charges and preferred stock dividends by earnings before fixed charges and preferred stock dividends)(d).......................... $ (131) $(3) 1.0x 1.1x $ (91) $ (509) $(1,240)
28
DECEMBER 31, MARCH 31, -------------------------------------------------- 1996 1995 1994 1993 1992 1991 ------------------ ------- ------ ------- ------- ------- (MILLIONS) BALANCE SHEET INFORMATION Investments in and amounts due to and from Entertainment Group............ $ 5,931 $ 5,734 $5,350 $ 5,627 $ -- $ -- Total assets.......................... 24,832 22,132 16,716 16,892 27,366 24,889 Long-term debt........................ 11,457 9,907 8,839 9,291 10,068 8,716 Company-obligated mandatorily redeemable preferred securities of subsidiaries holding solely subordinated notes and debentures of the Company(e)...................... 949 949 -- -- -- -- Shareholders equity: Preferred stock liquidation preference.......................... 3,643 2,994 140 140 6,532 6,256 Equity applicable to common stock..... 684 673 1,008 1,230 1,635 2,242 Total shareholders equity............. $ 4,327 $ 3,667 $1,148 $ 1,370 $ 8,167 $ 8,498 Total capitalization.................. $ 16,733 $14,523 $9,987 $10,661 $18,235 $17,214
- ------------ (a) Business segment operating income for the year ended December 31, 1995 includes $85 million in losses relating to certain businesses and joint ventures owned by the Music division which were restructured or closed. Business segment operating income for the year ended December 31, 1991 includes a $60 million charge relating to the restructuring of the Publishing division. (b) The net loss for the three months ended March 31, 1996 includes an extraordinary loss on the retirement of debt of $26 million ($.07 per common share). The net loss for the year ended December 31, 1995 includes an extraordinary loss on the retirement of debt of $42 million ($.11 per common share). The net loss for the year ended December 31, 1993 includes an extraordinary loss on the retirement of debt of $57 million ($.15 per common share) and an unusual charge of $70 million ($.19 per common share) from the effect of the new income tax law on the Company's deferred income tax liability. (c) In August 1991, the Company completed the sale of 137.9 million shares of common stock pursuant to a rights offering. Net proceeds of $2.558 billion from the rights offering were used to reduce indebtedness under the Company's bank credit agreement. If the rights offering had been completed at the beginning of 1991, net loss for the year would have been reduced to $33 million, or $1.70 per common share, and there would have been 369.3 million shares of common stock outstanding during the year. (d) For purposes of the ratio of earnings to fixed charges and the ratio of earnings to combined fixed charges and preferred stock dividends, earnings were calculated by adding (i) pretax income, (ii) interest expense, including previously capitalized interest amortized to expense and the portion of rents representative of an interest factor for the Company and its majority-owned subsidiaries, (iii) the Company's proportionate share of the items included in (ii) above for its 50%-owned companies, (iv) preferred stock dividend requirements of majority-owned subsidiaries, (v) minority interest in the income of majority-owned subsidiaries that have fixed charges and (vi) undistributed losses of its less-than-50%-owned companies. Fixed charges consist of (i) interest expense, including interest capitalized and the portion of rents representative of an interest factor for the Company and its majority-owned subsidiaries, (ii) the Company's proportionate share of such items for its 50%-owned companies and (iii) preferred stock dividend requirements of majority-owned subsidiaries. Combined fixed charges and preferred stock dividends also include the amount of pretax income necessary to cover preferred stock dividend requirements of the Company. For periods in which earnings before fixed charges were insufficient to cover fixed charges or combined (footnotes continued on next page) 29 (footnotes continued from previous page) fixed charges and preferred stock dividends, the dollar amount of coverage deficiency, instead of the ratio, is disclosed. Earnings as defined include significant noncash charges for depreciation and amortization. In addition, fixed charges for the three months ended March 31, 1996 and 1995 and the years ended December 31, 1995 and 1994 include noncash interest expense of $22 and $57, and $176 million and $219 million, respectively, relating to the Company's zero coupon convertible notes due 2012 and 2013 and, in 1995 and 1994 only, the Reset Notes. (e) Includes $374 million of preferred securities that are redeemable for cash or, at the Company's option, approximately 12.1 million shares of Hasbro, Inc. common stock owned by the Company. ENTERTAINMENT GROUP SELECTED HISTORICAL FINANCIAL INFORMATION The selected historical financial information of the Entertainment Group set forth below has been derived from and should be read in conjunction with the consolidated financial statements and other financial information of the Company and TWE contained in the 10-K and the First Quarter 10-Q, which are incorporated herein by reference. Capitalized terms are as defined and described in such historical financial statements, or elsewhere herein. For periods prior to January 1, 1993, the Entertainment Group is consolidated with the Company for financial reporting purposes and, accordingly, is also reflected in the Company's summary historical financial information. The selected historical financial information for 1995 reflects the consolidation by TWE of the TWE-Advance/Newhouse Partnership resulting from the formation of such partnership, effective as of April 1, 1995, and the consolidation of Paragon effective as of July 6, 1995. The selected historical financial information gives effect to the consolidation of Six Flags effective as of January 1, 1993 as a result of an increase in TWE's ownership of Six Flags from 50% to 100% in September 1993, and the subsequent deconsolidation of Six Flags resulting from the disposition by TWE of a 51% interest in Six Flags effective as of June 23, 1995. The selected historical financial information for 1993 also gives effect to the admission of U S WEST as an additional limited partner of TWE as of September 15, 1993 and the issuance of $2.6 billion of TWE debentures during the year to reduce indebtedness under TWE's then existing credit agreement, and for 1992 gives effect to the initial capitalization of TWE and associated refinancings as of the dates such transactions were consummated and the Company's acquisition of the ATC minority interest as of June 30, 1992, using the purchase method of accounting. The Company's cost to acquire the ATC minority interest is reflected in the consolidated financial statements of TWE under the pushdown method of accounting.
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, ---------------------------- ------------------------------------------- 1996 1995 1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ ------ ------ (MILLIONS, EXCEPT RATIOS) OPERATING STATEMENT INFORMATION Revenues.............................. $2,487 $2,073 $9,629 $8,509 $7,963 $6,761 $6,068 Depreciation and amortization......... 290 230 1,060 959 909 788 733 Business segment operating income..... 271 201 992 852 905 814 724 Interest and other, net............... 88 164 539 616 564 531 526 Income before extraordinary item...... 98 11 170 136 217 173 103 Net income(a)......................... 98 11 146 136 207 173 103 TWE ratio of earnings to fixed charges(b).......................... 2.2x 1.1x 1.6x 1.4x 1.4x 1.4x 1.4x
30
DECEMBER 31, MARCH 31, --------------------------------------------------- 1996 1995 1994 1993 1992 1991 ------------------ ------- ------- ------- ------- ------- (MILLIONS) BALANCE SHEET INFORMATION Total assets........................ $18,636 $18,960 $18,992 $18,202 $15,886 $14,230 Long-term debt...................... 5,724 6,137 7,160 7,125 7,171 4,571 Time Warner General Partners' Senior capital........................... 1,454 1,426 1,663 1,536 -- -- Partners' capital................... 6,604 6,576 6,491 6,228 6,483 6,717
- ------------ (a) Net income for the years ended December 31, 1995 and 1993 includes an extraordinary loss on the retirement of debt of $24 million and $10 million, respectively. (b) For purposes of the ratio of earnings to fixed charges, earnings were calculated by adding (i) pretax income, (ii) interest expense, including previously capitalized interest amortized to expense and the portion of rents representative of an interest factor for TWE and its majority-owned subsidiaries, (iii) TWE's proportionate share of the items included in (ii) above for its 50%-owned companies, (iv) minority interest in the income of majority-owned subsidiaries that have fixed charges and (v) undistributed losses of its less-than-50%-owned companies. Fixed charges consist of (i) interest expense, including interest capitalized and the portion of rents representative of an interest factor for TWE and its majority-owned subsidiaries and (ii) TWE's proportionate share of such items for its 50%-owned companies. COMPANY AND ENTERTAINMENT GROUP SELECTED PRO FORMA FINANCIAL INFORMATION The unaudited selected pro forma balance sheet information of the Company at March 31, 1996 set forth below gives effect to the TBS Transaction as if it had occurred at such date. The unaudited selected pro forma operating statement information of the Company for the three months ended March 31, 1996 set forth below gives effect in column (1) to the 1996 Convertible Debt Refinancing and in column (2) to such transaction and the TBS Transaction, in each case as if the transactions had occurred at the beginning of such period. The ITOCHU/Toshiba Transaction, the Cable Transactions, the 1995 Convertible Debt Refinancing, the Reset Notes Refinancing, the Bank Refinancing, the Asset Sale Transactions and, with respect to the balance sheet only, the 1996 Convertible Debt Refinancing, are already reflected in the historical financial statements of the Company as of and for the three months ended March 31, 1996. The unaudited selected pro forma operating statement information of the Company for the year ended December 31, 1995 set forth below gives effect in column (1) to the ITOCHU/Toshiba Transaction, the Cable Transactions, the Debt Refinancings and the Asset Sale Transactions and in column (2) to each of such transactions and the TBS Transaction, in each case as if the transactions had occurred at the beginning of such period. The unaudited selected pro forma operating statement information of the Entertainment Group for the year ended December 31, 1995 set forth below gives effect to the TWE-A/N Transaction, the Debt Refinancings, the consolidation of Paragon and the Asset Sale Transactions, in each case as if the transactions had occurred at the beginning of such period. Unaudited selected pro forma financial statement information of the Entertainment Group as of and for the three months ended March 31, 1996 has not been presented since all such transactions consummated by TWE are reflected, in all material respects, in the historical financial statements of the Entertainment Group as of and for the three months ended March 31, 1996. The incremental effect on the Company's loss before extraordinary item per common share on a Post-TBS basis would be an increase of $.05 and $.19 per common share, respectively. The selected pro forma financial information should be read in conjunction with the 'Time Warner Inc. and Entertainment Group Pro Forma Consolidated Condensed Financial Statements' included in the May 15, 1996 8-K and incorporated herein by reference. Consistent with the pro forma information presented in conformity with the instructions of Form 8-K and included in the May 15, 1996 8-K, no pro forma effect has been given in the information set forth below for the Series K Refinancing or the issuance of the Series M Preferred Stock offered hereby. However, giving additional pro forma effect to 31 the Series K Refinancing for the three months ended March 31, 1996 and the year ended December 31, 1995, as if the transaction had occurred at the beginning of such periods, the incremental effect on the Company's Pre-TBS pro forma results would have been a decrease in the loss before extraordinary item of $16 million and $65 million, respectively, resulting from the after-tax effect of lower interest expense, and an increase in the loss before extraordinary item per common share of $.07 and $.29 per common share, respectively, resulting from an increase in preferred dividend requirements that more than offsets the effect of lower interest expense. The selected pro forma financial information is presented for informational purposes only and is not necessarily indicative of the financial position or operating results that would have occurred if the transactions given retroactive effect therein had been consummated as of the dates indicated, nor is it necessarily indicative of future financial conditions or operating results.
THREE MONTHS ENDED YEAR ENDED MARCH 31, 1996 DECEMBER 31, 1995 --------------------------- ------------------------------------------- (1) (2) (1) (2) COMPANY COMPANY COMPANY COMPANY PRE-TBS POST-TBS PRE-TBS POST-TBS ENTERTAINMENT PRO FORMA(a) PRO FORMA(b) PRO FORMA(a) PRO FORMA(b) GROUP ------------ ------------ ------------ ------------ ------------- (MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS) PRO FORMA OPERATING STATEMENT INFORMATION Revenues.................................... $2,068 $2,843 $8,742 $12,179 $9,686 Depreciation and amortization............... 228 320 935 1,312 1,078 Business segment operating income........... 110 86 656 803 994 Equity in pretax income of Entertainment Group..................................... 116 116 286 286 -- Interest and other, net..................... 289 328 1,037 1,249 484 Income (loss) before extraordinary item..... (89) (145) (255) (366) 203 Loss before extraordinary item applicable to common shares (after preferred dividends)................................ (123) (179) (398) (509) -- Per share of common stock: Loss before extraordinary item.............. $ (.31) $ (.31) $(1.02) $ (.90) -- Dividends................................... $ .09 $ .09 $ .36 $ .36 -- Average common shares....................... 391.7 569.5 387.7 565.5 -- Company and TWE ratio of earnings to fixed charges (deficiency in the coverage of fixed charges by earnings before fixed charges)(c)............................... $ (69) $ (141) $ (60) $ (142) 1.8x Company deficiency in the coverage of combined fixed charges and preferred stock dividends by earnings before fixed charges and preferred stock dividends(c).......... $ (124) $ (196) $ (258) $ (340) --
MARCH 31, 1996 ---------------- COMPANY POST-TBS PRO FORMA(b) -------------- (MILLIONS) PRO FORMA BALANCE SHEET INFORMATION Investments in and amounts due to and from Entertainment Group.............................. $ 5,931 Total assets................................................................................ 36,050 Long-term debt.............................................................................. 14,047 Company-obligated mandatorily redeemable preferred securities of subsidiaries holding solely subordinated notes and debentures of the Company.......................................... 949 Shareholders' equity: Preferred stock liquidation preference...................................................... 3,643 Equity applicable to common stock........................................................... 7,946 Total shareholders' equity.................................................................. 11,589
(footnotes on next page) 32 (footnotes from previous page) (a) Also reflects, on a pro forma basis, the Company as a separate subsidiary of the new holding company after consummation of the TBS Transaction. See 'The Company -- TBS Transaction.' (b) Reflects, on a pro forma basis, the new holding company after consummation of the TBS Transaction (in which case the Company expects that the new holding company would provide guarantees of the Company's outstanding public debt). (c) For purposes of the ratio of earnings to fixed charges and the ratio of earnings to combined fixed charges and preferred stock dividends, earnings were calculated by adding (i) pretax income, (ii) interest expense, including previously capitalized interest amortized to expense and the portion of rents representative of an interest factor for each of the Company and TWE, respectively, and each of their respective majority-owned subsidiaries, (iii) each of the Company's and TWE's proportionate share of the items included in (ii) above for each of their respective 50%-owned companies, (iv) minority interest in the income of majority-owned subsidiaries that have fixed charges and (v) undistributed losses of each of their respective less-than-50%-owned companies. Fixed charges consist of (i) interest expense, including interest capitalized and the portion of rents representative of an interest factor for each of the Company and TWE, respectively, and its majority-owned subsidiaries and (ii) each of the Company's and TWE's proportionate share of such items for each of their respective 50%-owned companies. Combined fixed charges and preferred stock dividends also include the amount of pretax income necessary to cover preferred stock dividend requirements of the Company, for periods in which earnings before fixed charges were insufficient to cover fixed charges or combined fixed charges and preferred stock dividends, the dollar amount of coverage deficiency, instead of the ratio, is disclosed. Earnings as defined include significant noncash charges for depreciation and amortization. Fixed charges for the Company for the three months ended March 31, 1996 and the year ended December 31, 1995 in column (1) and column (2) included noncash interest expense of $22 million and $83 million, respectively, relating to the Company's zero coupon convertible notes due 2012 and 2013 and, in column (2) only, an additional $5 million and $18 million, respectively, relating to TBS's zero coupon convertible notes due 2007. EXCHANGE OFFER GENERAL The Company hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal (which together constitute the Exchange Offer), to exchange shares of Series M Preferred Stock for any and all of the outstanding shares of Series K Preferred Stock (on a share for share basis) properly tendered on or prior to the Expiration Date and not withdrawn as permitted pursuant to the procedures described below. PURPOSE OF THE EXCHANGE OFFER On April 11, 1996, the Company issued 1.6 million shares of the Series K Preferred Stock. The issuance of Series K Preferred Stock was not registered under the Securities Act in reliance upon the exemption provided in Section 4(2) of the Securities Act. In connection with the issuance and sale of the Series K Preferred Stock, the Company entered into the Registration Rights Agreement, which requires the Company to (i) use its best efforts to cause to be filed with the Commission by May 26, 1996 a registration statement (the 'Exchange Offer Registration Statement') relating to a registered Exchange Offer for the Series K Preferred Stock under the Securities Act; (ii) use its best efforts to have the Exchange Offer Registration Statement declared effective under the Securities Act by October 8, 1996; and (iii) commence the Exchange Offer as soon as practicable after the effectiveness of the Exchange Offer Registration Statement and use its best efforts to consummate the Exchange Offer as promptly as practicable, but in any event by December 7, 1996. In the event that applicable interpretations of the staff of the Commission do not permit the Company to effect the Exchange Offer or do not permit any holder of the Series K Preferred Stock (including the Initial Purchasers) to participate in the Exchange Offer, the Company will use its best 33 efforts to cause to be filed with the Commission a shelf registration statement (the 'Shelf Registration Statement') to cover resales of the Series K Preferred Stock by such holders who satisfy certain conditions relating to, among other things, the provision of information in connection with the Shelf Registration Statement. If the Exchange Offer is not consummated or the Shelf Registration Statement is not declared effective by December 7, 1996, the annual dividend rate borne by the Series K Preferred Stock will immediately increase by .50 percent per annum; provided that if the Company had also failed to file with the Commission the Exchange Offer Registration Statement by May 26, 1996, then the annual dividend rate will immediately increase by 1.0 percent (instead of .50 percent) per annum. Upon the consummation of the Exchange Offer or the effectiveness of a Shelf Registration Statement, as the case may be, the dividend rate borne by the Series K Preferred Stock will be reduced to the original dividend rate. The Exchange Offer is being made by the Company to satisfy its obligations under the Registration Rights Agreement. Based on no action letters issued by the staff of the Commission to third parties, the Company believes that the Series M Preferred Stock issued in exchange for Series K Preferred Stock pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by holders thereof (other than (i) a broker-dealer who purchases such Series K Preferred Stock directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) a person that is an affiliate of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery requirements of the Securities Act provided that such shares of Series M Preferred Stock are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in the distribution of such Series M Preferred Stock. Any holder of Series K Preferred Stock who tenders in the Exchange Offer for the purpose of participating in a distribution of the Series M Preferred Stock could not rely on such interpretation by the staff of the Commission and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Thus, any shares of Series M Preferred Stock acquired by such holders will not be freely transferable except in compliance with the Securities Act. Each broker-dealer that receives shares of Series M Preferred Stock for its own account in exchange for shares of Series K Preferred Stock acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such shares of Series M Preferred Stock. See 'Plan of Distribution.' EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS The Exchange Offer will expire at 5:00 p.m., New York City time, on , 1996, unless the Company, in its sole discretion, has extended the period of time (as described below) for which the Exchange Offer is open (such date, as it may be extended, is referred to herein as the 'Expiration Date'). The Expiration Date will be at least 20 business days after the commencement of the Exchange Offer in accordance with Rule 14e-1(a) under the Exchange Act. The Company expressly reserves the right, at any time or from time to time, to extend the period of time during which the Exchange Offer is open, and thereby delay acceptance for exchange of any shares of Series K Preferred Stock by giving oral notice (confirmed in writing) or written notice to the Exchange Agent and by giving written notice of such extension to the holders thereof or by timely public announcement communicated, unless otherwise required by applicable law or regulation, by making a release through the Dow Jones News Service, in each case, no later than 9:00 a.m. New York City time, on the next business day after the previously scheduled Expiration Date. Such announcement may state that the Company is extending the Exchange Offer for a specified period of time. During any such extension, all shares of Series K Preferred Stock previously tendered will remain subject to the Exchange Offer. In addition, the Company expressly reserves the right to terminate or amend the Exchange Offer and not to accept for exchange any shares of Series K Preferred Stock not theretofore accepted for exchange upon the occurrence of any of the events specified below under ' -- Certain Conditions to the Exchange Offer.' If any such termination or amendment occurs, the Company will notify the Exchange Agent and will either issue a press release or give oral or written notice to the holders of the Series K Preferred Stock as promptly as practicable. 34 For purposes of the Exchange Offer, a 'business day' means any day other than Saturday, Sunday or a federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, New York City time. PROCEDURES FOR TENDERING SERIES K PREFERRED STOCK The tender to the Company of shares of Series K Preferred Stock by a holder thereof as set forth below and the acceptance thereof by the Company will constitute a binding agreement between the tendering holder and the Company upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal. A holder of shares of Series K Preferred Stock may tender the same by (i) properly completing and signing the Letter of Transmittal or a facsimile thereof (all references in this Prospectus to the Letter of Transmittal shall be deemed to include a facsimile thereof) and delivering the same, together with the certificate or certificates representing the shares of Series K Preferred Stock being tendered and any required signature guarantees, to the Exchange Agent at its address set forth below on or prior to 5:00 p.m., New York City time, on the Expiration Date (or complying with the procedure for book-entry transfer described below) or (ii) complying with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF SHARES OF SERIES K PREFERRED STOCK, LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, OR AN OVERNIGHT OR HAND DELIVERY SERVICE, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE TIMELY DELIVERY. NO SHARES OF SERIES K PREFERRED STOCK OR LETTER OF TRANSMITTAL SHOULD BE SENT TO THE COMPANY. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the shares of Series K Preferred Stock surrendered for exchange pursuant thereto are tendered (i) by a registered holder of the shares of Series K Preferred Stock who has not completed the box entitled 'Special Issuance Instructions' or 'Special Delivery Instructions' on the Letter of Transmittal or (ii) for the account of an Eligible Institution (as defined herein). In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company having an office or correspondent in the United States (each an 'Eligible Institution'). If shares of Series K Preferred Stock are registered in the name of a person other than a signer of the Letter of Transmittal, the shares of Series K Preferred Stock surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Company in its sole discretion, duly executed by the registered holder with the signature thereon guaranteed by an Eligible Institution. The Exchange Agent will make a request promptly after the date of this Prospectus to establish accounts with respect to the Series K Preferred Stock at the book-entry transfer facility, The Depository Trust Company, for the purpose of facilitating the Exchange Offer, and subject to the establishment thereof, any financial institution that is a participant in the book-entry transfer facility's system may make book-entry delivery of shares of Series K Preferred Stock by causing such book-entry transfer facility to transfer such shares of Series K Preferred Stock into the Exchange Agent's account with respect to the shares of Series K Preferred Stock in accordance with the book-entry transfer facility's procedures for such transfer. Although delivery of shares of Series K Preferred Stock may be effected through book-entry transfer in the Exchange Agent's account at the book-entry transfer facility, an appropriate Letter of Transmittal with any required signature guarantee and other required documents must in each case be transmitted to and received or confirmed by the Exchange Agent at its address set forth below on or prior to the Expiration Date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under such procedures. If a holder desires to accept the Exchange Offer and time will not permit a Letter of Transmittal or shares of Series K Preferred Stock to reach the Exchange Agent before the Expiration Date or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if the Exchange Agent has received at its address or facsimile number set forth below on or prior to the 35 Expiration Date a letter, telegram or facsimile from an Eligible Institution setting forth the name and address of the tendering holder, the name in which the shares of Series K Preferred Stock are registered and, if possible, the certificate number or numbers of the certificate or certificates representing the shares of Series K Preferred Stock to be tendered, and stating that the tender is being made thereby and guaranteeing that within three business days after the Expiration Date the shares of Series K Preferred Stock in proper form for transfer (or a confirmation of book-entry transfer of such shares of Series K Preferred Stock into the Exchange Agent's account at the book-entry transfer facility), will be delivered by such Eligible Institution together with a properly completed and duly executed Letter of Transmittal (and any other required documents). Unless shares of Series K Preferred Stock being tendered by the above-described method are deposited with the Exchange Agent within the time period set forth above (accompanied or preceded by a properly completed Letter of Transmittal and any other required documents), the Company may, at its option, reject the tender. Copies of a Notice of Guaranteed Delivery which may be used by an Eligible Institution for the purposes described in this paragraph are available from the Exchange Agent. A tender will be deemed to have been received as of the date when (i) the tendering holder's properly completed and duly signed Letter of Transmittal accompanied by the shares of Series K Preferred Stock (or a confirmation of book-entry transfer of such shares of Series K Preferred Stock into the Exchange Agent's account at the book-entry transfer facility) is received by the Exchange Agent, or (ii) a Notice of Guaranteed Delivery or letter, telegram or facsimile to similar effect (as provided above) from an Eligible Institution is received by the Exchange Agent. Issuances of shares of Series M Preferred Stock in exchange for shares of Series K Preferred Stock tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram or facsimile to similar effect (as provided above) by an Eligible Institution will be made only against deposit of the Letter of Transmittal (and any other required documents) and the tendered shares of Series K Preferred Stock. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of shares of Series K Preferred Stock tendered for exchange will be determined by the Company in its sole discretion, which determination will be final and binding on all parties. The Company reserves the right to reject any and all tenders of any particular shares of Series K Preferred Stock not properly tendered or reject any particular shares of Series K Preferred Stock the acceptance of which might, in the judgment of the Company or its counsel, be unlawful. The Company also reserves the absolute right to waive any defects or irregularities or condition of the Exchange Offer as to any particular shares of Series K Preferred Stock either before or after the Expiration Date (including the right to waive the ineligibility of any holder who seeks to tender shares of Series K Preferred Stock in the Exchange Offer). The interpretation of the terms and conditions of the Exchange Offer (including the Letter of Transmittal and the instructions thereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of shares of Series K Preferred Stock for exchange must be cured within such time as the Company shall determine. Neither the Company nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of shares of Series K Preferred Stock for exchange, nor shall any of them incur any liability for failure to give such notification. If the Letter of Transmittal or any shares of Series K Preferred Stock or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, proper evidence satisfactory to the Company of their authority to so act must be submitted. By tendering, each holder that is not a broker-dealer or is a broker-dealer but is not receiving shares of Series M Preferred Stock for its own account will represent to the Company that, among other things, the shares of Series M Preferred Stock acquired pursuant to the Exchange Offer are being obtained in the ordinary course of such holder's business, that such holder has no arrangement with any person to participate in the distribution of such shares of Series M Preferred Stock and that such holder is not an 'affiliate' of the Company as defined in Rule 405 under the Securities Act. Each broker-dealer that is receiving shares of Series M Preferred Stock for its own account in exchange for shares of Series K Preferred Stock that were acquired as a result of market-making or other trading activities will 36 represent to the Company that it will deliver a prospectus in connection with any resale of such shares of Series M Preferred Stock. In addition, the Company reserves the right in its sole discretion to (a) purchase or make offers for any shares of Series K Preferred Stock that remain outstanding subsequent to Expiration Date, or, as set forth under ' -- Certain Conditions to the Exchange Offer,' to terminate the Exchange Offer and (b) to the extent permitted by applicable law, purchase shares of Series K Preferred Stock in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers may differ from the terms of the Exchange Offer. WITHDRAWAL RIGHTS Tenders of shares of Series K Preferred Stock may be withdrawn at any time prior to the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal sent by letter, telegram or facsimile must be received by the Exchange Agent prior to the Expiration Date at its address or facsimile number set forth below. Any such notice of withdrawal must (i) specify the name of the person having tendered the shares of Series K Preferred Stock to be withdrawn (the 'Depositor'), (ii) identify the shares of Series K Preferred Stock to be withdrawn (including the certificate number or numbers of the certificate or certificates representing such shares of Series K Preferred Stock and number of shares of such Series K Preferred Stock), (iii) be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such shares of Series K Preferred Stock were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to permit the Transfer Agent with respect to the shares of Series K Preferred Stock to register the transfer of such shares of Series K Preferred Stock into the name of the person withdrawing the tender and (iv) specify the name in which any such shares of Series K Preferred Stock are to be registered, if different from that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by the Company in its sole discretion, which determination will be final and binding on all parties. Any shares of Series K Preferred Stock so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no shares of Series M Preferred Stock will be issued with respect thereto unless the shares of Series K Preferred Stock so withdrawn are validly retendered. Any shares of Series K Preferred Stock which have been tendered but which are withdrawn will be returned to the holder thereof without cost to such holder as soon as practicable after such withdrawal. Properly withdrawn shares of Series K Preferred Stock may be retendered by following one of the procedures described above under ' -- Procedures for Tendering Series K Preferred Stock' at any time prior to the Expiration Date. ACCEPTANCE OF SERIES K PREFERRED STOCK FOR EXCHANGE; DELIVERY OF SERIES M PREFERRED STOCK Upon satisfaction or waiver of all of the conditions to the Exchange Offer, the Company will accept, promptly after the Expiration Date, all shares of Series K Preferred Stock properly tendered and will issue the shares of Series M Preferred Stock promptly after acceptance of the Exchange Offer. See ' -- Certain Conditions to the Exchange Offer' below. For purposes of the Exchange Offer, the Company will be deemed to have accepted properly tendered shares of Series K Preferred Stock for exchange when the Company has given oral or written notice thereof to the Exchange Agent. In all cases, issuance of the shares of Series M Preferred Stock in exchange for shares of Series K Preferred Stock pursuant to the Exchange Offer will be made only after timely receipt by the Company of such shares of Series K Preferred Stock, a properly completed and duly executed Letter of Transmittal and all other required documents. If any tendered shares of Series K Preferred Stock are not accepted for exchange for any reason set forth in the terms and conditions of the Exchange Offer, such unaccepted shares of Series K Preferred Stock will be returned without expense to the tendering holder thereof as promptly as practicable after the rejection of such tender or the expiration or termination of the Exchange Offer. 37 UNTENDERED SERIES K PREFERRED STOCK Holders of shares of Series K Preferred Stock whose shares of Series K Preferred Stock are not tendered or are tendered but not accepted in the Exchange Offer will continue to hold such shares of Series K Preferred Stock and will be entitled to all the rights and preferences and subject to the limitations applicable thereto. Following consummation of the Exchange Offer, the holders of shares of Series K Preferred Stock will continue to be subject to the existing restrictions upon transfer thereof and, except as provided herein, the Company will have no further obligation to such holders to provide for the registration under the Securities Act of the shares of Series K Preferred Stock held by them. To the extent that shares of Series K Preferred Stock are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted shares of Series K Preferred Stock could be adversely affected. CERTAIN CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other term of the Exchange Offer, the Company will not be required to accept for exchange, or issue shares of Series M Preferred Stock in exchange for, any shares of Series K Preferred Stock, and may terminate or amend the Exchange Offer, if at any time before the acceptance of such shares of Series K Preferred Stock for exchange, any of the following events shall occur: (i) an injunction, order or decree shall have been issued by any court or governmental agency that would prohibit, prevent or otherwise materially impair the ability of the Company to proceed with the Exchange Offer; or (ii) there shall occur a change in the current interpretation of the staff of the Commission which current interpretation permits the shares of Series M Preferred Stock issued pursuant to the Exchange Offer in exchange for the shares of Series K Preferred Stock to be offered for resale, resold and otherwise transferred by holders thereof (other than (i) a broker-dealer who purchases such Series K Preferred Stock directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) a person that is an affiliate of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such shares of Series M Preferred Stock are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in the distribution of shares of Series M Preferred Stock. The foregoing conditions are for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances giving rise to any such condition or may be waived by the Company in whole or in part at any time and from time to time in its sole discretion. The failure by the Company at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. If the Company determines that it may terminate the Exchange Offer, as set forth above, the Company may (i) refuse to accept any shares of Series K Preferred Stock and return all shares of Series K Preferred Stock that have been tendered to the holders thereof, (ii) extend the Exchange Offer and retain all shares of Series K Preferred Stock tendered prior to the Expiration Date, subject to the rights of such holders of tendered shares of Series K Preferred Stock to withdraw their tendered shares of Series K Preferred Stock, or (iii) waive such termination event with respect to the Exchange Offer and accept all properly tendered shares of Series K Preferred Stock that have not been withdrawn. If such waiver constitutes a material change in the Exchange Offer, the Company will disclose such change by means of a supplement to this Prospectus that will be distributed to each registered holder of shares of Series K Preferred Stock, and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the registered holders of the shares of Series K Preferred Stock, if the Exchange Offer would otherwise expire during such period. In addition, the Company will not accept for exchange any Series K Preferred Stock tendered, and no Series M Preferred Stock will be issued in exchange for any such Series K Preferred Stock, if at any 38 time any stop order shall be threatened by the Commission or in effect with respect to the Registration Statement. The Exchange Offer is not conditioned on any minimum number of shares of Series K Preferred Stock being tendered for exchange. EXCHANGE AGENT Chemical Mellon Shareholder Services, L.L.C. ('Chemical') has been appointed as Exchange Agent for the Exchange Offer. Questions regarding Exchange Offer procedures and requests for additional copies of this Prospectus or the Letter of Transmittal should be directed to the Exchange Agent addressed as follows: By Mail: By Hand or Overnight Delivery: 85 Challenger Road 85 Challenger Road Ridgefield Park NJ 07660 Ridgefield Park NJ 07660 Attention: Reorganization Department Attention: Reorganization Department
SOLICITATION OF TENDERS; FEES AND EXPENSES The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers or other persons soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse the Exchange Agent for its reasonable out-of-pocket expenses in connection therewith. The cash expenses to be incurred by the Company in connection with the Exchange Offer will be paid by the Company. No person has been authorized to give any information or to make any representation in connection with the Exchange Offer other than those contained in this Prospectus. If given or made, such information or representations should not be relied upon as having been authorized by the Company. Neither the delivery of this Prospectus nor any exchange made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the respective dates as of which information is given herein. The Exchange Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of shares of Series K Preferred Stock in any jurisdiction in which the making of the Exchange Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. TRANSFER TAXES The Company will pay all transfer taxes, if any, applicable to the exchange of shares of Series K Preferred Stock pursuant to the Exchange Offer. If, however, certificates representing shares of Series M Preferred Stock or shares of Series K Preferred Stock not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the shares of Series K Preferred Stock tendered, or if tendered shares of Series K Preferred Stock are registered in the name of any person other than the person signing the Letter of Transmittal, 39 or if a transfer tax is imposed for any reason other than the exchange of shares of Series K Preferred Stock pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. ACCOUNTING TREATMENT No gain or loss for accounting purposes will be recognized by the Company upon the consummation of the Exchange Offer. Expenses incurred in connection with the issuance of the Series M Preferred Stock will be amortized by the Company over the term of the Series M Preferred Stock under generally accepted accounting principles. PLAN OF DISTRIBUTION Each broker-dealer that receives shares of Series M Preferred Stock for its own account in exchange for shares of Series K Preferred Stock acquired as a result of market-making or other trading activities must acknowledge that it will deliver a prospectus in connection with any resale of such shares of Series M Preferred Stock. For a period of 90 days after the Expiration Date, this Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of such shares of Series M Preferred Stock. During such 90-day period, the Company will use best efforts to make this Prospectus available to any broker-dealer for use in connection with such resales, provided that such broker-dealer indicates in the Letter of Transmittal that it is a broker-dealer. The Company will not receive any proceeds from any sale of shares of Series M Preferred Stock by broker-dealers. Shares of Series M Preferred Stock received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the shares of Series M Preferred Stock or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through broker-dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such shares of Series M Preferred Stock. Any broker-dealer that resells shares of Series M Preferred Stock that were received by it for its own account pursuant to the Exchange Offer and any person that participates in the distribution of such shares of Series M Preferred Stock may be deemed to be an 'underwriter' within the meaning of the Securities Act and any profit on any such resale of shares of Series M Preferred Stock and any commissions or concessions received by any such broker-dealers may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that a broker-dealer, by acknowledging that it will deliver and by delivering a prospectus, will not be deemed to admit that it is an 'underwriter' within the meaning of the Securities Act. The Company will indemnify the holders of the Series M Preferred Stock (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. In addition, the Company has agreed that if upon expiration of the Exchange Offer, any of the Initial Purchasers of the Series K Preferred Stock shall not have sold all of the Series K Preferred Stock initially purchased from the Company by such Initial Purchasers to unaffiliated investors, upon such purchasers' request (made within 10 days after the Expiration Date), the Company will use its best efforts to file promptly, or if so requested by the Initial Purchasers, on a later date (no later than six months after the Expiration Date), a shelf registration statement relating to the resale of the Existing Debentures and keep such shelf registration statement effective for a period of 120 days. DESCRIPTION OF SERIES M PREFERRED STOCK The Series M Preferred Stock will be issued pursuant to a certificate of designation (the 'Certificate of Designation'). The summary contained herein of certain provisions of the Series M Preferred Stock does not purport to be complete and is qualified in its entirety by reference to the provisions of the 40 Certificate of Designation. The definitions of certain terms used in the Certificate of Designation and in the following summary are set forth in the 'Glossary of Significant Terms.' GENERAL The Company is authorized to issue 1 billion shares of capital stock, of which 750 million shares are common stock, par value $1.00 per share ('Common Stock'), and 250 million shares are preferred stock, par value $1.00 per share. On April 30, 1996, there were outstanding 391.6 million shares of Common Stock and 37.8 million shares of preferred stock. The Board of Directors of the Company has adopted resolutions reserving for issuance an adequate number of shares of the Series M Preferred Stock and the Series L Preferred Stock, and the Company will file the Certificates of Designation with respect thereto with the Secretary of State of the State of Delaware as required by Delaware law. Shares of Series M Preferred Stock when issued in exchange for shares of Series K Preferred Stock will be fully paid and nonassessable, and the holders thereof will have no subscription or preemptive rights related thereto. Pursuant to the Company's Certificate of Incorporation, the shares of Series M Preferred Stock shall always be subject to redemption by the Company at a redemption price equal to fair market value payable in cash, by action of the Board of Directors, if in the judgment of the Board of Directors such action should be taken, pursuant to Section 151(b) of the General Corporation Law of the State of Delaware (or by any other provision of applicable law), to the extent necessary to prevent the loss or secure the reinstatement of any license or franchise from any governmental agency held by the Company or any subsidiary to conduct any portion of the business of the Company, which license or franchise is conditioned upon some or all of the holders of the Company's stock of any class or series possessing prescribed qualifications. RANKING The Series M Preferred Stock, with respect to dividends and distributions upon the liquidation, winding up and dissolution of the Company, ranks senior to all classes of Junior Stock and pari passu with the other classes of Parity Stock of the Company. DIVIDENDS Holders of Series M Preferred Stock are entitled, when, as and if declared by the Board of Directors of the Company out of funds legally available therefor, to receive dividends on each outstanding share of Series M Preferred Stock, at the rate of 10 1/4% per annum. Dividends on the Series M Preferred Stock are payable quarterly in arrears on each Dividend Payment Date, commencing on the First Dividend Payment Date, to holders of record of the Series M Preferred Stock on the Record Date immediately preceding such Dividend Payment Date. Dividends on the Series M Preferred Stock will be cumulative (whether or not earned or declared) from the date of issuance of the Series M Preferred Stock. Dividends which are not declared and paid when due will compound quarterly on each Dividend Payment Date at the dividend rate until payment is made. Dividends may, at the option of the Company, be paid on any Dividend Payment Date either in cash or by issuing fully paid and nonassessable shares of Series M Preferred Stock with an aggregate liquidation preference equal to the amount of such dividends; provided, however, that dividends payable on any Dividend Payment Date shall be paid (i) in cash, to the extent of an amount equal to the Pro Rata Percentage as of the Preceding Record Date, multiplied by the amount of cash distributions, excluding Tax Distributions other than Included Tax Distributions, if any, received by the Company (and its subsidiaries) on or after the Preceding Record Date to, but not including, the current Record Date with respect to its TWE Series B Capital and TWE Junior Capital, and (ii) in Series M Preferred Stock or cash, at the Company's option, to the extent of any balance. TWE's ability to make distributions is subject to certain restrictions. See 'Risk Factors.' 41 Holders of Series K Preferred Stock whose shares of Series K Preferred Stock are accepted for exchange will be deemed to have waived the right to receive any payment in respect of any unpaid dividends on the Series K Preferred Stock that have accumulated or accrued to the date of issuance of the Series M Preferred Stock. Consequently, on the First Dividend Payment Date holders who exchange their shares of Series K Preferred Stock for Series M Preferred Stock will receive the same dividends on the Series M Preferred Stock that holders of the Series K Preferred Stock who do not accept the Exchange Offer will receive on the Series K Preferred Stock. No dividends may be declared or paid or set apart for payment on Series M Preferred Stock or any other Parity Stock, and no Parity Stock, including the Series M Preferred Stock, may be repurchased, exchanged, redeemed or otherwise retired by the Company, nor may funds be set apart for payment with respect thereto, unless full cumulative dividends shall have been paid or set apart for such payment on, and all applicable redemption, exchange and repurchase obligations shall have been satisfied with respect to, all outstanding shares of Series M Preferred Stock and such other Parity Stock; provided that dividends may be paid on Parity Stock if they are payable in Junior Stock; and provided further that Parity Stock may be converted into or exchanged for Parity Stock (having the same liquidation preference) or Junior Stock. If full dividends are not so paid, the Series M Preferred Stock shall share dividends with all other Parity Stock so that the amount of dividends declared per share on the Series M Preferred Stock and all such other Parity Stock shall in all cases bear the same ratio that cumulative dividends per share on the Series M Preferred Stock and all such other Parity Stock bear to each other. No dividends may be paid or set apart for such payment on Junior Stock, and no Junior Stock may be repurchased, exchanged, redeemed or otherwise retired nor may funds be set apart for payment with respect thereto, if full cumulative dividends have not been paid on the Series M Preferred Stock or any applicable redemption, exchange or repurchase obligation has not been satisfied with respect to all outstanding shares of Series M Preferred Stock; provided that dividends or distributions may be made on Junior Stock if they are payable-in-kind in additional shares of, or warrants, rights, calls or options exercisable for or convertible into additional shares of Junior Stock; and provided further that Junior Stock may be converted into or exchanged for Junior Stock. In addition, in the event that there shall have occurred certain events of default in connection with the Company's debt, the Company shall not declare or pay or make any distributions on or with respect to, or purchase, redeem or exchange any of its capital stock, except where such dividend or payment is made in the form of, or such exchange is for, capital stock. OPTIONAL REDEMPTION The Series M Preferred Stock may not be redeemed at the option of the Company prior to July 1, 2006. Thereafter, the Series M Preferred Stock will be redeemable, at the Company's option, in whole or in part, at any time and from time to time upon not less than 30 nor more than 60 days' prior notice mailed by first-class mail to the registered address of each holder of the Series M Preferred Stock as of the record date for such redemption. The redemption price for each share of Series M Preferred Stock called for redemption during the 12-month period commencing on July 1 of the years set forth below shall be the amounts (expressed as percentages of the liquidation preference thereof) set forth opposite such years, plus accumulated and accrued and unpaid dividends to the redemption date.
PERCENTAGE OF LIQUIDATION PERIOD PREFERENCE - ------ ------------- 2006 ......................................................................... 105.125% 2007 ......................................................................... 103.844 2008 ......................................................................... 102.563 2009 ......................................................................... 101.281 2010 and thereafter.............................................................. 100.000
No optional redemption shall be effected unless the Company shall have obtained a Rating Confirmation with respect to such redemption. 42 MANDATORY REDEMPTION On each Mandatory Redemption Date, the Company is required to redeem the Redeemable Number of shares of Series M Preferred Stock at the Mandatory Redemption Price. On July 1, 2016, the Final Redemption Date, the Company is required to redeem all of the then outstanding shares of Series M Preferred Stock at the lesser of the Mandatory Redemption Amount and the Mandatory Redemption Price; provided that if the Company does not obtain a TWE Valuation within 150 days following the final Series B Redemption Date or if the TWE Series B Capital has been fully redeemed in accordance with the TWE Partnership Agreement, the Company shall redeem the Series M Preferred Stock at the Mandatory Redemption Price. Upon the redemption of Series M Preferred Stock on the Final Redemption Date, the Company's obligations with respect thereto will be discharged, and if such redemption is effected at the Mandatory Redemption Amount, holders of shares of Series M Preferred Stock may have received less than the liquidation preference thereof plus accumulated and accrued and unpaid dividends thereon. The Company's obligation to redeem the Series M Preferred Stock is subject to the legal availability at the Company of funds therefor. See 'Risk Factors.' REDEMPTION UPON INSOLVENCY OF TWE In the event of a liquidation, winding up or dissolution of TWE as a result of the Insolvency of TWE, the Series M Preferred Stock will be mandatorily redeemable on the Insolvency Redemption Date at the Insolvency Redemption Amount. Upon such a redemption of Series M Preferred Stock, the Company's obligation with respect thereto will be discharged and holders of Series M Preferred Stock may have received less than the liquidation preference thereof plus accumulated and accrued and unpaid dividends thereon. The Company's obligations to redeem the Series M Preferred Stock upon an Insolvency of TWE is subject to the legal availability at the Company of funds therefor. See 'Risk Factors.' REORGANIZATION OF TWE Upon a Reorganization of TWE, the Company shall, within 90 days, make a public announcement that it intends, on the Reorganization Redemption/Exchange Date, to either (i) exchange each outstanding share of Series M Preferred Stock for shares of the Series L Preferred Stock having an aggregate liquidation preference equal to the liquidation preference of such share of Series M Preferred Stock plus accumulated and accrued and unpaid dividends thereon at the date of exchange, or (ii) redeem the outstanding shares of Series M Preferred Stock at the Reorganization Redemption Price; provided, however, that the Company may not effect a Reorganization Redemption (as described in clause (ii)) prior to July 1, 2011 unless the Company shall have obtained a Rating Confirmation with respect to such Reorganization Redemption and provided further that the Company may not effect a Reorganization Exchange (as described in clause (i)) on or after July 1, 2011. The Company's ability to effect a Reorganization Redemption is subject to the legal availability at the Company of funds therefor. CHANGE OF CONTROL Upon the occurrence of a Change of Control, the Company shall make an offer (the 'Preferred Stock Change of Control Offer') to each holder of Series M Preferred Stock to repurchase all or any part of such holder's Series M Preferred Stock at a purchase price in cash equal to 101% of the liquidation preference thereof, plus an amount equal to all accumulated and accrued and unpaid dividends per share to the date of purchase. The Preferred Stock Change of Control Offer must be made within 30 days following a Change of Control, must remain open for at least 30 and not more than 40 days and must comply with the requirements of Rule 14e-1 under the Exchange Act and any other applicable securities laws and regulations. The Company's obligation to offer to purchase the Series M Preferred Stock is subject to the legal availability at the Company of funds therefor. See Risk Factors. 43 PROCEDURE FOR REDEMPTION OR EXCHANGE On and after a redemption or exchange date, unless the Company defaults in the payment of the applicable redemption price or exchange obligations, dividends will cease to accrue on shares of Series M Preferred Stock called for redemption or exchange and all rights of holders of such shares will terminate except for the right to receive the redemption price or the Series L Preferred Stock, as the case may be, without interest. The Company will send a written notice of redemption by first class mail to each holder of record of shares of Series M Preferred Stock, not fewer than 30 days nor more than 60 days prior to the date fixed for such redemption. Shares of Series M Preferred Stock issued and reacquired will, upon compliance with the applicable requirements of Delaware law, have the status of authorized but unissued shares of preferred stock of the Company undesignated as to Series and may with any and all other authorized but unissued shares of preferred stock of the Company be designated or redesignated and issued or reissued, as the case may be, as part of any Series of preferred stock of the Company, except that any issuance or reissuance of shares of Series M Preferred Stock must be in compliance with the Certificate of Designation. In the event of partial redemptions of Series M Preferred Stock, the shares to be redeemed will be determined pro rata or by lot, as determined by the Company, except that the Company may redeem such shares held by any holder of fewer than 100 shares (or shares held by holders who would hold less than 100 shares as a result of such redemption), as may be determined by the Company. LIQUIDATION PREFERENCE In the event of any liquidation, winding-up or dissolution of the Company, holders of Series M Preferred Stock will be entitled to their pro rata portion of the assets of the Company available for distribution to holders of Parity Stock up to the liquidation preference of the Series M Preferred Stock, plus accumulated and accrued and unpaid dividends thereon, before any distribution is made on any Junior Stock, including, without limitation, on any Common Stock. If upon any liquidation, winding-up or dissolution of the Company, the amounts payable with respect to the Series M Preferred Stock and the other Parity Stock are not paid in full, the holders of the Series M Preferred Stock and the other Parity Stock will share equally and ratably in any distribution of assets of the Company in proportion to the full liquidation preference to which each is entitled. After payment of the full amount of the liquidation preferences to which they are entitled, the holders of shares of Series M Preferred Stock will not be entitled to any further participation in any distribution of assets of the Company. Neither the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Company nor the consolidation or merger of the Company with one or more corporations shall be deemed to be a liquidation, winding-up or dissolution of the Company. The Certificate of Designation for the Series M Preferred Stock does not contain any provision requiring funds to be set aside to protect the liquidation preference of the Series M Preferred Stock, although such liquidation preference will be substantially in excess of the par value of such shares of Series M Preferred Stock. In addition, the Company is not aware of any provision of Delaware law or any controlling decision of the courts of the State of Delaware (the state of incorporation of the Company) that requires a restriction upon the surplus of the Company solely because the liquidation preference of the Series M Preferred Stock will exceed its par value. Consequently, there will be no restriction upon any surplus of the Company solely because the liquidation preference of the Series M Preferred Stock will exceed the par value and there will be no remedies available to holders of the Series M Preferred Stock before or after the payment of any dividend, other than in connection with the liquidation preference of the Company, solely by reason of the fact that such dividend would reduce the surplus of the Company to an amount less than the difference between the liquidation preference of the Series M Preferred Stock and its par value. VOTING RIGHTS Holders of the Series M Preferred Stock will have no voting rights with respect to general corporate matters except as provided by law or as set forth in the Certificate of Designation therefor. 44 The Certificate of Designation provides that upon a failure of the Company to (a) pay dividends on the Series M Preferred Stock in cash or, to the extent permitted by its terms, by the issuance of additional shares of Series M Preferred Stock, for more than six consecutive quarterly dividend periods or (b) discharge any redemption or exchange obligation with respect to the Series M Preferred Stock, the size of the Company's Board of Directors will be increased by two directors, and holders of the outstanding shares of Series M Preferred Stock, voting or consenting, as the case may be, together as a class with the holders of any shares of Parity Stock as to which dividends are similarly in arrears or unpaid or the Company's redemption or exchange obligation has not been satisfied, and to which similar voting rights apply, will be entitled to elect two directors to fill the newly created directorships. Such voting rights will continue until such time as all dividends in arrears on the Series M Preferred Stock are paid in full and any failure, breach or default referred to in clause (b) is remedied, at which time the term of the directors elected pursuant to the provisions of this paragraph shall terminate. Each such event described in clauses (a) and (b) above is referred to herein as a 'Voting Rights Triggering Event.' Any vacancy occurring in the office of the directors elected by holders of the Series M Preferred Stock (and such other Parity Stock) may be filled by the remaining director elected by such holders unless and until such vacancy shall be filled by such holders. The Certificate of Designation also provides that the Company will not create, authorize or issue any new class of capital stock senior to the Series M Preferred Stock without the affirmative vote or consent of holders of at least a majority of the outstanding shares of Series M Preferred Stock, voting or consenting, as the case may be, separately as one class. The Certificate of Designation also provides that the Company may not amend the Certificate of Designation or the Certificate of Incorporation so as to affect adversely the specified rights, preferences, privileges or voting rights of holders of shares of the Series M Preferred Stock, without the affirmative vote or consent of the holders of at least a majority of the outstanding shares of Series M Preferred Stock, voting or consenting, as the case may be, separately as one class. The holders of at least a majority of the outstanding shares of Series M Preferred Stock, voting or consenting, as the case may be, separately as one class, may also waive compliance with any provision of the Certificate of Designation. The Certificate of Designation also provides that, except as set forth above, (a) the creation, authorization or issuance of any shares of Junior Stock or Parity Stock or (b) the increase or decrease in the amount of authorized capital stock of any class, including any preferred stock, shall not require the consent of the holders of Series M Preferred Stock, voting or consenting separately as one class, and shall not be deemed to affect adversely the rights, preferences, privileges or voting rights of holders of shares of Series M Preferred Stock. Under Delaware law, holders of Series M Preferred Stock will be entitled to vote together as a class with holders of any shares of preferred stock upon a proposed amendment to the certificate of incorporation, whether or not entitled to vote thereon by the certificate of incorporation, if the amendment would increase or decrease the number of authorized shares of preferred stock, increase or decrease the par value of the shares of such class, or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class so as to affect them adversely, but shall not so affect the entire class, then only the shares of the series so affected by such amendment will be entitled to vote thereon separately as one class. MERGER, CONSOLIDATION AND SALE OF ASSETS Without the affirmative vote or consent of the holders of at least a majority of the outstanding shares of Series M Preferred Stock, voting or consenting, as the case may be, separately as one class, the Company may not consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, any person or entity unless: (a) the entity formed by such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made shall be a corporation organized or existing under the laws of the United States or any State thereof or the District of Columbia; (b) the Series M Preferred Stock shall be converted into or exchanged for and shall become shares of such successor, transferee or resulting corporation or a parent corporation of such corporation (each, a 'Successor Corporation'), having in respect of such successor, transferee or resulting corporation or parent 45 corporation substantially the same powers, preferences and relative participating, optional or other special rights, and the qualifications, limitations or restrictions thereon, that the Series M Preferred Stock had immediately prior to such transaction; and (c) immediately after giving effect to such transaction, no Voting Rights Triggering Event shall have occurred or be continuing. The Company may consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, any person or entity if such merger, consolidation or sale has been approved by the affirmative vote or consent of holders of at least a majority of the outstanding shares of Series M Preferred Stock, voting or consenting, as the case may be, separately as one class. Without limiting the generality of the foregoing, the consummation of the TBS Transaction will not require the affirmative vote or consent of the holders of the Series M Preferred Stock. If the TBS Transaction is consummated, the Series M Preferred Stock will be converted into a substantially identical class of preferred stock of New Time Warner. COVENANT TO REPORT Notwithstanding that the Company or any Successor Corporation, as the case may be, may not be subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act, the Company or any Successor Corporation, as the case may be, will provide the Transfer Agent and the holders of the Series M Preferred Stock with all information, documents and reports specified in Section 13 and Section 15(d) of the Exchange Act. TRANSFER AGENT AND REGISTRAR Chemical is the transfer agent and registrar for the Series M Preferred Stock. DESCRIPTION OF SERIES L PREFERRED STOCK The Series L Preferred Stock will be issued pursuant to a certificate of designation (the 'Series L Certificate of Designation'). The provisions of the Series L Preferred Stock are substantially similar to those of the Series M Preferred Stock, except as set forth below. See'Description of Series M Preferred Stock.' The summary contained herein of certain provisions of the Series L Preferred Stock does not purport to be complete and is qualified in its entirety by reference to the provisions of the Series L Certificate of Designation filed with the Secretary of State of Delaware as an exhibit to the Certificate of Designation. The definitions of certain terms used in the Series L Certificate of Designation and in the following summary are set forth in the 'Glossary of Significant Terms.' DIVIDENDS Holders of the Series L Preferred Stock are entitled, when, as and if declared by the Board of Directors of the Company out of funds legally available therefor, to receive dividends on each outstanding share of the Series L Preferred Stock, at the rate of 10 1/4% per annum. Dividends on the Series L Preferred Stock are payable quarterly in arrears on each Dividend Payment Date, commencing on the first Dividend Payment Date following the exchange of the Series M Preferred Stock for the Series L Preferred Stock to holders of record as of the immediately preceding March 15, June 15, September 15 and December 15, respectively. Dividends on the Series L Preferred Stock will be cumulative (whether or not earned or declared) from the date of issuance of the Series L Preferred Stock. Dividends which are not declared and paid when due will compound quarterly on each Dividend Payment Date at the dividend rate until payment is made. Until June 30, 2006, dividends payable on any Dividend Payment Date may, at the option of the Company, be paid either in cash or by issuing fully paid and nonassessable shares of Series L Preferred Stock with an aggregate liquidation preference equal to the amount of such dividends. Thereafter, dividends are payable only in cash. See 'Risk Factors.' 46 MANDATORY REDEMPTION The Company is required to redeem the outstanding shares of Series L Preferred Stock on July 1, 2011 at a price equal to the liquidation preference thereof plus accumulated and accrued and unpaid dividends thereon. The Company's obligation to redeem the Series L Preferred Stock is subject to the legal availability at the Company of funds therefor. See 'Risk Factors.' EXCHANGE AT OPTION OF COMPANY The Company has the option on any Dividend Payment Date to exchange, in whole but not in part, outstanding shares of Series L Preferred Stock for Senior Subordinated Debentures having a principal amount equal to the liquidation preference of the Series L Preferred Stock plus accrued and unpaid dividends thereon; provided that the Debt Exchange shall not be effected unless all accumulated dividends have been paid in full and the Company shall have obtained a Rating Confirmation with respect to such Debt Exchange. The Company's ability to exchange the Series L Preferred Stock for the Senior Subordinated Debentures is subject to the legal availability at the Company of funds therefor. To the extent the TBS Transaction has occurred and substantially all of the debt of the Company immediately prior to the TBS Transaction is assumed by New Time Warner, New Time Warner may exchange the Series L Preferred Stock for Senior Subordinated Debentures issued by New Time Warner; provided that, if substantially all the debt of the Company immediately prior to the TBS Transaction is assumed by New Time Warner and is guaranteed by the Company, the Company shall similarly provide a senior subordinated guarantee for the Senior Subordinated Debentures. But if substantially all of the debt of the Company is not assumed by New Time Warner upon the consummation of the TBS Transaction, New Time Warner may, at its option, exchange the Series L Preferred Stock for (i) Senior Subordinated Debentures issued by the Company or (ii) Senior Subordinated Debentures issued by New Time Warner with a senior subordinated guarantee of the Company. DESCRIPTION OF SENIOR SUBORDINATED DEBENTURES The Senior Subordinated Debentures will be issued under an indenture substantially in the form of the senior subordinated indenture described below (the 'Senior Subordinated Indenture') between the Company and a trustee to be designated by the Company prior to the issuance of the Senior Subordinated Debentures (the 'Trustee'). The Senior Subordinated Indenture does not limit the amount of securities which may be issued thereunder. The following description does not purport to be complete and is subject to, and is qualified in its entirety by reference to the Senior Subordinated Indenture, the Trust Indenture Act of 1939, as amended (the 'Trust Indenture Act'), and the other documents incorporated by reference herein. The terms of the Senior Subordinated Debentures include those set forth in the Trust Indenture Act. Certain capitalized terms are used herein as defined in the Senior Subordinated Indenture. GENERAL The Senior Subordinated Debentures will be issued as direct, unsecured, senior subordinated obligations of the Company, in an aggregate principal amount equal to the aggregate liquidation preference of the Series L Preferred Stock plus accrued and unpaid dividends thereon. Upon the Debt Exchange, Senior Subordinated Debentures will be issued in fully registered form, without coupons, only in principal amounts of $1,000 and integral multiples thereof. Principal of and premium, if any, and interest on the Senior Subordinated Debentures will be payable, and the Senior Subordinated Debentures will be exchangeable and transferable, at the office or agency of the Company in The City of New York (which initially will be the Corporate Trust Office of the Trustee); provided, however, that payment of interest, to the extent paid in cash, may be made at the option of the Company by check mailed to the person entitled thereto as shown on the Register of the Senior Subordinated Debentures. No service charge will be made for any registration of transfer or exchange of Senior Subordinated Debentures, except for any tax or other governmental charge that may be imposed in connection therewith. 47 SUBORDINATION The payment of the principal of and interest on the Senior Subordinated Debentures will be subordinated in right of payment to the prior payment in full in cash or cash equivalents of all of the Company's existing and future Senior Indebtedness, which at March 31, 1996, after adjustment to give pro forma effect to the Series K Refinancing, would have been approximately $8.3 billion. In addition to such Senior Indebtedness, the Company's obligations under the Senior Subordinated Debentures are effectively subordinated to all liabilities (including indebtedness) of its consolidated and unconsolidated subsidiaries, which at March 31, 1996, after adjustment to give pro forma effect to the Series K Refinancing, aggregated approximately $16.1 billion. The Senior Subordinated Debentures will rank senior to all existing and future Subordinated Indebtedness. The amount of Subordinated Indebtedness outstanding at March 31, 1996, was $977 million. As of the date of this Prospectus, the Company has no Senior Subordinated Indebtedness outstanding. In the event of an event of default under the Company's Senior Subordinated Indebtedness or, an Event of Default under the Senior Subordinated Debentures, the Company shall not declare or pay dividends on, make any distribution with respect to, or redeem, purchase, acquire or make a liquidation payment with respect to any of its capital stock and the Company shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by the Company that rank pari passu with or junior to the Senior Subordinated Debentures; provided, however, that the foregoing restrictions shall not apply to any interest or dividend payment by the Company, where the interest or dividend is paid by way of the issuance of securities that rank junior to the Senior Subordinated Debentures. The Senior Subordinated Indenture does not limit the amount of Senior Indebtedness which the Company may incur. Moreover, the Company's subsidiaries may incur indebtedness and other liabilities and have obligations to third parties. Generally, the claims of such third parties to the assets of the Company's subsidiaries will be superior to those of the Company as a stockholder, and, therefore, the Senior Subordinated Debentures may be deemed to be effectively subordinated to the claims of such third parties. The Senior Subordinated Debentures will rank pari passu with the Senior Subordinated Indebtedness and senior to the Subordinated Indebtedness. Upon any payment or distribution of all or substantially all of the assets of the Company or in the event of any insolvency, bankruptcy, receivership, liquidation, dissolution, reorganization or other similar proceeding whether voluntary or involuntary relative to the Company or its creditors, the holders of all Senior Indebtedness will first be entitled to receive payment in full in cash or cash equivalents before the holders of the Senior Subordinated Debentures will be entitled to receive any distribution on account thereof. No payments on account of the Senior Subordinated Debentures, including by way of any Claim (as defined herein) may be made if, at any time, there is a default in the payment of principal of or interest on or other monetary obligation with respect to any Senior Indebtedness (including, without limitation, fees, expenses and indemnities) or if there is an event of default with respect to any Senior Indebtedness or any agreement pursuant to which the Senior Indebtedness is issued which, or any event that, with the giving of notice or lapse of time, would be an event of default and permit the holders to accelerate the maturity thereof. The Company is obligated, upon the occurrence of any such default or event of default, to provide written notice to the Trustee of such default or event of default. By reason of such subordination, in the event of insolvency, under certain circumstances the holders of Senior Subordinated Debentures may receive less, ratably, than the Company's general creditors. As used herein, 'Claim' means any claim against the Company or any of its subsidiaries for rescission of the Senior Subordinated Debentures or for monetary damages from the purchase or receipt of the Senior Subordinated Debentures. As used in the Senior Subordinated Indenture, the term 'Senior Indebtedness' means all indebtedness or obligations, whether outstanding at the date of execution of the Senior Subordinated Indenture or thereafter incurred, assumed, guaranteed or otherwise created, unless the terms of the instrument or instruments by which the Company incurred, assumed, guaranteed or otherwise created any such indebtedness or obligation expressly provide that such indebtedness or obligation is subordinate to all other indebtedness of the Company or that such indebtedness or obligation is pari passu or is subordinated in right of payment to the Senior Subordinated Debentures with respect to any of the following (including, without limitation, interest accruing on or after a bankruptcy or other 48 similar event, whether or not an allowed claim therein): (i) any indebtedness incurred by the Company or assumed or guaranteed, directly or indirectly, by the Company (a) for money borrowed, (b) in connection with the acquisition of any business, property or other assets (other than trade payables incurred in the ordinary course of business) or (c) for advances or progress payments in connection with the construction or acquisition of any building, motion picture, television production or other entertainment of any kind; (ii) any obligation of the Company (or of a subsidiary which is guaranteed by the Company) as lessee under a lease of real or personal property; (iii) any obligation of the Company to purchase property at a future date in connection with a financing by the Company or a subsidiary of the Company; (iv) letters of credit; (v) currency swaps and interest rate hedges; and (vi) any deferral, renewal, extension or refunding of any of the foregoing. INTEREST Each Senior Subordinated Debenture shall bear interest at the rate equal to the dividend rate of the Series L Preferred Stock from the original date of issuance, payable semi-annually in arrears on June 30 and December 30 of each year (each, an 'Interest Payment Date'), to the person in whose name such Senior Subordinated Debenture is registered, subject to certain exceptions, at the close of business on the Business Day next preceding the relevant Interest Payment Date. In the event the Senior Subordinated Debentures shall not continue to remain in book-entry only form, the Company shall have the right to select record dates, which shall be more than one Business Day prior to the Interest Payment Date. Until June 30, 2006, interest may, at the option of the Company, be paid in cash or by issuing additional Senior Subordinated Debentures with a principal amount equal to such interest. Thereafter, interest on the Senior Subordinated Debentures must be paid in cash. The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. The amount of interest payable for any period shorter than a full semi-annual period for which interest is computed will be computed on the basis of the actual number of days elapsed per 30-day month. In the event that any date on which interest is payable on the Senior Subordinated Debentures is not a Business Day, then payment of the interest payable on such date will be made on the next succeeding day that is a Business Day (without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, then such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. CHANGE OF CONTROL Upon the occurrence of a Change of Control, the Company shall make an offer (a 'Debt Change of Control Offer') to each holder of the Senior Subordinated Debentures to repurchase all or any part of such holder's Senior Subordinated Debentures at a purchase price in cash equal to 101% of the principal amount of the Senior Subordinated Debentures, plus an amount equal to all accrued and unpaid interest thereon. The Debt Change of Control Offer must be made within 30 days following a Change of Control, must remain open for at least 30 and not more than 40 days and must comply with the requirements of Rule 14e-1 under the Exchange Act and any other applicable securities laws and regulations. OPTIONAL REDEMPTION The Company shall have the right to redeem the Senior Subordinated Debentures, in whole or in part, from time to time, on or after July 1, 2006 (the 'Optional Redemption Date'), upon at least 30 and no more than 60 days' notice, mailed by first-class mail to each holder's registered address. The redemption price for the Senior Subordinated Debentures called for redemption during the 12-month period commencing on July 1 of the years set forth below shall be the amounts (expressed as percentages of the principal amount of the Senior Subordinated Debentures) set forth opposite such years, plus accrued and unpaid interest to the redemption date. 49
PERCENTAGE OF PRINCIPAL YEAR AMOUNT - ---- ------------ 2006............................................................................. 105.125% 2007............................................................................. 103.844 2008............................................................................. 102.563 2009............................................................................. 101.281 2010 and thereafter.............................................................. 100.000
If less than all of the Senior Subordinated Debentures are to be redeemed, the Trustee shall select the Senior Subordinated Debentures or portions thereof to be redeemed either pro rata or by lot. No optional redemption shall be effected unless the Company shall have obtained a Rating Confirmation with respect to such redemption. COVENANTS The Senior Subordinated Indenture will provide that the Company will not incur, create, assume, guarantee or in any other manner become directly or indirectly liable with respect to or responsible for, or permit to remain outstanding, any indebtedness that is subordinate or junior in right of payment to any Senior Indebtedness unless such indebtedness is also pari passu with, or subordinate in right of payment to, the Senior Subordinated Debentures pursuant to subordination provisions substantially similar to those contained in the Senior Subordinated Indenture. DEFEASANCE The Senior Subordinated Indenture provides that the Company, at its option, (a) will be Discharged (as defined in the Senior Subordinated Indenture) from any and all obligations in respect of the Senior Subordinated Debentures (except for certain obligations to register the transfer or exchange of the Senior Subordinated Debentures, replace stolen, lost or mutilated Senior Subordinated Debentures, maintain paying agencies and hold moneys for payment in trust) or (b) need not comply with any restrictive covenant described herein, and certain Events of Default (as defined herein) (other than those arising out of the failure to pay interest or principal on the Senior Subordinated Debentures and certain events of bankruptcy, insolvency and reorganization) will no longer constitute Events of Default with respect to the Senior Subordinated Debentures, in each case if the Company deposits with the Trustee, in trust, money or the equivalent in U.S. Government Obligations (as defined in the Senior Subordinated Indenture), or a combination thereof, which through the payment of interest thereon and principal thereof in accordance with their terms will provide money in an amount sufficient to pay all the principal of, and interest on, the Senior Subordinated Debentures on the dates such payments are due in accordance with the terms of the Senior Subordinated Indenture. To exercise any such option, the Company is required, among other things, to deliver to the Trustee an opinion of counsel to the effect that the deposit and related defeasance would not cause the holders of such series to recognize income, gain or loss for United States Federal income tax purposes and, in the case of a Discharge pursuant to clause (a), such opinion must be based on a ruling to such effect received from or published by the United States Internal Revenue Service or upon a change in applicable Federal income tax law. In addition, the Company is required to deliver to the Trustee an Officers' Certificate stating that such deposit was not made by the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others. EVENTS OF DEFAULT If any Event of Default shall occur with respect to the Senior Subordinated Debentures and be continuing, the Trustee will have the right to declare the principal of and the interest on the Senior Subordinated Debentures and any other amounts payable under the Senior Subordinated Indenture to be forthwith due and payable and to enforce its other rights as a creditor with respect to the Senior Subordinated Debentures. An 'Event of Default' is defined as: (i) default for 30 days in the payment of interest on the Senior Subordinated Debentures; (ii) default in payment of the principal amount at 50 maturity or the amount payable upon redemption of the Senior Subordinated Debentures; (iii) failure by the Company for 90 days after receipt of notice to it by the Trustee (or the holders of at least 25% in principal amount of the Senior Subordinated Debentures then outstanding) to comply with any of its covenants or agreements contained in the Senior Subordinated Indenture; and (iv) certain events of bankruptcy, insolvency, receivership or reorganization involving the Company or certain affiliates. If any Event of Default described in clause (i), (ii) or (iii) above occurs and is continuing, the Trustee by notice to the Company, or the holders of not less than 25% in aggregate principal amount of the Senior Subordinated Debentures outstanding by notice to the Trustee and the Company, may declare the Senior Subordinated Debentures to be due and payable and, upon any such declaration, the Senior Subordinated Debentures shall become immediately due and payable along with any accrued and unpaid interest. If any Event of Default described in clause (iv) above occurs and is continuing, the Senior Subordinated Debentures shall become immediately due and payable along with any accrued and unpaid interest. Under certain conditions the holders of a majority in principal amount of Senior Subordinated Debentures then outstanding may waive certain past defaults and their consequences with respect to the Senior Subordinated Debentures, other than a default in the payment of principal or interest or in the observance of a provision which cannot be amended without the consent of each holder of Senior Subordinated Debentures, unless such default has been cured and a sum sufficient to pay all matured installments of interest and principal otherwise than by acceleration has been deposited with the Trustee. MODIFICATION OF THE INDENTURE The Company and the Trustee may, without the consent of the holders of the Senior Subordinated Debentures, enter into indentures supplemental to the Senior Subordinated Indenture for, among others, one or more of the following purposes: (i) to evidence the succession of another person to the Company, and the assumption by such successor of the Company's obligations under the Senior Subordinated Indenture and the Senior Subordinated Debentures; (ii) to add covenants of the Company, or surrender any rights of the Company, for the benefit of the holders of Senior Subordinated Debentures or Subordinated Debentures of any or all series; (iii) to cure any ambiguity, or correct any inconsistency in the Senior Subordinated Indenture; (iv) to evidence and provide for the acceptance of any successor Trustee with respect to the Senior Subordinated Debentures or to facilitate the administration of the trusts thereunder by one or more trustees in accordance with the Senior Subordinated Indenture; (v) to establish the form or terms of any series of Senior Subordinated Debentures; and (vi) to provide any additional Events of Default. The Senior Subordinated Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in principal amount of the outstanding Senior Subordinated Debentures, to modify the Senior Subordinated Indenture; provided that no such modification may, without the consent of the holders of each outstanding Senior Subordinated Debenture affected thereby, (i) reduce the amount of Senior Subordinated Debentures the holders of which must consent to any amendment, supplement or waiver of the Senior Subordinated Indenture; (ii) reduce the rate of or extend the time for the payment of interest on any Senior Subordinated Debenture; (iii) alter the method of calculation of, or reduce, the amount paid at maturity or extend the fixed maturity of any Senior Subordinated Debenture; (iv) make any Senior Subordinated Debenture payable in money or property other than that stated in the Senior Subordinated Debenture; (v) make any change to the subordination terms that adversely affects the rights of any holder of the Senior Subordinated Debentures; or (vi) make any change to the provisions relating to waivers of past defaults or the rights of holders of the Senior Subordinated Debentures to receive payments or reduce the percentage of Senior Subordinated Debentures the holders of which are required to consent to any such modification. CONSOLIDATION, MERGER AND SALE The Senior Subordinated Indenture provides that the Company may, without the consent of the holders of the Senior Subordinated Debentures, consolidate with or merge into, or transfer its properties as an entirety or substantially as an entirety to any corporation, person or other entity; 51 provided that in any such case (i) the successor person (if other than the Company) (a) is an entity organized and existing under the laws of the United States of America or any political subdivision thereof and (b) such entity or its parent corporation assumes by a supplemental indenture the Company's obligations under the Senior Subordinated Indenture, (ii) immediately after giving effect to such transaction, no Event of Default shall have occurred and be continuing and (iii) the Company shall have delivered to the Trustee an officer's certificate and opinion of counsel stating that such consolidation, merger or transfer and such supplemental indenture comply with the Senior Subordinated Indenture. The TBS Transaction is not subject to approval by the holders of the Senior Subordinated Debt. GOVERNING LAW The Senior Subordinated Indenture and the Senior Subordinated Debentures will be governed by, and construed in accordance with, the laws of the State of New York. INFORMATION CONCERNING THE TRUSTEE The Trustee, prior to default, undertakes to perform only such duties as are specifically set forth in the Senior Subordinated Indenture and, after default, shall exercise the same degree of care as a prudent individual would exercise in the conduct of his or her own affairs. Subject to such provision, the Trustee is under no obligation to exercise any of the powers vested in it by the Senior Subordinated Indenture at the request of any holder of Senior Subordinated Debentures, unless offered reasonable indemnity by such holder against the costs, expenses and liabilities that might be incurred thereby. The Trustee is not required to expend or risk its own funds or otherwise incur personal financial liability in the performance of its duties if the Trustee reasonably believes that repayment or adequate indemnity is not reasonably assured to it. The Trustee may be one of a number of banks with which the Company and its subsidiaries maintain ordinary banking and trust relationships. MISCELLANEOUS The Company will have the right at all times to assign any of its rights or obligations under the Senior Subordinated Indenture to a direct or indirect wholly owned subsidiary of the Company; provided that, in the event of any such assignment, the Company will remain jointly and severally liable for all such obligations. Subject to the foregoing, the Senior Subordinated Indenture will be binding upon and inure to the benefit of the parties thereto and their respective successors and assigns. DESCRIPTION OF OUTSTANDING CAPITAL STOCK The summary contained herein of the outstanding capital stock of the Company does not purport to be complete and is qualified in its entirety by reference to the following documents: (i) the Company's Certificate of Incorporation; (ii) the Company's by laws; and (iii) the Rights Agreement, as amended, between the Company and Chemical Bank, Rights Agent (the 'Rights Agreement'). The outstanding capital stock of the Company at April 30, 1996 consisted of 37.8 million shares of preferred stock and 391.6 million shares of Common Stock (net of 46.8 million shares of Common Stock in treasury). COMMON STOCK Subject to the rights of the holders of any outstanding shares of preferred stock, holders of Common Stock are entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available therefor. Each holder of Common Stock is entitled to one vote for each share held on all matters voted upon by the stockholders of the Company, including the election of directors. The Common Stock does not have cumulative voting rights. Election of directors is decided by the holders of a plurality of the shares entitled to vote and present in person or by proxy at a meeting for the election of directors. See 52 'Description of Series M Preferred Stock' for a discussion of the voting rights of the Series M Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, after the payment or provision for payment of the debts and other liabilities of the Company and the preferential amounts to which holders of the Company's preferred stock are entitled, the holders of Common Stock are entitled to share ratably in the remaining assets of the Company. The Common Stock has no preemptive or conversion rights and there are no redemption or sinking fund provisions applicable thereto. The Common Stock of the Company is listed on the New York Stock Exchange, the Pacific Stock Exchange and the International Stock Exchange and Stock Exchange of the United Kingdom and the Republic of Ireland, Ltd. The transfer agent and the registrar for the Common Stock is Chemical Bank. PREFERRED STOCK Set forth below is a summary of the principal terms of the Company's outstanding issues of preferred stock, all of which are Parity Stock:
NUMBER OF SHARES SHARES OF COMMON STOCK EARLIEST EARLIEST OUTSTANDING AT ISSUABLE UPON EXCHANGE REDEMPTION DESCRIPTION APRIL 30, 1996 CONVERSION DATE DATE ------------ -------------- --------------- -------- ------------ (MILLIONS) (MILLIONS) Series B Preferred Stock................ .4 -- -- At any time Series C Preferred Stock................ 3.3 6.8 5/2/98 5/2/00 Series D Preferred Stock................ 11.0 22.9 7/6/99 7/6/00 Series E Preferred Stock................ 3.3 6.8 1/4/01 1/4/01 Series F Preferred Stock................ 3.2 6.7 1/4/00 1/4/01 Series G Preferred Stock................ 6.2 12.9 9/5/99 9/5/99 Series H Preferred Stock................ 1.8 3.7 9/5/00 9/5/99 Series I Preferred Stock................ 7.0 14.6 10/2/99 10/2/99 Series K Preferred Stock................ 1.6 -- ----- ----- Total shares....................... 37.8 74.4 ----- ----- ----- -----
Each share of Series B Preferred Stock: (1) is entitled to a liquidation preference of $145 per share, (2) is not convertible, (3) entitles the holder thereof to receive an annual dividend equal to $4.35 per share beginning in June 1995, and $9.28 per share prior thereto, (4) does not generally entitle the holder thereof to vote, except in certain limited circumstances and (5) is redeemable, in whole or in part, by the Company and the holders thereof in exchange for cash or shares of any class or series of publicly-traded Company stock, at the Company's option, equal in value to the liquidation value of the Series B Preferred Stock plus a premium of 2% of liquidation value for each year after May 31, 1995 to the redemption date. The principal terms of each series of convertible preferred stock issued in 1995 and 1996 (the Series C Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock, the Series F Preferred Stock, the Series G Preferred Stock, the Series H Preferred Stock and the Series I Preferred Stock, collectively referred to as the 'Convertible Preferred Stock') are similar in nature, unless otherwise noted below. Each share of Convertible Preferred Stock: (1) is entitled to a liquidation preference of $100 per share, (2) is immediately convertible into 2.08264 shares of the Common Stock at a conversion price of $48 per share (based on its liquidation value), except that shares of the Series H Preferred Stock are generally not convertible until September 5, 2000, (3) entitles the holder thereof (i) to receive for a four-year period from the date of issuance (or a five year period with respect to the Series C and Series E Preferred Stock) an annual dividend per share equal to the greater of $3.75 and an amount equal to the dividends paid on the Common Stock into which each share may be converted and (ii) to the extent that any of such shares of preferred stock remain outstanding at the end of the period in which the minimum $3.75 per share dividend is to be paid, the holders thereafter will receive 53 dividends equal to the dividends paid on shares of Common Stock multiplied by the number of shares into which their shares of preferred stock are convertible and (4) except for the Series H Preferred Stock, which is generally not entitled to vote, entitles the holder thereof to vote with the common stockholders on all matters on which the common stockholders are entitled to vote, and each share of such Convertible Preferred Stock is entitled to two votes on any such matter. The Company has the right to exchange each series of Convertible Preferred Stock for Common Stock at the stated conversion price at any time on or after the respective exchange date. The Series C Preferred Stock is exchangeable by the holder beginning after the third year from its date of issuance and by the Company after the fourth year at the stated conversion price plus a declining premium in years four and five and no premium thereafter. In addition, the Company has the right to redeem each series of Convertible Preferred Stock, in whole or in part, for cash at the liquidation value plus accrued dividends, at any time on or after the respective redemption date. In 1993, the Company redeemed or exchanged $6.4 billion of Series C and Series D preferred stock ('old Series C and Series D preferred stock') that were issued in the Company's 1989 acquisition of Warner Communications Inc. The cash redemption of the old Series D Preferred Stock was financed principally by the proceeds from the issuance of long-term notes and debentures. The old Series C Preferred Stock was exchanged for the 8.75% Convertible Debentures. At March 31, 1996, the Company had reserved 177 million shares of Common Stock for the conversion of its Convertible Preferred Stock, zero coupon convertible notes and other convertible securities, and for the exercise of outstanding options to purchase shares of Common Stock. SHAREHOLDER RIGHTS PLAN Pursuant to a shareholder rights plan adopted in January 1994, the Company distributed one right per share of Common Stock which becomes exercisable in certain events involving the acquisition of 15% or more of the then outstanding Common Stock of the Company. Upon the occurrence of such an event, each right entitled its holder to purchase for $150 the economic equivalent of Common Stock, or in certain circumstances, common stock of the acquiror, worth twice as much. In connection with the plan, 4 million shares of Series A Preferred Stock, which is junior to the Parity Stock, were reserved. The rights expire on January 20, 2004. In connection with the TBS Transaction, the Company expects to amend the shareholder rights plan principally to change the basis for determining if an acquisition of 15% or more of the Common Stock has occurred to a fully-diluted basis. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following discussion of certain of the anticipated federal income tax consequences of an exchange of the Series K Preferred Stock for Series M Preferred Stock and of the purchase, ownership, and disposition of the Series M Preferred Stock, Series L Preferred Stock, and Senior Subordinated Debentures is based upon the provisions of the Internal Revenue Code of 1986, as amended (the 'Code'), the final, temporary, and proposed regulations promulgated thereunder, and administrative rulings and judicial decisions now in effect, all of which are subject to change (possibly with retroactive effect) or different interpretations. In particular, Congress could enact legislation affecting the treatment of stock with characteristics similar to the Series M Preferred Stock or the Treasury Department could change the current law in future regulations, including regulations issued pursuant to its authority under Section 337(d) of the Code. Any such legislation or regulations could be enacted or promulgated to apply retroactively to the Series M Preferred Stock. This summary does not purport to deal with all aspects of federal income taxation that may be relevant to a particular investor, nor any tax consequences arising under the laws of any state, locality, or foreign jurisdiction, and it is not intended to be applicable to all categories of investors, some of which, such as dealers in securities, banks, insurance companies, tax-exempt organizations, foreign persons, persons that hold Series M Preferred Stock, Series L Preferred Stock, or Senior Subordinated Debentures as part of a straddle or conversion transaction, or holders subject to the alternative minimum tax, may be subject to special rules. In addition, the summary is limited to persons that will hold the Series M Preferred Stock, Series L Preferred Stock, and Senior Subordinated Debentures as 'capital assets'(generally, property held for 54 investment) within the meaning of Section 1221 of the Code. No ruling has been or will be requested by the Company from the Internal Revenue Service ('the Service') on any tax matters relating to the Series M Preferred Stock, Series L Preferred Stock, or Senior Subordinated Debentures, and there can be no assurance that the Service will agree with the views expressed below. ALL INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISERS REGARDING THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, AND DISPOSITION OF SERIES M PREFERRED STOCK, SERIES L PREFERRED STOCK, OR SENIOR SUBORDINATED DEBENTURES. TAXATION OF HOLDERS ON EXCHANGE Although the matter is not free from doubt, an exchange of shares of Series K Preferred Stock for shares of Series M Preferred Stock pursuant to the Exchange Offer should not be a taxable event to holders of Series K Preferred Stock, and holders should not recognize any taxable gain or loss as a result of such an exchange or a filing. Accordingly, a holder would have the same adjusted basis and holding period in the Series M Preferred Stock as it had in the Series K Preferred Stock immediately before the exchange. Further, the tax consequences of ownership and disposition of any shares of Series M Preferred Stock should be the same as the tax consequences of ownership and disposition of shares of the Series K Preferred Stock. SERIES M PREFERRED STOCK In the opinion of counsel, the Series M Preferred Stock will be stock of the Company for federal income tax purposes. There are, however, no federal income tax regulations, court decisions, or published Service rulings bearing directly on certain features of the Series M Preferred Stock. In addition, the Service announced during 1987 that it was studying the federal income tax consequences of stock that has certain voting and liquidation rights in an issuing corporation, but whose dividend rights are determined by reference to the earnings and profits of a segregated portion of the issuing corporation's assets, and that it would not issue any advance rulings regarding such stock. In 1995, the Service withdrew such stock from its list of matters under consideration and reiterated that it would not issue advance rulings regarding such stock. In the absence of such a ruling, it is possible that the Service could claim that the Series M Preferred Stock represents property other than stock of the Company. While counsel recognizes that this matter cannot be viewed as free from doubt because there is no conclusive authority dealing with the precise facts presented by the Series M Preferred Stock, counsel believes that if the status of the Series M Preferred Stock as stock of the Company for federal income tax purposes were challenged, a court would agree that the Series M Preferred Stock is stock of the Company. Legislation has recently been proposed that would require taxpayers to recognize gain upon a constructive sale (i.e., the substantial elimination of risk of loss and opportunity for gain) of an appreciated position in stock, a debt instrument, or a partnership interest. Although the scope of the provision is unclear in the absence of Congressional committee reports or other further elaboration, the Company believes that such proposed legislation should not apply to the Series M Preferred Stock. Further, it is not clear whether or in what form the proposed legislation will be enacted. If the Series M Preferred Stock is not considered stock of the Company, then holders might be considered for federal income tax purposes to own interests in TWE. In such event, a holder would be treated as receiving a distributive share of the income, gain, loss, deductions, and credits of TWE and would not be eligible for the dividends-received deduction. In addition, the timing of the items of income and deduction holders would receive with respect to such deemed interests in TWE would be uncertain and most likely would not correspond to the timing of the distributions they would receive as holders of the Series M Preferred Stock. If the Series M Preferred Stock is not considered stock of the Company or the Company is treated as having constructively sold a portion of the TWE Series B Capital, then the Company would recognize substantial taxable gain in connection with the issuance of the Series M Preferred Stock. 55 The discussion herein is based upon the foregoing opinion that the Series M Preferred Stock is stock of the Company for federal income tax purposes. DISTRIBUTIONS ON SERIES M PREFERRED STOCK OR SERIES L PREFERRED STOCK The amount of any distribution with respect to the Series M Preferred Stock or Series L Preferred Stock will be equal to the amount of cash or the fair market value of the shares of Series M Preferred Stock or Series L Preferred Stock distributed. A stockholder's initial tax basis in any additional shares of Series M Preferred Stock or Series L Preferred Stock distributed by the Company will be equal to the fair market value of such additional shares of Series K Preferred Stock or Series L Preferred Stock on the date of distribution. A stockholder's holding period for such additional shares of Series M Preferred Stock or Series L Preferred Stock will commence on the day following the date of distribution and will not include such stockholder's holding period for the shares of Series M Preferred Stock or Series L Preferred Stock with respect to which the additional shares of Series M Preferred Stock or Series L Preferred Stock were distributed. The amount of any distribution with respect to the Series M Preferred Stock or Series L Preferred Stock, whether paid in cash or in additional shares of Series M Preferred Stock or Series L Preferred Stock, will be a dividend, taxable as ordinary income to the recipient thereof, to the extent of the Company's current or accumulated earnings and profits ('earnings and profits') as determined under U.S. federal income tax principles. Under Section 243 of the Code, corporate shareholders generally will be able to deduct 70% of the amount of any distribution qualifying as a dividend. There are, however, many exceptions and restrictions relating to the availability of such dividends-received deduction such as restrictions relating to (i) the holding period of stock the dividends on which are sought to be deducted, (ii) debt-financed portfolio stock, (iii) dividends treated as 'extraordinary dividends' for purposes of Section 1059 of the Code, and (iv) taxpayers that pay alternative minimum tax. Corporate shareholders should consult their own tax advisers regarding the extent, if any, to which such exceptions and restrictions may apply to their particular factual situation. Additionally, recently proposed legislation would reduce the applicable dividends-received deduction from 70% to 50% and could also affect the availability of such deduction to corporate shareholders that do not meet applicable holding period requirements. It is uncertain whether or in what form such legislation will be enacted into law. Corporate shareholders should consult their own tax advisers regarding the extent, if any, to which such legislation may apply to their particular factual situation. Additionally, the excess of the liquidation preference over the issue price of the Series M Preferred Stock or the Series L Preferred Stock, if more than a de minimis amount, would be accrued as dividend income (to the extent of the Company's earnings and profits) by a holder on a constant yield basis over its term. Because the issue price of any additional shares of Series M Preferred Stock or Series L Preferred Stock distributed by the Company in lieu of a cash payment generally will equal the fair market value of such shares of Series M Preferred Stock or Series L Preferred Stock on the date of distribution, the amount of any redemption premium, and the tax consequences thereof, may need to be separately determined for each such distribution. Further, it is not clear whether the issue price of any shares of Series L Preferred Stock issued in exchange for shares of Series M Preferred Stock, or any shares of stock of New Time Warner issued to holders of the Series M Preferred Stock or Series L Preferred Stock in the TBS Transaction, will equal the issue price of the shares so exchanged or will equal the fair market value of the shares received at the time of such exchange. Holders should consult their own tax advisers regarding the application of the redemption premium rules to their particular situation. REDEMPTION, SALE, OR EXCHANGE No gain or loss will be recognized by a holder that exchanges shares of Series M Preferred Stock for shares of Series L Preferred Stock (except to the extent that such shares of Series L Preferred Stock are attributable to declared dividends, which will be treated in the same manner as distributions described above). The basis of shares of Series L Preferred Stock so received by such holder in the exchange will be the same as that of the shares of Series M Preferred Stock exchanged therefor. The holder's holding period for such shares of Series L Preferred Stock will include the holder's holding 56 period for the shares of Series M Preferred Stock so exchanged, provided that the shares of Series M Preferred Stock were held as a capital asset. Recently proposed legislation would tax gain on an exchange of preferred stock for preferred stock unless the new preferred stock is comparable to the preferred stock exchanged therefor and of a same or lesser value. It is uncertain whether or in what form such legislation will be enacted into law. A sale or redemption of the shares of Series M Preferred Stock or Series L Preferred Stock for cash by a holder who will not continue to own stock of the Company, actually or constructively, following the redemption will be a taxable transaction on which a holder will generally recognize capital gain or loss (except to the extent of amounts received on the exchange that are attributable to declared dividends, which will be treated in the same manner as distributions described above). The gain or loss recognized on such exchange will generally be equal to the difference between the amount realized by the holder and such holder's adjusted tax basis in the shares of Series M Preferred Stock or shares of Series L Preferred Stock surrendered in the redemption. Different rules may apply to holders that continue to own stock of the Company, actually or constructively, following the redemption. A redemption of shares of Series L Preferred Stock in exchange for Senior Subordinated Debentures will be subject to the same general rules as a redemption for cash, except that the holder would have capital gain or loss equal to the difference between the issue price of the Senior Subordinated Debentures received and the holder's adjusted tax basis in the shares of Series L Preferred Stock redeemed. The issue price of the Senior Subordinated Debentures would be determined in the manner described below under ' -- Original Issue Discount' for purposes of computing original issue discount on the Senior Subordinated Debentures. Depending upon a holder's particular circumstances, the tax consequences of holding Senior Subordinated Debentures may be less advantageous than the tax consequences of holding Series M Preferred Stock or Series L Preferred Stock because, for example, payments of interest on the Senior Subordinated Debentures will not be eligible for any dividends-received deduction that may be available to corporate holders and because, as discussed below, Senior Subordinated Debentures may be issued with original issue discount ('OID'). ORIGINAL ISSUE DISCOUNT If the Series L Preferred Stock is exchanged for Senior Subordinated Debentures at a time when the stated redemption price at maturity of the Senior Subordinated Debentures exceeds their issue price by more than a de minimis amount, the Senior Subordinated Debentures will be treated as having OID equal to the entire amount of such excess. If the Senior Subordinated Debentures are deemed to be traded on an established securities market at any time during the 60-day period ending 30 days after their issue date, the issue price of the Senior Subordinated Debentures will be their fair market value as determined as of their issue date. Subject to certain limitations described in the regulations, the Senior Subordinated Debentures will be deemed to be traded on an established securities market if, among other things, price quotations are readily available from dealers, brokers, or traders. Similarly, if the Series L Preferred Stock, but not the Senior Subordinated Debentures issued and exchanged therefor, is deemed to be traded on an established securities market at the time of the exchange, then the issue price of each Senior Subordinated Debenture should be the fair market value of the shares of Series L Preferred Stock exchanged therefor at the time of the exchange. The Series L Preferred Stock will generally be deemed to be traded on an established securities market if it appears on a system of general circulation that provides a reasonable basis to determine fair market value based either on recent price quotations or recent sales transactions. In the event that neither the Series L Preferred Stock nor the Senior Subordinated Debentures is deemed to be traded on an established securities market, the issue price of the Senior Subordinated Debentures will be their stated principal amount or, in the event the Senior Subordinated Debentures do not bear 'adequate stated interest' within the meaning of Section 1274 of the Code, their 'imputed principal amount,' which is generally the sum of the present values of all payments due under the Senior Subordinated Debentures, discounted from the date of payment to their issue date at the appropriate 'applicable federal rate.' The stated redemption price at maturity of the Senior Subordinated Debentures would equal the total of all payments required to be made thereon, other than payments of qualified stated interest. 57 Qualified stated interest generally is stated interest that is unconditionally payable in cash or other property (other than debt instruments of the issuer) at least annually at a single fixed rate. Therefore, Senior Subordinated Debentures that are issued when the Company has the option to pay interest in additional Senior Subordinated Debentures will be treated as having been issued with interest in excess of qualified stated interest. Accordingly, the excess of (x) all interest payable pursuant to the stated interest rate on such Senior Subordinated Debentures over (y) the qualified stated interest, in each case determined over the entire term, will be treated as OID and accrued under a constant yield method by the holder, and the holder should not also treat the receipt of such excess stated interest on such Senior Subordinated Debentures as interest for federal income tax purposes. An additional Senior Subordinated Debenture (a 'Secondary Debenture') issued in payment of interest with respect to an initially issued Senior Subordinated Debenture (an 'Initial Debenture') will not be considered as a payment made on the Initial Debenture and will be aggregated with the Initial Debenture for purposes of computing and accruing OID on the Initial Debenture. As between the Initial Debenture and the Secondary Debenture, the Company will allocate the adjusted issue price of the Initial Debenture between the Initial Debenture and the Secondary Debenture in proportion to their respective principal amounts. That is, upon its issuance of a Secondary Debenture with respect to an Initial Debenture, the Company intends to treat the Initial Debenture and the Secondary Debenture derived from the Initial Debenture as initially having the same adjusted issue price and inherent amount of OID per dollar of principal amount. The Initial Debenture and the Secondary Debenture derived therefrom will be treated as having the same yield to maturity. Similar treatment will be applied when additional Senior Subordinated Debentures are issued on Secondary Debentures. BOND PREMIUM ON SENIOR SUBORDINATED DEBENTURES RECEIVED IN EXCHANGE If, at the time the Series L Preferred Stock is exchanged for Senior Subordinated Debentures or a holder purchases Senior Subordinated Debentures, the holder's tax basis in any such Senior Subordinated Debenture exceeds the amount payable at the maturity date, such excess may constitute amortizable bond premium that the holder may elect to amortize over the term of the Senior Subordinated Debenture on a constant yield method. A holder who elects to amortize bond premium must reduce its tax basis in the Senior Subordinated Debentures by the amount so amortized, and the amount amortized in any year will be treated as a reduction of interest income on the Senior Subordinated Debentures. The election to amortize premium applies to all obligations owned or acquired by the holder in the current and all subsequent tax years and may not be revoked without the consent of the Service. Bond premium on a Senior Subordinated Debenture held by a holder that does not make such an election will decrease the gain or increase the loss otherwise recognized on disposition of the Senior Subordinated Debenture. ACQUISITION PREMIUM A holder of a Senior Subordinated Debenture issued with OID who purchases such Senior Subordinated Debenture for an amount greater than the sum of all amounts payable on the Senior Subordinated Debenture after the purchase date other than qualified stated interest will not be required to include any OID in income. A holder of a Senior Subordinated Debenture issued with OID who purchases such Senior Subordinated Debenture for an amount that is greater than its adjusted issue price but equal to or less than the sum of all amounts payable on the Senior Subordinated Debenture after the purchase date other than payments of qualified stated interest will be considered to have purchased such Senior Subordinated Debenture at an 'acquisition premium.' Under the acquisition premium rules, the amount of OID that such holder must include in income with respect to such Senior Subordinated Debenture for any taxable year will be reduced by the portion of such acquisition premium properly allocable to such year. MARKET DISCOUNT ON RESALE OF SENIOR SUBORDINATED DEBENTURES Holders of Senior Subordinated Debentures should be aware that a disposition of the Senior Subordinated Debentures may be affected by the market discount provisions of Sections 1276-78 of the 58 Code. These rules generally provide that, if a holder acquires Senior Subordinated Debentures at a market discount that equals or exceeds one-fourth of one percent of the stated redemption price of the Senior Subordinated Debentures at maturity multiplied by the number of remaining years to maturity and thereafter recognizes gain upon a disposition of the Senior Subordinated Debentures, the lesser of (i) such gain or (ii) the portion of the market discount that accrued while the Senior Subordinated Debenture was held by such holder will be treated as ordinary income at the time of the disposition. For these purposes, market discount means the excess (if any) of the stated redemption price at maturity (or, if an instrument is issued with OID, the instrument's revised issue price, which is the sum of the issue price of the instrument and the aggregate amount of OID includible in the gross income of all previous holders of the instrument) over the basis of such Senior Subordinated Debenture immediately after its acquisition by the holder. A holder of a Senior Subordinated Debenture may elect to include any market discount in income currently rather than upon disposition of the Senior Subordinated Debenture. This election once made applies to all market discount obligations acquired in or after the first taxable year to which the election applies and may not be revoked without the consent of the Service. A holder of any Senior Subordinated Debenture who acquired such Senior Subordinated Debenture at a market discount generally will be required to defer the deduction of a portion of the interest on any indebtedness incurred or maintained to purchase or carry such Senior Subordinated Debenture until the market discount is recognized upon a subsequent disposition of such Senior Subordinated Debenture. Such a deferral is not required, however, if the holder elects to include accrued market discount in income currently. REDEMPTION OR SALE OF SENIOR SUBORDINATED DEBENTURES Generally, any redemption or sale of Senior Subordinated Debentures by a holder will result in taxable gain or loss equal to the difference between the amount of cash received (except to the extent the cash received is attributable to accrued interest) and the holder's adjusted tax basis in such Senior Subordinated Debentures. The adjusted tax basis of a holder who received such Senior Subordinated Debentures in exchange for the Series L Preferred Stock will generally be equal to the issue price of such Senior Subordinated Debentures, increased by any OID or market discount on the Senior Subordinated Debentures included in such holder's income prior to their sale or redemption, and reduced by any bond premium previously allowed as an offset to interest payments on such Senior Subordinated Debentures and any cash payments on the Senior Subordinated Debentures other than qualified stated interest. Such gain or loss would be capital gain or loss if the Senior Subordinated Debentures were held as a capital asset and would be long-term gain or loss if the holder's holding period exceeded one year. Cash received that is attributable to accrued interest will be included in income as ordinary income. APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS Pursuant to Section 163 of the Code a portion of the OID accruing on certain debt instruments may be treated as a dividend eligible for the dividends-received deduction and the corporation issuing such debt instrument would not be entitled to deduct the 'disqualified portion' of the OID accruing on such debt instrument and would be allowed to deduct the remainder of the OID only when paid. This treatment would apply to 'applicable high yield discount obligations' ('AHYDO'), that is, debt instruments that have a term of more than five years, have a yield to maturity that equals or exceeds five percentage points over the 'applicable federal rate,' and have 'significant' OID. A debt instrument is treated as having 'significant' OID if the aggregate amount that would be includible in gross income with respect to such debt instrument for periods before the close of any accrual period ending after a date five years after the date of issue exceeds the sum of (i) the aggregate amount of interest to be paid in cash under the debt instrument before the close of such accrual period and (ii) the product of the initial issue price of such debt instrument and its yield to maturity. Because the amount of OID attributable to the Senior Subordinated Debentures will be determined at the time such Senior Subordinated Debentures are issued and the applicable federal rate at the time the Senior Subordinated 59 Debentures are issued is not predictable, it is impossible to determine at the present time whether a Senior Subordinated Debenture will be treated as an AHYDO. If a Senior Subordinated Debenture is treated as an AHYDO, a holder would be treated as receiving dividend income (to the extent of the Company's earnings and profits) solely for purposes of the dividends-received deduction in an amount equal to the 'dividend equivalent portion' of the 'disqualified portion' of the OID of such AHYDO. The 'disqualified portion' of the OID is equal to the lesser of (i) the amount of OID or (ii) the portion of the 'total return' (the excess of all payments to be made with respect to such obligation over its issue price) on such obligation that bears the same ratio to the obligation's total return as the 'disqualified yield' (the extent to which the yield exceeds the applicable federal rate plus 6%) bears to the obligation's yield to maturity. The dividend equivalent portion of the disqualified portion is the portion of such portion that would be treated as a dividend if distributed by the issuer with respect to its stock. The Company's deduction for OID will be substantially deferred with respect to a Senior Subordinated Debenture that is treated as an AHYDO. In addition, such deduction will be disallowed if and to the extent that the yield on such AHYDO exceeds the applicable federal rate by more than 6%. BACKUP WITHHOLDING In general, a noncorporate holder of Series M Preferred Stock, Series L Preferred Stock, or Senior Subordinated Debentures will be subject to backup withholding at the rate of 31% with respect to reportable payments of dividends, interest, or OID accrued with respect to, or the proceeds of a sale, exchange, or redemption of, Series M Preferred Stock, Series L Preferred Stock, or Senior Subordinated Debentures, as the case may be, if the holder fails to provide a taxpayer identification number or certification of foreign or other exempt status or fails to report in full dividend and interest income. Amounts paid as backup withholding do not constitute an additional tax and will be credited against the holder's federal income tax liabilities. THE UNITED STATES FEDERAL TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY OR MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE SERIES M PREFERRED STOCK, THE SERIES L PREFERRED STOCK, OR THE SENIOR SUBORDINATED DEBENTURES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS. LEGAL OPINION Certain legal matters in connection with the exchange of the Series K Preferred Stock for the Series M Preferred Stock will be passed upon for the Company by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York. As of May 20, 1996 certain members of Paul, Weiss, Rifkind, Wharton & Garrison, who are participating in the representation of the Company, owned approximately 14,050 shares of Common Stock. EXPERTS The consolidated financial statements and schedules of the Company and TWE appearing in the 10-K, the combined financial statements of the Time Warner Service Partnerships incorporated by reference therein, and the consolidated financial statements and schedule of Cablevision Industries Corporation as of December 31, 1995, and for the year then ended incorporated by reference in this Prospectus from the May 15, 1996 8-K, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon included therein and incorporated herein by reference. Such financial statements and schedules are incorporated herein by reference in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. 60 The financial statements of Newhouse Broadcasting Cable Division of Newhouse Broadcasting Corporation and Subsidiaries as of July 31, 1994 and 1993, and for each of the three years in the period ended July 31, 1994, and the financial statements of Vision Cable Division of Vision Cable Communications, Inc. and Subsidiaries as of December 31, 1994 and 1993, and for each of the three years in the period ended December 31, 1994, incorporated by reference in this Prospectus from the May 15, 1996 8-K, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon included therein and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. The financial statements of Paragon Communications as of December 31, 1994 and 1993, and for each of the three years in the period ended December 31, 1994, incorporated by reference in this Prospectus from the 10-K, and the consolidated financial statements of Turner Broadcasting System, Inc. as of December 31, 1995 and 1994, and for the three years in the period ended December 31, 1995, incorporated by reference in this Prospectus from the May 15, 1996 8-K, have been audited by Price Waterhouse LLP, independent accountants, as set forth in their reports thereon included therein and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. The consolidated financial statements of Cablevision Industries Corporation as of December 31, 1994, and for each of the two years in the period ended December 31, 1994, incorporated by reference in this Prospectus from the May 15, 1996 8-K, have been audited by Arthur Andersen LLP, Independent Public Accountants, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements have been incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The consolidated financial statements of KBLCOM Incorporated as of December 31, 1994 and 1993, and for each of the three years in the period ended December 31, 1994, incorporated by reference in this Prospectus from the May 15, 1996 8-K, have been audited by Deloitte & Touche LLP, Independent Auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements have been incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. ------------------------ The following information is being disclosed pursuant to Florida law and is accurate as of the date hereof: A subsidiary of Warner Communications Inc. pays royalties to Artex, S.A., a corporation organized under the laws of Cuba, in connection with the distribution in the United States of certain Cuban musical recordings. Current information concerning this matter may be obtained from the State of Florida Department of Banking & Finance, The Capital, Tallahassee, Florida 32399-0350, 904-488-9805. 61 GLOSSARY OF SIGNIFICANT TERMS As used in this Prospectus, the following terms shall have the meanings set forth below: 'Change of Control' means: (i) whenever, in any three-year period, a majority of the members of the Board of Directors of the Company elected during such three-year period shall have been so elected against the recommendation of the management of the Company or the Board of Directors of the Company in office immediately prior to such election; provided, however, that for purposes of this clause (i) a member of such Board of Directors shall be deemed to have been elected against the recommendation of such Board of Directors if his or her initial election occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than such Board of Directors; or (ii) whenever any person shall acquire (whether by merger, consolidation, sale, assignment, lease, transfer or otherwise, in one transaction or any related series of transactions) or otherwise beneficially own voting securities of the Company that represent in excess of 50% of the voting power of all outstanding voting securities of the Company generally entitled to vote for the election of directors, if such person had acquired or publicly announced its intention to initially acquire ten percent or more of such voting securities in a transaction that had not been approved by the management of the Company within 30 days after the date of such acquisition or public announcement. 'Included Tax Distributions' means, with respect to any period, Tax Distributions made by TWE during such period with respect to the TWE Series B Capital, but only if the total distributions made by TWE during such period with respect to the TWE Series B Capital exceed such Tax Distributions. 'Initial Purchasers' means Bear, Stearns & Co. Inc. and Morgan Stanley & Co. Incorporated. 'Insolvency of TWE' means: (i) the entry by a court having jurisdiction in the premises of (a) a decree or order for relief in respect of TWE in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or (b) a decree or order adjudging TWE a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of TWE under any applicable federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of TWE or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order under either clause (a) or (b) above unstayed and in effect for a period of 60 consecutive days; or (ii) the commencement by TWE of a voluntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of TWE in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal or state law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of TWE or of any substantial part of its property, or the making by it of a general assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the adoption of a resolution by the Board of Representatives of TWE to take any of the foregoing actions. 'Insolvency Distribution Date' means the date of the completion of the liquidation, winding up or dissolution of TWE upon the Insolvency of TWE. G-1 'Insolvency Redemption Amount' means an amount equal to the lesser of (i) the sum of (a) the Pro Rata Percentage as of the Insolvency Distribution Date multiplied by the sum of cash distributions and non-cash distributions (the value of which shall be determined pursuant to a TWE Insolvency Valuation) received by the Company (and its subsidiaries) with respect to its TWE Series B Capital and its TWE Junior Capital in connection with such liquidation, winding-up or dissolution, in accordance with the TWE Partnership Agreement, and (b) an amount equal to dividends on the outstanding shares of the Series M Preferred Stock for four quarters and one day and (ii) the liquidation preference of the Series M Preferred Stock plus accumulated and accrued and unpaid dividends thereon. 'Insolvency Redemption Date' means the day following the first anniversary of the Insolvency Distribution Date. 'Junior Stock' means the Common Stock, the Series A Preferred Stock and all classes of capital stock established after the initial issuance of the Series M Preferred Stock by the Company's Board of Directors that by their terms are junior in right of payment to the Parity Stock. 'Mandatory Redemption Amount' means an amount equal to (i) the Pro Rata Percentage (determined as of June 30, 2015 without giving effect to the Series B Redemption occurring on such date) multiplied by the amount (as determined by a TWE Valuation) that the Company (and its subsidiaries) would have received in accordance with the TWE Partnership Agreement with respect to its TWE Series B Capital and its TWE Junior Capital had TWE sold all of its assets and liquidated on June 30, 2015, plus (ii) dividends on the outstanding shares of Series M Preferred Stock from July 1, 2015 to July 1, 2016. 'Mandatory Redemption Price' means a redemption price equal to the liquidation preference of the Series M Preferred Stock to be redeemed, plus accumulated and accrued and unpaid dividends thereon. 'Material Contribution of Assets' means a contribution to TWE in a single transaction or a series of related transactions of Relevant Assets (as defined below) net of associated debt, the fair market value of which is in excess of $1,000,000,000 (as determined by the Board of Directors of the Company in good faith). For purposes of the foregoing definition, 'Relevant Assets' means filmed entertainment or programming assets currently owned by the Company or any of its subsidiaries (other than TWE) or which the Company or any of its subsidiaries (other than TWE) currently has an agreement to acquire. 'Nationally Recognized Investment Banking Firm' means an investment banking firm having a national reputation in the United States which shall have experience in valuation or securities rating matters, as the case may be, and which shall be approved by a majority of the members of the Board of Directors of the Company who are not officers or employees of the Company or its subsidiaries, including TWE. 'Parity Stock' means the Company's Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, Series G Preferred Stock, Series H Preferred Stock, Series I Preferred Stock, Series K Preferred Stock, Series M Preferred Stock and all classes of capital stock established after the initial issuance of the Series M Preferred Stock by the Company's Board of Directors that by their terms are pari passu with the Series M Preferred Stock. The terms of any Series L Preferred Stock will provide that they are pari passu with the Series M Preferred Stock. 'Preceding Record Date' means (i) with respect to the First Dividend Payment Date, the date twenty days prior to the last dividend payment date for the Series K Preferred Stock prior to the issuance of the Series M Preferred Stock and (ii) with respect to any other Dividend Payment Date, the Record Date applicable to the immediately preceding Dividend Payment Date. 'Pro Rata Percentage' means, as of any date, a fraction, the numerator of which shall be the aggregate liquidation preference of the outstanding shares of Series M Preferred Stock as of such date, plus accumulated and unpaid dividends thereon, and the denominator of which shall be the Cumulative Priority Capital of the TWE Series B Capital as of such date; provided that the Pro Rata Percentage as of any date prior to the issuance of the Series M Preferred Stock, means a fraction, the numerator of which shall be the aggregate liquidation preference as of such date of the outstanding shares of Series K Preferred Stock which Series K Preferred Stock have been exchanged for shares of Series M Preferred G-2 Stock in the Exchange Offer, plus accumulated and unpaid dividends thereon, and the denominator of which shall be the Cumulative Priority Capital of the TWE Series B Capital as of such date. In calculating the Pro Rata Percentage in connection with the final mandatory redemption or upon an Insolvency of TWE, the Cumulative Priority Capital of the TWE Series B Capital shall be increased by the sum of all Tax Distributions (other than Included Tax Distributions) made by TWE to the Company (and its subsidiaries) following the issuance of the Series K Preferred Stock with respect to the TWE Series B Capital. 'Rating Confirmation' means either (i) a confirmation from each of Moody's Investors Service, Inc. or any successor to its rating agency business ('Moody's') and Standard and Poor's Corporation or any successor to its rating agency business ('S&P') that any contemplated redemption or exchange by the Company would not result in a downgrade of its rating of the Company's senior unsecured long-term debt, or (ii) a good faith determination by the Board of Directors of the Company or any committee thereof (after consultation with a Nationally Recognized Investment Banking Firm) that any contemplated redemption or exchange by the Company should not result in a downgrade in the rating of the Company's senior unsecured long-term debt by either Moody's or S&P. 'Redeemable Number' means, with respect to any Mandatory Redemption Date, a number (rounded down to the nearest whole number) of shares of Series M Preferred Stock equal to (i) the Pro Rata Percentage (determined as of the June 30 occurring one year and one day prior to such Mandatory Redemption Date without giving effect to the Series B Redemption occurring on such date) of the amount of (a) cash distributions received by the Company (and its subsidiaries) in respect of the Series B Redemption occurring on such June 30, plus (b) cash distributions received by the Company in respect of its TWE Junior Capital from such June 30 to such Mandatory Redemption Date, divided by (ii) the liquidation preference of $1,000 per share plus accumulated and accrued and unpaid dividends thereon; provided, however, that in no event shall the Redeemable Number exceed 20%, 25%, 33 1/3% and 50% of the number of shares of Series M Preferred Stock outstanding on the Mandatory Redemption Dates occurring on July 1 of 2012, 2013, 2014 and 2015, respectively. 'Reorganization of TWE' means (i) any merger or consolidation of TWE or any sale of all or substantially all of the assets of TWE, (ii) the liquidation, winding up or dissolution of TWE other than as a result of the Insolvency of TWE, (iii) the making of any distributions, in cash or other property (other than cash distributions in accordance with the TWE Partnership Agreement), on the partnership interests in TWE from and after the date of initial issuance of the Series K Preferred Stock having an aggregate fair market value (together with any such prior distributions) in excess of $500,000,000 as determined by the Board of Directors of the Company in good faith, (iv) any transaction or series of related transactions which results in a sale or transfer of 10% or more of the total assets of TWE (excluding asset swaps and contributions to subsidiaries or joint ventures, other than joint ventures with any existing partner of TWE that is not a subsidiary of the Company) unless such sale or transfer is made at fair market value, the net proceeds of such sale or transfer are substantially in cash and such cash is used to repay debt or is reinvested in the business of TWE, (v) any transfer in the beneficial ownership of a class of partnership interests in TWE that would result in the Company (directly or indirectly) owning (after giving effect to any reductions permitted by clause (a) or (b)) less than 90% or more than 110% of its percentage ownership interest in any class as of the date of initial issuance of the Series K Preferred Stock, other than any change resulting from (a) cash distributions in accordance with the TWE Partnership Agreement or (b) the issuance of partnership interests upon exercise of the U S WEST Option, (vi) any material reduction in voting or management rights of the Company (and its subsidiaries) in TWE, (vii) any issuance of additional partnership interests which rank senior to the TWE Series B Capital (other than (a) the TWE Contingent Capital, (b) partnership interests issued upon exercise of the U S WEST Option or (c) partnership interests having a fair market value (together with any such prior issuances) no greater than $500,000,000, as determined by the Board of Directors of the Company in good faith, issued in connection with any contribution of assets to TWE), it being understood that allocations of income or accretion with respect to the capital accounts associated with the outstanding partnership interests shall not be considered issuances of additional partnership interests in TWE, (viii) any amendment (other than an amendment to effectuate an issuance permitted by clause (vii)(c) above) to the TWE Partnership Agreement that adversely affects the allocation of income, payment of distributions, priority capital rate of return or the priority of the TWE Series B G-3 Capital or (ix) the six month anniversary of a Material Contribution of Assets which does not otherwise result in the occurrence of an event specified in (i) through (viii) above. 'Reorganization Redemption/Exchange Date' means, with respect to any Reorganization of TWE, the first Dividend Payment Date following the 90th day after such Reorganization of TWE; provided that if such first Dividend Payment Date occurs on or prior to the 30th day following such 90th day, then the Reorganization Redemption/Exchange Date means the second Dividend Payment Date following the 90th day after such Reorganization of TWE. 'Reorganization Redemption Price' means 110% of the liquidation preference of the Series K Preferred Stock, plus accumulated and accrued and unpaid dividends, or, if the Series M Preferred Stock may be redeemed at the option of the Company at such time, the optional redemption price then in effect. 'Series B Redemption' means the distributions with respect to the TWE Series B Capital on June 30 of each of 2011, 2012, 2013, 2014 and 2015. 'Tax Distributions' means cash distributions to the Company (and its subsidiaries) required to be made under the TWE Partnership Agreement to the partners of TWE to permit them to pay taxes at assumed statutory rates on their allocations of income from TWE. 'TWE Insolvency Valuation' means the average of the determinations of two Nationally Recognized Investment Banking Firms with respect to the fair market values, as of the Insolvency Distribution Date, of any non-cash distributions from TWE received by the Company (and its subsidiaries) upon a liquidation, winding up or distribution of TWE as a result of the Insolvency of TWE. The Nationally Recognized Investment Banking Firms shall be selected by the Company within 30 days following the Insolvency Distribution Date and shall render their opinions within 90 days following such Insolvency Distribution Date. For purposes of the foregoing, (i) the fair market value of such non-cash distributions shall be based on the price at which such property would be sold in an arm's length transaction between a willing buyer and a willing seller, and to the extent such property comprises an operating business, it shall be valued on a going concern basis; and (ii) such value shall be increased by the sum of all Tax Distributions other than Included Tax Distributions made by TWE to the Company (and its subsidiaries) following the initial issuance of the Series K Preferred Stock with respect to the TWE Series B Capital. 'TWE Valuation' means the average of the determinations of two Nationally Recognized Investment Banking Firms with respect to the fair market values of the assets of TWE as of June 30, 2015 (without giving effect to the Series B Redemption or any distribution in respect of TWE Junior Capital occurring on such date). The Nationally Recognized Investment Banking Firms shall be selected by the Company within 90 days following the final Series B Redemption Date and shall render their opinions within 150 days following the final Series B Redemption Date. For purposes of the foregoing, (i) the fair market value of the assets of TWE shall be determined on a going concern basis, assuming that each division of TWE is sold in a separate arm's length transaction between a willing buyer and a willing seller; and (ii) such value shall be increased by the sum of all Tax Distributions (other than Included Tax Distributions) made by TWE following the issuance of the Series K Preferred Stock with respect to the TWE Series B Capital. G-4 ________________________________________________________________________________ NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Available Information..................................................... 3 Incorporation of Certain Documents by Reference........................... 3 Prospectus Summary........................................................ 5 Risk Factors.............................................................. 15 The Company............................................................... 17 TWE Partnership Interests................................................. 19 Recent Developments....................................................... 22 Consolidated Capitalization............................................... 24 Selected Historical and Pro Forma Financial Information................... 28 Exchange Offer............................................................ 33 Plan of Distribution...................................................... 40 Description of Series M Preferred Stock................................... 40 Description of Series L Preferred Stock................................... 46 Description of Senior Subordinated Debentures............................. 47 Description of Outstanding Capital Stock.................................. 52 Certain Federal Income Tax Considerations................................. 54 Legal Opinion............................................................. 60 Experts................................................................... 60 Glossary of Significant Terms............................................. G-1
TIME WARNER INC. -------------------------- PROSPECTUS -------------------------- , 1996 ________________________________________________________________________________ PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 102(b)(7) of the Delaware General Corporation Law (the 'DGCL'), enables a corporation in its original certificate of incorporation or an amendment thereto to eliminate or limit the personal liability of a director to the corporation or its stockholders for monetary damages for violations of the director's fiduciary duty, except (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL (providing for liability of directors for unlawful payment of dividends or unlawful stock purchases or redemptions) or (iv) for any transaction from which a director derived an improper personal benefit. Section 1, Article X of the Company's Certificate of Incorporation eliminates the liability of directors to the extent permitted by Section 102(b)(7). Section 145(a) of the DGCL empowers a corporation to indemnify any director or officer, or former director or officer, who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding provided that such director or officer acted in good faith in a manner reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, provided further that such director or officer had no reasonable cause to believe his conduct was unlawful. Section 145(b) empowers a corporation to indemnify any director or officer, or former director or officer, who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys' fees) actually and reasonably incurred in connection with the defense or settlement of such action or suit provided that such director or officer acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification may be made in respect of any claim, issue or matter as to which such director or officer shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or that court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all of the circumstances of the case, such director or officer is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 145 further provides that to the extent a director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to in subsections (a) and (b) or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith; that indemnification and advancement of expenses provided for, by, or granted pursuant to, Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled, and empowers the corporation to purchase and maintain insurance on behalf of any person who is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liabilities under Section 145. Article VI of the Company's By-Laws requires indemnification to the fullest extent permitted under applicable law of any person who is or was a director or officer of the Company or who is or was involved or threatened to be made so involved in any action, suit or proceeding, whether criminal, civil, II-1 administrative or investigative, by reason of the fact that such person is or was serving as a director, officer or employee of the Company or any predecessor of the Company or was serving at the request of the Company as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise. The Company's Directors' and Officers' Liability and Reimbursement Insurance Policy is designed to reimburse the Company for any payments made by it pursuant to the foregoing indemnification. Such policy has coverage of $50 million. The Purchase Agreement, dated April 2, 1996 between the Company and the Initial Purchasers, contains provisions by which the Initial Purchasers agree to indemnify the Company, the Company's stockholders, the Company's officers and directors and each person who controls the Company within the meaning of the Securities Act of 1933 against certain liabilities. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. Exhibits. 4.1 -- Certificate of the Voting Powers, Designations, Preferences and Relative, Participating, Optional or Other Special Rights, and Qualifications, Limitations or Restrictions thereof, of 10 1/4% Series K Exchangeable Preferred Stock of the Registrant filed with the Secretary of State of the State of Delaware on April 10, 1996 (which is incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated April 11, 1996 (the 'April 11, 1996 8-K')).* 4.2 -- Form of Certificate of the Voting Powers, Designations, Preferences and Relative, Participating, Optional or Other Special Rights, and Qualifications, Limitations or Restrictions thereof, of 10 1/4% Series M Exchangeable Preferred Stock of the Registrant. 4.3 -- Form of Certificate of the Voting Powers, Designations, Preferences and Relative, Participating, Optional or Other Special Rights, and Qualifications, Limitations or Restrictions thereof, of 10 1/4% Series L Exchangeable Preferred Stock of the Registrant filed with the Secretary of State of the State of Delaware on April 10, 1996 (which is incorporated by reference herein to Exhibit A of Exhibit 4.1 to the April 11, 1996 8-K).* 4.4 -- Form of Senior Subordinated Indenture (which is incorporated herein by reference to Exhibit 4.2 to the April 11, 1996 8-K).* 4.5 -- Specimen certificate of share of Series M Preferred Stock. 4.6 -- Specimen certificate of share of Series L Preferred Stock. 5 -- Opinion of Paul, Weiss, Rifkind, Wharton & Garrison regarding the legality of the securities being registered. 12.1 -- Statement re computation of ratio of earnings to fixed charges for Time Warner Inc. 12.2 -- Statement re computation of ratio of earnings to fixed charges and preferred stock dividends for Time Warner Inc. 12.3 -- Statement re computation of ratio of earnings to fixed charges for Time Warner Entertainment Company, L.P. 23.1 -- Consent of Ernst & Young LLP, Independent Auditors. 23.2 -- Consent of Price Waterhouse LLP, Independent Accountants. 23.3 -- Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in their opinion filed as Exhibit 5). 23.4 -- Consent of Arthur Andersen LLP, Independent Public Accountants. 23.5 -- Consent of Deloitte & Touche LLP, Independent Auditors. 23.6 -- Consent of Price Waterhouse LLP, Independent Accountants. 24.1 -- Power of Attorney. 99.1 -- Registration Rights Agreement, dated April 11, 1996, among Time Warner Inc. and Bear, Stearns & Co. Inc. and Morgan Stanley & Co. Incorporated. 99.2 -- Form of Letter of Transmittal. 99.3 -- Form of Notice of Guaranteed Delivery. 99.4 -- Form of Exchange Agency Agreement between the Exchange Agent and Time Warner Inc.
- ------------ * Incorporated by reference II-2 ITEM 22. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of each of the registrants pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrants of expenses incurred or paid by a director, officer or controlling person of the registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of their respective counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the Prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request. The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired or involved therein, that was not the subject of and included in the Registration Statement when it became effective. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the Securities offered therein, and the offering of such Securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the Securities being registered which remain unsold at the termination of the offering. The undersigned registrant hereby undertakes to file an application for the purpose of determining the eligibility of the trustee to act under subsection (a) of section 310 of the Trust Indenture Act in accordance with the rules and regulations prescribed by the Commission under section 305(b)(2) of the Act. II-3 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on May 22, 1996. TIME WARNER INC. By /s/ Peter R. Haje .................................. PETER R. HAJE EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY Pursuant to the requirements of the Securities Act, this Registration Statement has been signed below by the following persons in the capacities and on May 22, 1996.
SIGNATURE TITLE ---------- ----- * Director, Chairman of the Board and Chief Executive Officer ......................................... (principal executive officer) (GERALD M. LEVIN) * Director and President ......................................... (RICHARD D. PARSONS) /s/ Richard J. Bressler Senior Vice President and Chief Financial Officer ......................................... (principal financial officer) (RICHARD J. BRESSLER) /s/ John A. LaBarca Vice President and Controller ......................................... (principal accounting officer) (JOHN A. LABARCA) * Director ......................................... (MERV ADELSON) * Director ......................................... (LAWRENCE B. BUTTENWIESER) * Director ......................................... (BEVERLY SILLS GREENOUGH) * Director ......................................... (CARLA A. HILLS) * Director ......................................... (DAVID T. KEARNS) * Director ......................................... (REUBEN MARK) * Director ......................................... (MICHAEL A. MILES) * Director ......................................... (J. RICHARD MUNRO)
II-4
SIGNATURE TITLE --------- ------ * Director ......................................... (DONALD S. PERKINS) * Director ......................................... (RAYMOND S. TROUBH) * Director ......................................... (FRANCIS T. VINCENT, JR.) *By /s/ Peter R. Haje ..................................... (ATTORNEY-IN-FACT)
II-5 EXHIBIT INDEX
LOCATION OF EXHIBIT IN SEQUENTIAL EXHIBIT NUMBERING NUMBER DESCRIPTION OF DOCUMENT SYSTEM - ------ ----------------------- ---------- 4.1 -- Certificate of the Voting Powers, Designations, Preferences and Relative, Participating, * Optional or Other Special Rights, and Qualifications, Limitations or Restrictions thereof, of 10 1/4% Series K Exchangeable Preferred Stock of the Registrant filed with the Secretary of State of the State of Delaware on April 10, 1996 (which is incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated April 11, 1996 (the 'April 11, 1996 8-K')).*............................................................... 4.2 -- Form of Certificate of the Voting Powers, Designations, Preferences and Relative, Participating, Optional or Other Special Rights, and Qualifications, Limitations or Restrictions thereof, of 10 1/4% Series M Exchangeable Preferred Stock of the Registrant. 4.3 -- Form of Certificate of the Voting Powers, Designations, Preferences and Relative, * Participating, Optional or Other Special Rights, and Qualifications, Limitations or Restrictions thereof, of 10 1/4% Series L Exchangeable Preferred Stock of the Registrant filed with the Secretary of State of the State of Delaware on April 10, 1996 (which is incorporated by reference herein to Exhibit A of Exhibit 4.1 to the April 11, 1996 8-K).*... 4.4 -- Form of Senior Subordinated Indenture (which is incorporated herein by reference to Exhibit * 4.2 to the April 11, 1996 8-K).*............................................................ 4.5 -- Specimen certificate of share of Series M Preferred Stock. 4.6 -- Specimen certificate of share of Series L Preferred Stock. 5 -- Opinion of Paul, Weiss, Rifkind, Wharton & Garrison regarding the legality of the securities being registered. 12.1 -- Statement re computation of ratio of earnings to fixed charges for Time Warner Inc. 12.2 -- Statement re computation of ratio of earnings to fixed charges and preferred stock dividends for Time Warner Inc. 12.3 -- Statement re computation of ratio of earnings to fixed charges for Time Warner Entertainment Company, L.P. 23.1 -- Consent of Ernst & Young LLP, Independent Auditors. 23.2 -- Consent of Price Waterhouse LLP, Independent Accountants. 23.3 -- Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in their opinion filed as Exhibit 5). 23.4 -- Consent of Arthur Andersen LLP, Independent Public Accountants. 23.5 -- Consent of Deloitte & Touche LLP, Independent Auditors. 23.6 -- Consent of Price Waterhouse LLP, Independent Accountants. 24.1 -- Power of Attorney. 99.1 -- Registration Rights Agreement, dated April 11, 1996, among Time Warner Inc. and Bear, Stearns & Co. Inc. and Morgan Stanley & Co. Incorporated. 99.2 -- Form of Letter of Transmittal. 99.3 -- Form of Notice of Guaranteed Delivery. 99.4 -- Form of Exchange Agency Agreement between the Exchange Agent and Time Warner Inc.
- ------------ * Incorporated by reference. II-6 EX-4 2 EXHIBIT 4.2 [FORM OF] CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF, OF 10 1/4% SERIES M EXCHANGEABLE PREFERRED STOCK OF TIME WARNER INC. ---------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware -------------- TIME WARNER INC., a corporation organized and existing by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify that the following resolution was duly adopted by action of the Board of Directors of the Corporation, with the provisions thereof fixing the number of shares of the series, the dividend rate, and the optional redemption prices being set by action of the Pricing Committee of the Board of Directors of the Corporation: RESOLVED that pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation by the provisions of Section 2 of Article IV of the Restated Certificate of Incorporation of the Corporation, as amended from time to time (the "Certificate of Incorporation"), and pursuant to authority expressly delegated to the Pricing Committee of the Board of Directors of the Corporation by such Board of Directors, and pursuant to Section 151(g) of the General Corporation Law of the State of Delaware, there be created from the 250,000,000 shares of Preferred Stock, par value $1.00 per share (the "Preferred Stock"), of the Corporation authorized to be issued pursuant to the Certificate of Incorporation, a series of Preferred Stock, consisting of 15,200,000 shares of 10 1/4% Series M Exchangeable Preferred Stock, the voting powers, designations, preferences and relative, participating, optional or other special rights of which, and qualifications, limitations or restrictions thereof, shall be as follows: The series of Preferred Stock hereby established shall consist of 15,200,000 shares of 10 1/4% Series M Exchangeable Preferred Stock (such series being hereinafter referred to as "Series M Preferred Stock" or "this Series"). The rights, preferences and limitations of the Series M Preferred Stock shall be as follows: 1. Definitions. As used herein, the following terms shall have the following meanings: 1.1 "Accrued Dividends" shall mean, with respect to any share of this Series, as of any specified date, the accrued and unpaid dividends on such share plus, with respect to any share of the Series issued in exchange for a share of Series K Preferred Stock, any accrued and unpaid dividends on the share of Series K Preferred Stock that was exchanged for such share of this Series from the Dividend Accrual Date applicable to such share to such specified date. 1.2 "Accumulated Dividends" shall mean, with respect to any share of this Series, as of any specified date, the aggregate accumulated and unpaid dividends on such share plus, with respect to any share of the Series issued in exchange for a share of Series K Preferred Stock, any accumulated and unpaid dividends on the share of Series K Preferred Stock that was exchanged for such share of this Series from the Dividend Accumulation Date applicable to such share until the most recent Dividend Payment Date (or, with respect to any share of this Series issued in exchange for a share of Series K Preferred Stock the most recent dividend payment date applicable to the share of Series K Preferred Stock that was exchanged for such share of this Series, if such specified date is prior to the first Dividend Payment Date); provided that there shall be no Accumulated Dividends with respect to any share of this Series prior to the first Dividend Payment Date applicable to such share (or, if applicable, the first dividend payment date applicable to the share of Series K Preferred Stock exchanged for such share of this Series). 1.3 "Applicable Series B Redemption Date" shall mean, with respect to any Mandatory Redemption Date, the Series B Redemption Date occurring one year and one day prior to such Mandatory Redemption Date. 1.4 "Board of Directors" shall mean the Board of Directors of the Corporation or, with respect to any action to be taken by the Board of Directors, any committee of the Board of Directors duly authorized to take such action. 1.5 "Board of Representatives of TWE" shall mean the Board of Representatives of TWE (as defined in the TWE Partnership Agreement). 1.6 "Business Day" shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law or executive order to close. 1.7 "Change of Control" shall mean: (i) whenever, in any three-year period, a majority of the members of the Board of Directors elected during such three-year period shall have been so elected against the recommendation of the management of the Corporation or the Board of Directors in office immediately prior to such election; it being understood that for purposes of this clause (i) a member of such Board of Directors shall be deemed to have been elected against the recommendation of such Board of Directors if his or her initial election occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of 2 proxies or consents by or on behalf of a Person other than such Board of Directors; or (ii) whenever any Person shall acquire (whether by merger, consolidation, sale, assignment, lease, transfer or otherwise, in one transaction or any related series of transactions) or otherwise beneficially own voting securities of the Corporation that represent in excess of 50% of the voting power of all outstanding voting securities of the Corporation generally entitled to vote for the election of directors, if such Person had acquired or publicly announced its intention to initially acquire ten percent or more of such voting securities in a transaction that had not, within 30 days after the date of such acquisition or public announcement, been approved by the management of the Corporation. 1.8 "Common Stock" shall mean the class of Common Stock, par value $1.00 per share, of the Corporation or any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or as a result of a subdivision or combination. 1.9 "Cumulative Priority Capital of the TWE Series B Interests" shall mean, as of any date, the excess of (a) the sum of (i) the aggregate B Contributions (as defined in the TWE Partnership Agreement) of the Corporation (and its subsidiaries) and (ii) the aggregate cumulative B Returns (as defined in the TWE Partnership Agreement) of the Corporation (and its subsidiaries) as of such date, over (b) the sum of all distributions theretofore made to the Corporation (and its subsidiaries) with respect to the TWE Series B Interests pursuant to the TWE Partnership Agreement. 1.10 "Dividend Accumulation Date" shall mean (a) with respect to any share of this Series issued in exchange for a share of Series K Preferred Stock, the date on which such share of Series K Preferred Stock was issued and (b) with respect to any other share of this Series, the Issue Date applicable to such share. 1.11 "Dividend Accrual Date" shall mean (a) with respect to any share of this Series issued in exchange for a share of Series K Preferred Stock, (i) the most recent Dividend Payment Date or (ii) prior to the first Dividend Payment Date applicable to such share of this Series, the most recent dividend payment date applicable to the share of Series K Preferred Stock in exchange for which such share of this Series was issued; and (b) with respect to any other share of this Series, (i) the most recent Dividend Payment Date or (ii) prior to the first Dividend Payment Date applicable to such share of this Series, the Issue Date applicable to such share. 3 1.12 "Dividend Payment Date" shall mean March 30, June 30, September 30 and December 30 of each year, commencing on the first such date to occur following the Initial Issue Date (the "First Dividend Payment Date").*/ 1.13 "Dividend Record Date" shall mean, with respect to each Dividend Payment Date, the twentieth day immediately preceding such Dividend Payment Date. 1.14 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 1.15 "Excluded Tax Distributions" shall mean, with respect to any period, all Tax Distributions made by TWE during such period other than Included Tax Distributions. 1.16 "Final Redemption Date" shall mean July 1, 2016. 1.17 "Included Tax Distributions" shall mean, with respect to any period, Tax Distributions made by TWE during such period with respect to the TWE Series B Interests, but only if the total distributions made by TWE during such period with respect to the TWE Series B Interests exceed such Tax Distributions. 1.18 "Initial Issue Date" shall mean the date on which shares of this Series are first issued in exchange for shares of Series K Preferred Stock. 1.19 "Insolvency Distribution Date" shall mean the date of the completion of the liquidation, winding up or dissolution of TWE upon the Insolvency of TWE, including the distribution of all of the cash and non-cash assets to the partners of TWE. 1.20 "Insolvency of TWE" shall mean: (i) the entry by a court having jurisdiction in the premises of (a) a decree or order for relief in respect of TWE in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or (b) a decree or order adjudging TWE a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of TWE under any applicable federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of TWE or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, - ---------- */ The definition of First Dividend Payment Date as well as certain of the dividend provisions contained in Section 2 assume that the Exchange Offer will not close between a Dividend Record Date and a Dividend Payment Date for the Series K Preferred Stock. 4 and the continuance of any such decree or order for relief or any such other decree or order under either clause (a) or (b) above unstayed and in effect for a period of 60 consecutive days; or (ii) the commencement by TWE of a voluntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of TWE in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal or state law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of TWE or of any substantial part of its property, or the making by it of a general assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the adoption of a resolution by the Board of Representatives of TWE to take any of the foregoing actions. 1.21 "Insolvency Redemption Amount" shall mean an amount equal to the lesser of (i) the sum of (a) the Pro Rata Percentage as of the Insolvency Distribution Date, multiplied by the sum of cash distributions and non-cash distributions (the value of which shall be determined pursuant to a TWE Insolvency Valuation) received by the Corporation (and its subsidiaries) with respect to its TWE Series B Interests and its TWE Junior Interests in connection with such liquidation, winding up or dissolution in accordance with the TWE Partnership Agreement, and (b) an amount equal to the aggregate dividends payable during the period from the Insolvency Distribution Date to the Insolvency Redemption Date on the shares of Series M Preferred Stock outstanding from time to time during such period and (ii) the aggregate Liquidation Preference of the outstanding shares of Series M Preferred Stock plus Accumulated Dividends and Accrued Dividends thereon. 1.22 "Insolvency Redemption Amount Per Share" shall mean an amount equal to (i) the Insolvency Redemption Amount divided by (ii) the number of shares of Series M Preferred Stock outstanding on the Insolvency Redemption Date. 1.23 "Insolvency Redemption Date" shall mean the day that is one year and one day following the Insolvency Distribution Date. 1.24 "Issue Date" shall mean, with respect to each share of Series M Preferred Stock, the date upon which such share is first issued. 1.25 "Junior Stock" shall mean the Common Stock, the Series A Participating Cumulative Preferred Stock and the shares of any other class or 5 series of stock of the Corporation created after the Initial Issue Date that, by the terms of the Certificate of Incorporation or of the instrument by which the Board of Directors, acting pursuant to authority granted in the Certificate of Incorporation, shall fix the relative rights, preferences and limitations thereof, shall be junior to the Series M Preferred Stock in respect of the right to receive dividends or to participate in any other distribution of assets. 1.26 "Liquidation Preference" shall mean, with respect to each share of Series M Preferred Stock, $1,000. 1.27 "Mandatory Redemption Amount" shall mean an amount equal to (i) the Pro Rata Percentage (determined as of June 30, 2015 without giving effect to the Series B Redemption occurring on such date) multiplied by the amount (as determined by a TWE Valuation) that the Corporation (and its subsidiaries) would have received in accordance with the TWE Partnership Agreement with respect to its TWE Series B Interests and its TWE Junior Interests, had TWE sold all of its assets and liquidated on June 30, 2015, plus (ii) the aggregate dividends payable from July 1, 2015 to July 1, 2016 on the shares of Series M Preferred Stock from time to time outstanding during such period. 1.28 "Mandatory Redemption Amount Per Share" shall mean an amount equal to (i) the Mandatory Redemption Amount divided by (ii) the number of shares of Series M Preferred Stock outstanding on the Final Redemption Date. 1.29 "Mandatory Redemption Date" shall mean July 1 of each of 2012, 2013, 2014 and 2015. 1.30 "Mandatory Redemption Price Per Share" shall mean an amount equal to the Liquidation Preference of each share of Series M Preferred Stock to be redeemed, plus Accumulated Dividends and Accrued Dividends thereon. 1.31 "Material Contribution of Assets" shall mean a contribution to TWE in a single transaction or a series of related transactions of Relevant Assets, the fair market value of which (net of associated debt) is in excess of $1,000,000,000 (as determined by the Board of Directors in good faith). 1.32 "Nationally Recognized Investment Banking Firm" shall mean an investment banking firm having a national reputation in the United States which shall have experience in valuation or securities rating matters, as the case may be, and which shall be approved by a majority of the members of the Board of Directors who are not officers or employees of the Corporation or its subsidiaries, including TWE. 1.33 "Optional Redemption Price Per Share" shall mean, as of any date, the price at which the Corporation may, at its option, redeem one share of the Series M Preferred Stock pursuant to Section 3.1. 6 1.34 "Parity Stock" shall mean the shares of the Corporation's Series B 6.40% Preferred Stock, Series C Convertible Preferred Stock, Series D Convertible Preferred Stock, Series E Convertible Preferred Stock, Series F Convertible Preferred Stock, Series G Convertible Preferred Stock, Series H Convertible Preferred Stock, Series I Convertible Preferred Stock, Series K Preferred Stock, Series M Preferred Stock and any other class or series of stock of the Corporation created after the Initial Issue Date that, by the terms of the Certificate of Incorporation or of the instrument by which the Board of Directors, acting pursuant to authority granted in the Certificate of Incorporation, shall fix the relative rights, preferences and limitations thereof, shall, in the event that the stated dividends thereon are not paid in full, be entitled to share ratably with the Series M Preferred Stock in the payment of dividends, including accumulations, if any, in accordance with the sums which would be payable on such shares if all dividends were declared and paid in full, or shall, in the event that the amounts payable thereon in liquidation are not paid in full, be entitled to share ratably with the Series M Preferred Stock in any other distribution of assets in accordance with the sums which would be payable in such distribution if all sums payable were discharged in full; provided, however, that the term "Parity Stock" shall be deemed to refer (i) in Section 2.3 hereof, to any stock which is Parity Stock in respect of dividend rights; (ii) in Section 10 hereof, to any stock which is Parity Stock in respect of the distribution of assets; and (iii) in Section 9.1 hereof, to any stock which is Parity Stock in respect of either dividend rights or the distribution of assets and which, pursuant to the Certificate of Incorporation or any instrument in which the Board of Directors, acting pursuant to authority granted in the Certificate of Incorporation, shall so designate, is entitled to vote as part of the Voting Rights Class. 1.35 "Person" shall mean any individual, corporation, general partnership, limited partnership, limited liability partnership, joint venture, association, joint-stock company, trust, limited liability company, unincorporated organization or government or any agency or political subdivision thereof. 1.36 "Preceding Dividend Record Date" shall mean (i) with respect to the First Dividend Payment Date, the date that is twenty days prior to the last dividend payment date for the Series K Preferred Stock prior to the Initial Issue Date, and (ii) with respect to any other Dividend Payment Date, the Dividend Record Date applicable to the immediately preceding Dividend Payment Date. 1.37 "Pro Rata Percentage" shall mean, as of any date, a fraction, the numerator of which shall be the aggregate Liquidation Preference of the outstanding shares of Series M Preferred Stock as of such date, plus Accumulated Dividends thereon, and the denominator of which shall be the Cumulative Priority Capital of the TWE Series B Interests as of such date; provided that the Pro Rata Percentage, as of any date prior to the Initial Issue Date, means a fraction, the numerator of which shall be the aggregate liquidation preference as of such date of the outstanding shares of Series K Preferred Stock that were exchanged for shares of Series M Preferred Stock on the Initial Issue Date, plus Accumulated Dividends 7 thereon, and the denominator of which shall be the Cumulative Priority Capital of the TWE Series B Interests as of such date. In calculating the Pro Rata Percentage in connection with the mandatory redemption on the Final Redemption Date or upon an Insolvency of TWE, the Cumulative Priority Capital of the TWE Series B Interests shall be increased by the sum of all Tax Distributions (other than Included Tax Distributions) made by TWE to the Corporation (and its subsidiaries) following April 11, 1996 with respect to the TWE Series B Interests. 1.38 "Rating Confirmation" shall mean either (i) a confirmation from each of Moody's Investors Service, Inc. or any successor to its rating agency business ("Moody's") and Standard and Poor's Corporation or any successor to its rating agency business ("S&P") that any contemplated redemption or exchange by the Corporation would not result in a downgrade of its rating of the Corporation's senior unsecured long-term debt, or (ii) a good faith determination by the Board of Directors or any committee thereof (after consultation with a Nationally Recognized Investment Banking Firm) that any contemplated redemption or exchange by the Corporation should not result in a downgrade in the rating of the Corporation's senior unsecured long-term debt by either Moody's or S&P. 1.39 "Redeemable Number" shall mean, with respect to any Mandatory Redemption Date, a number (rounded down to the nearest whole number) of shares of Series M Preferred Stock equal to (i) the Pro Rata Percentage (as of the Applicable Series B Redemption Date without giving effect to the Series B Redemption occurring on such date) of the amount of (a) cash distributions received by the Corporation (and its subsidiaries) in respect of the Series B Redemption occurring on the Applicable Series B Redemption Date, plus (b) cash distributions received by the Corporation in respect of its TWE Junior Interests from the Applicable Series B Redemption Date to such Mandatory Redemption Date, divided by (ii) the Liquidation Preference per share of Series M Preferred Stock plus Accumulated Dividends and Accrued Dividends thereon; provided, however, that in no event shall the Redeemable Number exceed 20%, 25%, 33 1/3% and 50% of the number of shares of Series M Preferred Stock outstanding on the Mandatory Redemption Dates occurring on July 1 of 2012, 2013, 2014 and 2015, respectively. 1.40 "Relevant Assets" shall mean filmed entertainment or programming assets currently owned by the Corporation or any of its subsidiaries (other than TWE) or which the Corporation or any of its subsidiaries (other than TWE) currently has an agreement to acquire. 1.41 "Reorganization of TWE" shall mean (i) any merger or consolidation of TWE or any sale of all or substantially all of the assets of TWE, (ii) the liquidation, winding up or dissolution of TWE other than as a result of the Insolvency of TWE, (iii) the making of any distributions, in cash or other property (other than cash distributions in accordance with the TWE Partnership Agreement), on the partnership interests in TWE from and after April 11, 1996 having an aggregate fair market value (together with any such prior distributions) in excess of 8 $500,000,000 as determined by the Board of Directors in good faith, (iv) any transaction or series of related transactions which results in a sale or transfer of 10% or more of the total assets of TWE (excluding asset swaps and contributions to subsidiaries or joint ventures, other than joint ventures with any partner of TWE as of the Initial Issue Date that is not a subsidiary of the Company) unless such sale or transfer is made at fair market value, the proceeds of such sale or transfer are substantially in cash and such cash is used to repay debt or is reinvested in the business of TWE, (v) any transfer in the beneficial ownership of a class of partnership interests in TWE that would result in the Corporation (directly or indirectly) owning (after giving effect to any reductions permitted by clauses (a) or (b) of this clause (v)) less than 90% or more than 110% of its percentage ownership interest in such class of partnership interests in TWE as of April 11, 1996, other than any change resulting from (a) cash distributions in accordance with the TWE Partnership Agreement or (b) the issuance of partnership interests in TWE upon exercise of the U S WEST Option, (vi) any material reduction in voting or management rights of the Corporation (and its subsidiaries) in TWE, (vii) any issuance of additional partnership interests in TWE which rank senior to the TWE Series B Interests (other than (a) the TWE Contingent Interests, (b) partnership interests in TWE issued upon exercise of the U S WEST Option or (c) partnership interests in TWE having a fair market value (together with any such prior issuances) no greater than $500,000,000, as determined by the Board of Directors in good faith, issued in connection with any contribution of assets to TWE), it being understood that allocations of income or accretion with respect to the capital accounts associated with the outstanding partnership interests in TWE shall not be considered issuances of additional partnership interests in TWE, (viii) any amendment to the TWE Partnership Agreement (other than an amendment to effectuate an issuance of partnership interests in TWE permitted by clause (vii)(c) above) that adversely affects the allocation of income or payment of distributions to, or priority capital rate of return or priority of, the TWE Series B Interests or (ix) the date that is six months following the occurrence of a Material Contribution of Assets which does not otherwise result in the occurrence of an event specified in clauses (i) through (viii) above. 1.42 "Reorganization Redemption/Exchange Date" means, with respect to any Reorganization of TWE, the first Dividend Payment Date following the 90th day after such Reorganization of TWE; provided that if such first Dividend Payment Date occurs on or prior to the 30th day following such 90th day, then the Reorganization Redemption/Exchange Date means the second Dividend Payment Date following the 90th day after such Reorganization of TWE. 1.43 "Reorganization Redemption Price Per Share" shall mean, with respect to each share of Series M Preferred Stock, (i) (a) 110% of the Liquidation Preference thereof, plus (b) Accumulated Dividends and Accrued Dividends thereon, or (ii) if the Series M Preferred Stock may be redeemed at the option of the Corporation at such time, the Optional Redemption Price Per Share then in effect. 9 1.44 "Senior Stock" shall mean the shares of any class or series of stock of the Corporation created after the Initial Issue Date that, by the terms of the Certificate of Incorporation or of the instrument by which the Board of Directors, acting pursuant to authority granted in the Certificate of Incorporation, shall fix the relative rights, preferences and limitations thereof, shall be senior to the Series M Preferred Stock in respect of the right to receive dividends or to participate in any other distribution of assets. 1.45 "Series B Redemption" shall mean each distribution with respect to the TWE Series B Interests in accordance with Section 8.4(c)(ii) of the TWE Partnership Agreement. 1.46 "Series B Redemption Date" shall mean June 30 of each of 2011, 2012, 2013, 2014 and 2015. 1.47 "Series L Preferred Stock" shall mean the Corporation's 10-1/4% Series L Exchangeable Preferred Stock which may be issued after the Initial Issue Date upon a Reorganization of TWE pursuant to Section 6.1(i), and which shall have the voting powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions as are set forth in a certificate of designation substantially in the form attached hereto as Exhibit A. 1.48 "Tax Distributions" shall mean cash distributions made to the Corporation (and its subsidiaries) pursuant to Section 8.5 of the TWE Partnership Agreement. 1.49 "TBS Merger Agreement" shall mean the Amended and Restated Agreement and Plan of Merger dated as of September 22, 1995, among the Corporation, certain of its subsidiaries and Turner Broadcasting System, Inc., as the same may be amended from time to time. 1.50 "TBS Transaction" shall mean the transactions contemplated by the TBS Merger Agreement. 1.51 "TWE" shall mean Time Warner Entertainment Company, L.P., a Delaware limited partnership. 1.52 "TWE Contingent Interests" shall mean the partnership interests in TWE associated with the C Sub-Accounts and the D Sub-Accounts (each as defined in the TWE Partnership Agreement) of the Corporation (and its subsidiaries). 1.53 "TWE Insolvency Valuation" shall mean the average of the determinations of two Nationally Recognized Investment Banking Firms with respect to the fair market value, as of the Insolvency Distribution Date, of each non-cash distribution from TWE received by the Corporation (and its subsidiaries) upon a 10 liquidation, winding up or dissolution of TWE upon the Insolvency of TWE. The Nationally Recognized Investment Banking Firms shall be selected by the Corporation within 30 days following the Insolvency Distribution Date and shall render their opinions within 90 days following the Insolvency Distribution Date. For purposes of the foregoing, (i) the fair market value of such non-cash distributions shall be based on the price at which such property would be sold in an arm's-length transaction between a willing buyer and a willing seller, and to the extent such property comprises an operating business, it shall be valued on a going concern basis; and (ii) such value shall be increased by the sum of all Tax Distributions (other than Included Tax Distributions) made by TWE to the Corporation (and its subsidiaries) following April 11, 1996 with respect to the TWE Series B Interests. 1.54 "TWE Junior Interests" shall mean the TWE Residual Interests together with the TWE Contingent Interests. 1.55 "TWE Partnership Agreement" shall mean that certain Agreement of Limited Partnership, dated as of October 29, 1991, as the same may be amended from time to time. 1.56 "TWE Residual Interests" shall mean the partnership interests in TWE associated with the Common Sub-Accounts (as defined in the TWE Partnership Agreement) of the Corporation (and its subsidiaries). 1.57 "TWE Series A Interests" shall mean the partnership interests in TWE associated with the A Sub-Accounts (as defined in the TWE Partnership Agreement) of the Corporation (and its subsidiaries). 1.58 "TWE Series B Interests" shall mean the partnership interests in TWE associated with the B Sub-Accounts (as defined in the TWE Partnership Agreement) of the Corporation (and its subsidiaries). 1.59 "TWE Valuation" shall mean the average of the determinations of two Nationally Recognized Investment Banking Firms with respect to the fair market value of the assets of TWE as of June 30, 2015 (without giving effect to the Series B Redemption or any distribution in respect of the TWE Junior Interests occurring on such date). The Nationally Recognized Investment Banking Firms shall be selected by the Corporation by September 28, 2015 and shall render their opinions by November 27, 2015. For purposes of the foregoing, (i) the fair market value of the assets of TWE shall be determined on a going concern basis, assuming that each division of TWE is sold in a separate arm's-length transaction between a willing buyer and a willing seller; and (ii) such value shall be increased by the sum of all Tax Distributions (other than Included Tax Distributions) made by TWE to the Corporation (and its subsidiaries) following April 11, 1996 with respect to the TWE Series B Interests. 11 1.60 "U S WEST Option" shall mean the option granted to U S WEST, Inc., a Delaware corporation, to increase its share of the partnership interests in TWE pursuant to the Option Agreement, dated as of September 15, 1992, between TWE and U S WEST, Inc. 1.61 "Voting Rights Triggering Event" shall mean the failure of the Corporation to (i) pay dividends on the Series M Preferred Stock in cash, or to the extent permitted by its terms, by the issuance of additional shares of Series M Preferred Stock, for more than six consecutive quarterly dividend periods or (ii) discharge any redemption or exchange obligation with respect to the Series M Preferred Stock. 2. Dividends. 2.1 The holders of shares of the outstanding Series M Preferred Stock shall be entitled, when, as and if declared by the Board of Directors out of funds legally available therefor, to receive dividends on each outstanding share of Series M Preferred Stock. Except as otherwise provided in this Section 2.1, each quarter-annual dividend shall be an amount per share (rounded to the nearest $.01) equal to $25.625 per $1,000 Liquidation Preference of Series M Preferred Stock and shall be payable on each Dividend Payment Date, to the holders of record of Series M Preferred Stock at the close of business on the Dividend Record Date applicable to such Dividend Payment Date, commencing on the First Dividend Payment Date. Holders of shares of Series K Preferred Stock exchanged for shares of Series M Preferred Stock will not be entitled to receive any payments with respect to unpaid dividends on the shares of Series K Preferred Stock so exchanged. Notwithstanding the foregoing, on the First Dividend Payment Date, each share of Series M Preferred Stock that was issued in exchange for a share of Series K Preferred Stock shall entitle the holder thereof to receive, when, as and if declared by the Board of Directors out of funds legally available therefor dividends in an amount to equal to the cumulative dividends to which the holder of the share of Series K Preferred Stock in exchange for which such share of Series M Preferred Stock was issued would have been entitled had such share of Series K Preferred Stock been outstanding on the Dividend Record Date for such First Dividend Payment Date. Such dividends shall be cumulative and shall accrue on a day-to-day basis, whether or not earned or declared, from and after the Issue Date applicable to each share of this Series. Dividends on the Series M Preferred Stock which are not declared and paid when due will compound quarterly on each Dividend Payment Date at the dividend rate. Dividends payable for any partial dividend period shall be computed on the basis of actual days elapsed over a 365- (or 366-) day year. 2.2 Dividends may, at the option of the Corporation, be paid on any Dividend Payment Date either in cash or by issuing fully paid and nonassessable shares of Series M Preferred Stock with an aggregate Liquidation Preference equal to the amount of such dividends; provided, however, that dividends payable on any Dividend Payment Date shall be paid (i) in cash, to the extent of an amount equal to the Pro Rata Percentage as of the Preceding Dividend Record Date multiplied by the amount of cash distributions, other than Excluded Tax Distributions, if any, received by the Corporation (and its subsidiaries) with respect to its TWE 12 Series B Interests and TWE Junior Interests on or after the Preceding Dividend Record Date to but not including, the current Dividend Record Date, and (ii) in Series M Preferred Stock or cash, at the Corporation's option, to the extent of any balance. 2.3 Except as hereinafter provided in this Section 2.3, no full dividends or other distributions may be declared or paid or set apart for payment on Series M Preferred Stock or any other Parity Stock, and no Parity Stock, including the Series M Preferred Stock, may be repurchased, exchanged, redeemed or otherwise acquired by the Corporation, nor may funds be set apart for payment with respect thereto, unless full cumulative dividends shall have been paid or set apart for such payment on, and all applicable redemption, exchange and repurchase obligations shall have been satisfied with respect to, all outstanding shares of Series M Preferred Stock and such other Parity Stock; provided that dividends or distributions may be made on Parity Stock if they are payable in Junior Stock, and Parity Stock may be converted into or exchanged for Parity Stock (having no greater preference upon liquidation) or Junior Stock; and provided further that if the Company shall have satisfied all applicable redemption, exchange and repurchase obligations with respect to all outstanding shares of Series M Preferred Stock and other Parity Stock, but if full dividends are not so paid, the Series M Preferred Stock shall share dividends with all other Parity Stock, so that the amount of dividends declared per share on Series M Preferred Stock and all such other Parity Stock shall in all cases bear to each other the same ratio that full cumulative dividends per share on the shares of Series M Preferred Stock and all such other Parity Stock bear to each other. No dividends or other distributions may be paid or set apart for such payment on Junior Stock, and no Junior Stock may be repurchased, exchanged, redeemed or otherwise acquired nor may funds be set apart for payment with respect thereto, if full cumulative dividends have not been paid on, or any applicable redemption, exchange or repurchase obligations shall not have been satisfied with respect to, the Series M Preferred Stock and all other Parity Stock; provided that dividends or distributions may be made on Junior Stock if they are payable-in-kind in additional shares of, or warrants, rights, calls or options exercisable for or convertible into additional shares of Junior Stock; and provided further that Junior Stock may be converted into or exchanged for Junior Stock. 2.4 Holders of shares of Series M Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full cumulative dividends, as herein provided, on the Series M Preferred Stock. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series M Preferred Stock which may be in arrears (it being understood that the compounding of unpaid dividends shall not constitute money in lieu of interest). 2.5 To the extent that the amount of any quarter-annual dividend payable to a holder of Series M Preferred Stock (in respect of all shares held by such holder) that is payable in additional shares of Series M Preferred Stock, valued at the Liquidation Preference thereof, does not equal a whole number of shares 13 of Series M Preferred Stock, such fractional amount shall be paid in cash to such holder of Series M Preferred Stock. 3. Optional Redemption. 3.1 At any time on or after July 1, 2006, the Corporation may, at its sole option, subject to the provisions of Sections 2.3 and 3.2, redeem, out of funds legally available therefor, all or any part of the outstanding shares of Series M Preferred Stock. The redemption prices for each share of Series M Preferred Stock called for redemption during the 12-month periods commencing on July 1 of the years set forth below shall be the amount (expressed as a percentage of the Liquidation Preference thereof) set forth opposite such years, plus Accumulated Dividends and Accrued Dividends thereon to the redemption date.
Period Percentage of Liquidation Preference ------ ------------------------------------ 2006 105.125% 2007 103.844% 2008 102.563% 2009 101.281% 2010 and thereafter 100.000%
3.2 No optional redemption shall be effected unless the Corporation shall have obtained a Rating Confirmation with respect to such redemption. 4. Mandatory Redemption. 4.1 On each Mandatory Redemption Date, the Corporation shall redeem, out of funds legally available therefor, the Redeemable Number of shares of Series M Preferred Stock with respect to such Mandatory Redemption Date at the Mandatory Redemption Price Per Share. 4.2 On the Final Redemption Date, the Corporation shall redeem, out of funds legally available therefor, each of the then outstanding shares of Series M Preferred Stock at the lesser of the Mandatory Redemption Amount Per Share and the Mandatory Redemption Price Per Share; provided that if the Corporation does not obtain a TWE Valuation within 120 days following the final Series B Redemption Date, the Corporation shall redeem, out of funds legally available therefor, such shares at the Mandatory Redemption Price Per Share; and provided further that, if the TWE Series B Interests have been fully redeemed in accordance with the TWE Partnership Agreement, the Corporation shall redeem, out of funds legally available therefor, such shares at the Mandatory Redemption Price Per Share. 14 4.3 Upon the redemption of all of the outstanding shares of Series M Preferred Stock on the Final Redemption Date pursuant to Section 4.2, the Corporation's obligations with respect thereto will be discharged. 5. Redemption upon Insolvency of TWE. 5.1 In the event of a liquidation, winding up or dissolution of TWE upon the Insolvency of TWE, the Corporation shall redeem, out of funds legally available therefor, each of the outstanding shares of Series M Preferred Stock on the Insolvency Redemption Date at the Insolvency Redemption Amount Per Share. 5.2 Upon such redemption, the Corporation's obligation with respect to the Series M Preferred Stock will be discharged. 6. Reorganization of TWE. 6.1 In the event of a Reorganization of TWE, on the Reorganization Redemption/Exchange Date, the Corporation shall either (at its election) (i) exchange each outstanding share of Series M Preferred Stock for shares of Series L Preferred Stock having an aggregate liquidation preference of $1,000 plus the Accumulated Dividends and Accrued Dividends on such share of Series M Preferred Stock so exchanged (the "Reorganization Exchange") or (ii) redeem, out of funds legally available therefor, each outstanding share of Series M Preferred Stock at the Reorganization Redemption Price Per Share (the "Reorganization Redemption"); provided, however, that the Corporation may not effect a Reorganization Redemption prior to July 1, 2011 unless the Corporation shall have obtained a Rating Confirmation with respect to such Reorganization Redemption; and provided, further, that the Corporation may not effect a Reorganization Exchange on or after July 1, 2011. Within 90 days after a Reorganization of TWE, the Corporation shall make a public announcement that a Reorganization of TWE has occurred and as to whether it will effect a Reorganization Exchange or Reorganization Redemption. 6.2 The Corporation shall be entitled to effect a Reorganization Exchange only to the extent that upon issuance of shares of Series L Preferred Stock such shares shall be duly authorized and validly issued, fully paid and nonassessable shares of Series L Preferred Stock. Certificates for shares of Series L Preferred Stock issued in exchange for surrendered shares of this Series pursuant to a Reorganization Exchange shall be made available by the Corporation not later than the fifth Business Day following the Reorganization Redemption/Exchange Date. 6.3 Prior to giving notice of its intention to effect a Reorganization Exchange, the Corporation shall execute and file with the Secretary of State of the State of Delaware a Certificate of Designation substantially in the form of Exhibit A hereto relating to the Series L Preferred Stock, with such changes as may be required by law or that would not adversely affect the interests of the holders of the Series L Preferred Stock. 15 6.4 To the extent that in connection with a Reorganization Exchange any holder of Series M Preferred Stock shall be entitled to receive, in respect of all of its shares of Series M Preferred Stock, a number of shares of Series L Preferred Stock that does not equal a whole number of shares, then such holder shall receive cash in lieu of such fractional amount. 7. Procedure for Redemption or Exchange. 7.1 In the event the Corporation shall elect or be required to redeem or exchange shares of Series M Preferred Stock pursuant to Sections 3, 4, 5 or 6 hereof, notice of such redemption or exchange shall be given by first-class mail, not less than 30 nor more than 60 days prior to the redemption or exchange date, to each record holder of the shares to be redeemed or exchanged, at such holder's address as the same appears on the books of the Corporation. Each such notice shall state: (i) whether the redemption or exchange is pursuant to Section 3, 4, 5 or 6 hereof; (ii) the time and date as of which the redemption or exchange shall occur; (iii) the total number of shares of Series M Preferred Stock to be redeemed or exchanged and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iv) in the case of a redemption, the redemption price; (v) the place or places where certificates for such shares are to be surrendered for payment of the redemption price in the case of a redemption, or for delivery of certificates representing shares of Series L Preferred Stock in the case of an exchange; (vi) that dividends on the shares to be redeemed will cease to accrue on such redemption or exchange date unless the Corporation defaults in the payment of the redemption price or fails to satisfy its exchange obligation; and (vii) in the case of redemption, the name of any bank or trust company, if any, performing the duties referred to in Section 7.3. 7.2 On or before any redemption or exchange date, each holder of shares of Series M Preferred Stock to be redeemed or exchanged shall surrender the certificate or certificates representing such shares of Series M Preferred Stock to the Corporation, in the manner and at the place designated in the notice of redemption or exchange, and on the redemption or exchange date, the full redemption price or shares of Series L Preferred Stock, as the case may be, for such shares of Series M Preferred Stock shall be paid or delivered to the Person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be returned to authorized but unissued shares. Upon surrender (in accordance with the notice of redemption or exchange) of the certificate or certificates representing any shares to be so redeemed or exchanged (properly endorsed or assigned for transfer, if the Corporation shall so require and the notice of redemption or exchange shall so state), such shares shall be redeemed by the Corporation at the redemption price or exchanged by the Corporation for shares of Series L Preferred Stock. If fewer than all the shares represented by any such certificate are to be redeemed, a new certificate shall be issued representing the unredeemed shares, 16 without cost to the holder thereof, together with the amount of cash, if any, in lieu of fractional shares. 7.3 If a notice of redemption or exchange shall have been given as provided in Section 7.1, dividends on the shares of Series M Preferred Stock so called for redemption shall cease to accrue, such shares shall no longer be deemed to be outstanding, and all rights of the holders thereof as stockholders of the Corporation with respect to shares so called for redemption or exchange (except the right to receive from the Corporation the redemption price or the Series L Preferred Stock without interest) shall cease (including any right to receive dividends otherwise payable on any Dividend Payment Date that would have occurred after the time and date of redemption or exchange) either (i) from and after the time and date fixed in the notice of redemption or exchange as the time and date of redemption or exchange (unless the Corporation shall default in the payment of the redemption price or shall fail to satisfy its exchange obligation, in which case such rights shall not terminate at such time and date) or (ii) if the Corporation shall so elect and state in the notice of redemption, from and after the time and date (which date shall be the date fixed for redemption or an earlier date not less than 30 days after the date of mailing of the redemption notice) on which the Corporation shall irrevocably deposit in trust for the holders of the shares to be redeemed with a designated bank or trust company doing business in the Borough of Manhattan, City and State of New York, as paying agent, money sufficient to pay at the office of such paying agent, on the redemption date, the redemption price. Any money so deposited with any such paying agent which shall not be required for such redemption shall be returned to the Corporation forthwith. Subject to applicable escheat laws, any moneys so set aside by the Corporation and unclaimed at the end of one year from the redemption date shall revert to the general funds of the Corporation, after which reversion the holders of such shares so called for redemption shall look only to the general funds of the Corporation for the payment of the redemption price without interest. Any interest accrued on funds so deposited shall be paid to the Corporation from time to time. 7.4 In the event that fewer than all the outstanding shares of Series M Preferred Stock are to be redeemed, the shares to be redeemed shall be determined pro rata or by lot, as determined by the Corporation, except that the Corporation may redeem such shares held by any holder of fewer than 100 shares (or shares held by holders who would hold fewer than 100 shares as a result of such redemption), as may be determined by the Corporation. 8. Change of Control. 8.1 Upon the occurrence of a Change of Control of the Corporation, the Corporation shall make an offer (the "Change of Control Offer") to each holder of Series M Preferred Stock to repurchase, out of funds legally available therefor, all or any part of such holder's Series M Preferred Stock at a purchase price per share in cash equal to 101% of the Liquidation Preference thereof, plus an amount equal to all Accumulated Dividends and Accrued Dividends thereon to the 17 date of purchase. The Change of Control Offer must be made within 30 days following a Change of Control, shall remain open for at least 30 and not more than 40 days and shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other applicable securities laws and regulations. 8.2 In the event the Corporation shall be required to make a Change of Control Offer pursuant to Section 8.1 hereof, notice of such Change of Control Offer shall be given by first-class mail, to each record holder of shares of Series M Preferred Stock, at such holder's address as the same appears on the books of the Corporation. Each such notice shall state: (i) that a Change of Control has occurred; (ii) the last day on which the Change of Control Offer may be accepted (the "Expiration Date"); (iii) the repurchase price; (iv) the name and address of the paying agent; and (v) the procedures that holders must follow to accept the Change of Control Offer. 8.3 On or before the Expiration Date, each holder of shares of Series M Preferred Stock wishing to accept the Change of Control Offer shall surrender the certificate or certificates representing such shares of Series M Preferred Stock that such holder wishes to have repurchased to the Corporation, in the manner and at the place designated in the notice described in Section 8.2, and on the repurchase date, the full repurchase price for such shares of Series M Preferred Stock shall be payable to the Person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be returned to authorized but unissued shares. Upon surrender (in accordance with the notice described in Section 8.2) of the certificate or certificates representing any shares to be so repurchased (properly endorsed or assigned for transfer, if the Corporation shall so require and the notice of a Change of Control Offer shall so state), such shares shall be repurchased by the Corporation at the repurchase price. In case fewer than all the shares represented by any such certificate are to be repurchased, a new certificate shall be issued representing the non-repurchased shares, without cost to the holder thereof, together with the amount of cash, if any, in lieu of fractional shares. 9. Voting. 9.1 The shares of Series M Preferred Stock shall have no voting rights except as required by law or as set forth below: (a) If and whenever at any time or times, a Voting Rights Triggering Event occurs, then the number of directors constituting the Board of Directors shall be increased by two (without duplication of any such increase in directorships required under the terms of any other Parity Stock) and the holders of shares of Series M Preferred Stock, voting or consenting, as the case may be, together as a class with the holders of any shares of Parity Stock entitled to vote thereon and as to which (i) dividends are in arrears or unpaid in an aggregate amount equal to or exceeding the amount of dividends payable thereon for six quarterly dividend periods or (ii) redemption or exchange obligations have not been satisfied 18 (together with the Series M Preferred Stock, the "Voting Rights Class"), will be entitled to elect two directors of the Corporation to fill the newly created directorships. (b) Such voting rights may be exercised initially either by written consent or at a special meeting of the holders of the shares of the Voting Rights Class, called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing directors, and thereafter at each such annual meeting until such time as all dividends in arrears on the shares of this Series shall have been paid in full and/or all redemption or exchange obligations have been satisfied, as applicable, at which time or times such voting rights and the term of the directors elected pursuant to Section 9.1(a) shall terminate. (c) At any time when such voting rights shall have vested in holders of shares of the Voting Rights Class described in Section 9.1(a), and if such rights shall not already have been exercised by written consent, a proper officer of the Corporation may call, and, upon the written request of the record holders of shares representing twenty-five percent (25%) of the voting power of the shares then outstanding of the Voting Rights Class, addressed to the Secretary of the Corporation, shall call a special meeting of the holders of shares of Voting Rights Class. Such meeting shall be held at the earliest practicable date upon the notice required for annual meetings of stockholders at the place for holding annual meetings of stockholders of the Corporation, or, if none, at a place designated by the Board of Directors. Notwithstanding the provisions of this Section 9.1(c), no such special meeting shall be called during a period within the 60 days immediately preceding the date fixed for the next annual meeting of stockholders. (d) At any meeting held for the purpose of electing directors at which the holders of the Voting Rights Class shall have the right to elect directors as provided herein, the presence in person or by proxy of the holders of shares representing more than fifty percent (50%) in voting power of the then outstanding shares of the Voting Rights Class shall be required and shall be sufficient to constitute a quorum of such class for the election of directors by such class. (e) Any director elected pursuant to the voting rights created under this Section 9.1 shall hold office until the next annual meeting of stockholders (unless such term has previously terminated pursuant to Section 9.1(b)) and any vacancy in respect of any such director shall be filled only by vote of the remaining director so elected by holders of the Voting Rights Class, or if there be no such remaining director, by the holders of shares of the Voting Rights Class by written consent or at a special meeting called in accordance with the procedures set forth in this Section 9, or, if no such special meeting is called or written consent executed, at the next annual meeting of stockholders. Upon any termination of such voting rights, the term of office of all directors elected pursuant to this Section 9 shall terminate. 19 (f) So long as any shares of Series M Preferred Stock remain outstanding, unless a greater percentage shall then be required by law, the Corporation shall not, without the affirmative vote at a meeting or the written consent with or without a meeting of the holders of shares of Series M Preferred Stock representing at least a majority of the outstanding shares of Series M Preferred Stock voting or consenting, as the case may be, separately as one class, (i) create, authorize or issue any Senior Stock or (ii) amend the Certificate of Designation or the Certificate of Incorporation so as to affect adversely the specified rights, preferences, privileges or voting rights of holders of shares of Series M Preferred Stock. The holders of at least a majority of the outstanding shares of Series M Preferred Stock, voting or consenting, as the case may be, separately as one class, may waive compliance with any provision of the Certificate of Designation. (g) In exercising the voting rights set forth in this Section 9.1, each share of Series M Preferred Stock shall have a number of votes equal to its Liquidation Preference. 9.2 Except as set forth in Section 9.1, the Corporation may (a) create, authorize or issue any shares of Junior Stock or Parity Stock or (b) increase or decrease the amount of authorized capital stock of any class, including any preferred stock, without the consent of the holders of Series M Preferred Stock, voting or consenting separately as a class, and in taking the actions specified in (a) and (b) the Corporation shall not be deemed to have affected adversely the rights, preferences, privileges or voting rights of holders of shares of Series M Preferred Stock. 10. Liquidation Rights. 10.1 In the event of any liquidation, dissolution or winding- up of the Corporation, whether voluntary or involuntary, the holders of the shares of Series M Preferred Stock shall be entitled to receive out of the assets of the Corporation available for distribution to stockholders up to their Liquidation Preference of $1,000 per share plus Accumulated Dividends and Accrued Dividends thereon in preference to the holders of, and before any distribution is made on, any Junior Stock, including, without limitation on any Common Stock. 10.2 Neither the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all the property and assets of the Corporation nor the merger or consolidation of the Corporation into or with any other corporation, or the merger or consolidation of any other corporation into or with the Corporation, shall be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, for the purposes of this Section 10. 10.3 After the payment to the holders of the shares of Series M Preferred Stock of full preferential amounts provided for in this Section 10, the 20 holders of Series M Preferred Stock as such shall have no right or claim to any of the remaining assets of the Corporation. 10.4 In the event the assets of the Corporation available for distribution to the holders of shares of Series M Preferred Stock upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to Section 10.1, no such distribution shall be made on account of any shares of any Parity Stock upon such liquidation, dissolution or winding up unless proportionate distributable amounts shall be paid on account of the shares of Series M Preferred Stock, ratably, in proportion to the full distributable amounts for which holders of all Parity Stock are entitled upon such liquidation, dissolution or winding up. 11. Merger, Consolidation and Sale of Assets. Subject to the next sentence, without the affirmative vote or consent of the holders of at least a majority of the outstanding shares of Series M Preferred Stock, voting or consenting, as the case may be, separately as one class, the Corporation may not consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, any Person unless: (a) the Person formed by such consolidation or merger (if other than the Corporation) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made shall be a corporation organized or existing under the laws of the United States or any State thereof or the District of Columbia; (b) each share of Series M Preferred Stock shall be converted into or exchanged for and shall become a share of such successor, transferee or resulting corporation or a parent corporation of such corporation, having in respect of such successor, transferee or resulting corporation or parent corporation substantially the same powers, preferences and relative participating, optional or other special rights, and the qualifications, limitations or restrictions thereon, that the Series M Preferred Stock had immediately prior to such transaction; and (c) immediately after giving effect to such transaction, no Voting Rights Triggering Event shall have occurred or be continuing. The consummation of the TBS Transaction pursuant to the TBS Merger Agreement will not require the affirmative vote or consent of the holders of shares of the Series M Preferred Stock. 12. Transfer Agent and Registrar. The transfer agent and registrar (the "Transfer Agent") for the Series M Preferred Stock shall be Chemical Mellon Shareholder Services, L.L.C. The Corporation may, in its sole discretion, remove the Transfer Agent with 10 days' prior written notice to the Transfer Agent and appoint a successor Transfer Agent prior to such removal. 13. Covenant to Report. Notwithstanding that the Corporation may not be subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act, the Corporation will provide the Transfer Agent and the holders of Series M Preferred Stock with all information, documents and reports specified in Section 13 and Section 15(d) of the Exchange Act. 21 14. Other Provisions. 14.1 With respect to any notice to a holder of shares of Series M Preferred Stock required to be provided hereunder, neither failure to mail such notice, nor any defect therein or in the mailing thereof, to any particular holder shall affect the sufficiency of the notice or the validity of the proceedings referred to in such notice with respect to the other holders or affect the legality or validity of any distribution, right, warrant, reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up, or the vote upon any such action. Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the holder receives the notice. 14.2 Shares of Series M Preferred Stock issued and reacquired will, upon compliance with the applicable requirements of Delaware law, have the status of authorized but unissued shares of Preferred Stock of the Corporation undesignated as to series and may with any and all other authorized but unissued shares of Preferred Stock of the Corporation be designated or redesignated and issued or reissued, as the case may be, as part of any series of Preferred Stock of the Corporation, except that any issuance or reissuance of shares of Series M Preferred Stock must be in compliance with the Certificate of Designation. 14.3 The shares of Series M Preferred Stock shall be issuable in whole shares. 14.4 The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the holder of shares of Series M Preferred Stock for all purposes. 22 14.5 All notice periods referred to herein shall commence on the date of the mailing of the applicable notice. IN WITNESS WHEREOF, Time Warner Inc. has caused this certificate to be signed and attested this ______ day of ________, 1996. TIME WARNER INC. By: _____________________________________ Name: Title: Attest: __________________________________ Name: Title: 23 Exhibit A [FORM OF] CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF, OF 10 1/4% SERIES L EXCHANGEABLE PREFERRED STOCK OF TIME WARNER INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware TIME WARNER INC., a corporation organized and existing by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify that the following resolution was duly adopted by action of the Board of Directors of the Corporation, with the provisions thereof fixing the number of shares of the series, the dividend rate, and the optional redemption prices being set by action of the Pricing Committee of the Board of Directors of the Corporation: RESOLVED that pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation by the provisions of Section 2 of Article IV of the Restated Certificate of Incorporation of the Corporation, as amended from time to time (the "Certificate of Incorporation"), and pursuant to authority expressly delegated to the Pricing Committee of the Board of Directors of the Corporation by such Board of Directors, and pursuant to Section 151(g) of the General Corporation Law of the State of Delaware, there be created from the 250,000,000 shares of Preferred Stock, par value $1.00 per share (the "Preferred Stock"), of the Corporation authorized to be issued pursuant to the Certificate of Incorporation, a series of Preferred Stock, consisting of [9,000,000] shares of 10 1/4% Series L Exchangeable Preferred Stock, the voting powers, designations, preferences and relative, participating, optional or other special rights of which, and qualifications, limitations or restrictions thereof, shall be as follows: The series of Preferred Stock hereby established shall consist of [9,000,000] shares of 10 1/4% Series L Exchangeable Preferred Stock (such series being hereinafter referred to as "Series L Preferred Stock" or "this Series"). The rights, preferences and limitations of the Series L Preferred Stock shall be as follows: 1. Definitions. As used herein, the following terms shall have the following meanings: 1.1 "Accrued Dividends" shall mean, with respect to any share of this Series, as of any date, the accrued and unpaid dividends on such share from the most recent Dividend Payment Date (or the Issue Date applicable to such share, if such date is prior to the first Dividend Payment Date applicable to such share) to such date. 1.2 "Accumulated Dividends" shall mean, with respect to any share of this Series, as of any date, the aggregate accumulated and unpaid dividends on such share from the Issue Date applicable to such share until the most recent Dividend Payment Date prior to such date. There shall be no Accumulated Dividends with respect to any share of this Series prior to the first Dividend Payment Date applicable to such share. 1.3 "Board of Directors" shall mean the Board of Directors of the Corporation or, with respect to any action to be taken by the Board of Directors, any committee of the Board of Directors duly authorized to take such action. 1.4 "Business Day" shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law or executive order to close. 1.5 "Change of Control" shall mean: (i) whenever, in any three-year period, a majority of the members of the Board of Directors elected during such three-year period shall have been so elected against the recommendation of the management of the Corporation or the Board of Directors in office immediately prior to such election; it being understood that for purposes of this clause (i) a member of such Board of Directors shall be deemed to have been elected against the recommendation of such Board of Directors if his or her initial election occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than such Board of Directors; or (ii) whenever any Person shall acquire (whether by merger, consolidation, sale, assignment, lease, transfer or otherwise, in one transaction or any related series of transactions) or otherwise beneficially own voting securities of the Corporation that represent in excess of 50% of the voting power of all outstanding voting securities of the Corporation generally entitled to vote for the election of directors, if such Person had acquired or publicly announced its intention to initially acquire ten percent or more of such voting securities in a transaction that 2 had not, within 30 days after the date of such acquisition or public announcement, been approved by the management of the Corporation. 1.6 "Common Stock" shall mean the class of Common Stock, par value $1.00 per share, of the Corporation or any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or as a result of a subdivision or combination. 1.7 "Debt Exchange" shall mean the exchange of Series L Preferred Stock for Senior Subordinated Debentures pursuant to Section 5. 1.8 "Dividend Payment Date" shall mean March 30, June 30, September 30 and December 30 of each year, commencing on the first such date to occur after the Issue Date. 1.9 "Dividend Record Date" shall mean, with respect to each Dividend Payment Date, the fifteenth day immediately preceding such Dividend Payment Date. 1.10 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 1.11 "Exchange Date" shall mean the date upon which the Debt Exchange occurs. 1.12 "Initial Issue Date" shall mean the first date on which shares of Series L Preferred Stock are issued in exchange for shares of Series K Preferred Stock. 1.13 "Issue Date" shall mean, with respect to each share of Series L Preferred Stock, the date upon which such share is first issued. 1.14 "Junior Stock" shall mean the Common Stock, the Series A Participating Cumulative Preferred Stock and the shares of any other class or series of stock of the Corporation established, authorized or issued after April 11, 1996 that, by the terms of the Certificate of Incorporation or of the instrument by which the Board of Directors, acting pursuant to authority granted in the Certificate of Incorporation, shall fix the relative rights, preferences and limitations thereof, shall be junior to the Series L Preferred Stock in respect of the right to receive dividends or to participate in any other distribution of assets. 1.15 "Liquidation Preference" shall mean, with respect to each share of Series L Preferred Stock, $1,000. 1.16 "Mandatory Redemption Date" shall mean July 1, 2011. 3 1.17 "Mandatory Redemption Price Per Share" shall mean, with respect to each share of Series L Preferred Stock to be redeemed, an amount equal to the Liquidation Preference thereof, plus Accumulated Dividends and Accrued Dividends thereon. 1.18 "Nationally Recognized Investment Banking Firm" shall mean an investment banking firm having a national reputation in the United States which shall have experience in securities rating matters and which shall be approved by a majority of the members of the Board of Directors who are not officers or employees of the Corporation or its subsidiaries, including TWE. 1.19 "New Time Warner" shall mean Holdco (as defined in the TBS Merger Agreement). 1.20 "Optional Redemption Price Per Share" shall mean, as of any date, the price at which the Corporation may, at its option, redeem one share of Series L Preferred Stock pursuant to Section 3.1. 1.21 "Parity Stock" shall mean the shares of the Corporation's Series B 6.40% Preferred Stock, Series C Convertible Preferred Stock, Series D Convertible Preferred Stock, Series E Convertible Preferred Stock, Series F Convertible Preferred Stock, Series G Convertible Preferred Stock, Series H Convertible Preferred Stock, Series I Convertible Preferred Stock, Series K Preferred Stock, Series L Preferred Stock, Series M Preferred Stock and any other class or series of stock of the Corporation created after April 11, 1996 that, by the terms of the Certificate of Incorporation or of the instrument by which the Board of Directors, acting pursuant to authority granted in the Certificate of Incorporation, shall fix the relative rights, preferences and limitations thereof, shall, in the event that the stated dividends thereon are not paid in full, be entitled to share ratably with the Series L Preferred Stock in the payment of dividends, including accumulations, if any, in accordance with the sums which would be payable on such shares if all dividends were declared and paid in full, or shall, in the event that the amounts payable thereon in liquidation are not paid in full, be entitled to share ratably with the Series L Preferred Stock in any other distribution of assets in accordance with the sums which would be payable in such distribution if all sums payable were discharged in full; provided, however, that the term "Parity Stock" shall be deemed to refer (i) in Section 2.3 hereof, to any stock which is Parity Stock in respect of dividend rights; (ii) in Section 9 hereof, to any stock which is Parity Stock in respect of the distribution of assets; and (iii) in Section 8.1 hereof, to any stock which is Parity Stock in respect of either dividend rights or the distribution of assets and which, pursuant to the Certificate of Incorporation or any instrument in which the Board of Directors, acting pursuant to authority granted in the Certificate of Incorporation, shall so designate, is entitled to vote as part of the Voting Rights Class. 1.22 "Person" shall mean any individual, corporation, general partnership, limited partnership, limited liability partnership, joint venture, 4 association, joint-stock company, trust, limited liability company, unincorporated organization or government or any agency or political subdivision thereof. 1.23 "Rating Confirmation" shall mean either (i) a confirmation from each of Moody's Investors Service, Inc. or any successor to its rating agency business ("Moody's") and Standard and Poor's Corporation or any successor to its rating agency business ("S&P") that any contemplated redemption or exchange by the Corporation would not result in a downgrade of its rating of the Corporation's senior unsecured long-term debt, or (ii) a good faith determination by the Board of Directors or any committee thereof (after consultation with a Nationally Recognized Investment Banking Firm) that any contemplated redemption or exchange by the Corporation should not result in a downgrade in the rating of the Corporation's senior unsecured long-term debt by either Moody's or S&P. 1.24 "Senior Stock" shall mean the shares of any class or series of stock of the Corporation created after April 11, 1996 that, by the terms of the Certificate of Incorporation or of the instrument by which the Board of Directors, acting pursuant to authority granted in the Certificate of Incorporation, shall fix the relative rights, preferences and limitations thereof, shall be senior to the Series L Preferred Stock in respect of the right to receive dividends or to participate in any other distribution of assets. 1.25 "Senior Subordinated Debentures" shall mean the 10 1/4% Senior Subordinated Debentures 2011 issued by the Corporation or New Time Warner, as the case may be, pursuant to the Senior Subordinated Indenture. 1.26 "Senior Subordinated Indenture" shall mean an indenture substantially in the form filed as an exhibit to the Corporation's Current Report on Form 8-K dated April 11, 1996. 1.27 "Series K Preferred Stock" shall mean the Corporation's 10 1/4% Series K Exchangeable Preferred Stock in exchange for which shares of this Series were first issued. 1.28 "TBS Merger Agreement" shall mean the Amended and Restated Agreement and Plan of Merger dated as of September 22, 1995, among the Corporation, certain of its subsidiaries and Turner Broadcasting System, Inc., as the same may be amended from time to time. 1.29 "TBS Transaction" shall mean the transactions contemplated by the TBS Merger Agreement. 1.30 "Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as amended. 5 1.31 "TWE" shall mean Time Warner Entertainment Company, L.P., a Delaware limited partnership. 1.32 "Voting Rights Triggering Event" shall mean the failure of the Corporation to (i) pay dividends on the Series L Preferred Stock in cash, or to the extent permitted by its terms, by the issuance of additional shares of Series L Preferred Stock, for more than six consecutive quarterly dividend periods or (ii) discharge any redemption or exchange obligation with respect to the Series L Preferred Stock. 2. Dividends. 2.1 The holders of outstanding shares of Series L Preferred Stock shall be entitled, when, as and if declared by the Board of Directors out of funds legally available therefor, to receive dividends on each outstanding share of Series L Preferred Stock. Each quarter-annual dividend shall be an amount per share (rounded to the nearest $.01) equal to $25.625 per $1,000 Liquidation Preference of Series L Preferred Stock and shall be payable on each Dividend Payment Date, to the holders of record of Series L Preferred Stock at the close of business on the Dividend Record Date applicable to such Dividend Payment Date, commencing on the first Dividend Payment Date following the Initial Issue Date. Such dividends shall be cumulative and shall accrue on a day-to-day basis, whether or not earned or declared, from and after the Issue Date applicable to each share of this Series. Dividends on the Series L Preferred Stock which are not declared and paid when due will compound quarterly on each Dividend Payment Date at the dividend rate. Dividends payable for any partial dividend period shall be computed on the basis of actual days elapsed over a 365- (or 366-) day year. 2.2 With respect to any periods ending on or prior to June 30, 2006, dividends may, at the option of the Corporation, be paid on any Dividend Payment Date either in cash or by issuing fully paid and nonassessable shares of Series L Preferred Stock with an aggregate Liquidation Preference equal to the amount of such dividends (or, in connection with a Debt Exchange, by issuing Senior Subordinated Debentures with an aggregate principal amount equal to the amount of such dividends as provided in Section 5.1). Thereafter, dividends payable on any Dividend Payment Date shall be paid only in cash. 2.3 Except as hereinafter provided in this Section 2.3, no full dividends or other distributions may be declared or paid or set apart for payment on Series L Preferred Stock or any other Parity Stock, and no Parity Stock, including the Series L Preferred Stock, may be repurchased, exchanged, redeemed or otherwise acquired by the Corporation, nor may funds be set apart for payment with respect thereto, unless full cumulative dividends shall have been paid or set apart for such payment on, and all applicable redemption, exchange and repurchase obligations shall have been satisfied with respect to, all outstanding shares of Series L Preferred Stock and such other Parity Stock; provided that dividends or distributions may be made on 6 Parity Stock if they are payable in Junior Stock, and Parity Stock may be converted into or exchanged for Parity Stock (having no greater preference upon liquidation) or Junior Stock; and provided further that if the Company shall have satisfied all applicable redemption, exchange and repurchase obligations with respect to all outstanding shares of Series K Preferred Stock and other Parity Stock, but if full dividends are not so paid, the Series L Preferred Stock shall share dividends with all other Parity Stock, so that the amount of dividends declared per share on Series L Preferred Stock and all such other Parity Stock shall in all cases bear to each other the same ratio that full cumulative dividends per share on the shares of Series L Preferred Stock and all such other Parity Stock bear to each other. No dividends or other distributions may be paid or set apart for such payment on Junior Stock, and no Junior Stock may be repurchased, redeemed, exchanged or otherwise acquired nor may funds be set apart for payment with respect thereto, if full cumulative dividends have not been paid on, or any applicable redemption, exchange or repurchase obligations shall not have been satisfied with respect to, the Series L Preferred Stock and all other Parity Stock; provided that dividends or distributions may be made on Junior Stock if they are payable-in-kind in additional shares of, or warrants, rights, calls or options exercisable for or convertible into additional shares of Junior Stock and; and provided further that Junior Stock may be converted into or exchanged for Junior Stock. 2.4 Holders of shares of Series L Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full cumulative dividends, as herein provided, on the Series L Preferred Stock. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series L Preferred Stock which may be in arrears (it being understood that compounding of unpaid dividends shall not constitute money in lieu of interest). 2.5 To the extent that the amount of any quarter-annual dividend payable to a holder of Series L Preferred Stock (in respect of all shares held by such holder) that is payable in additional shares of Series L Preferred Stock, valued at the Liquidation Preference thereof, does not equal a whole number of shares of Series L Preferred Stock, such fractional amount shall be paid in cash to such holder of Series L Preferred Stock. 3. Optional Redemption. 3.1 At any time on or after July 1, 2006, the Corporation may, at its sole option, subject to the provisions of Sections 2.3 and 3.2, redeem, out of funds legally available therefor, all or any part of the outstanding shares of Series L Preferred Stock. The redemption prices for each share of Series L Preferred Stock called for redemption during the 12-month periods commencing on July 1 of the years set forth below shall be the amount (expressed as a percentage of the Liquidation Preference thereof) set forth opposite such years, plus Accumulated Dividends and Accrued Dividends thereon to the redemption date. 7
Period Percentage of Liquidation Preference 2006 105.125% 2007 103.844% 2008 102.563% 2009 101.281% 2010 and thereafter 100.000%
3.2 No optional redemption shall be effected unless the Corporation shall have obtained a Rating Confirmation with respect to such redemption. 4. Mandatory Redemption. 4.1 On the Mandatory Redemption Date, the Corporation shall redeem, out of funds legally available therefor, each of the then outstanding shares of Series L Preferred Stock as of the Mandatory Redemption Date at the Mandatory Redemption Price Per Share. 4.2 Upon the redemption of all of the outstanding shares of Series L Preferred Stock on the Mandatory Redemption Date pursuant to Section 4.1, the Corporation's obligations with respect thereto will be discharged. 5. Debt Exchange 5.1 On any Dividend Payment Date, subject to the provisions of Sections 2.3 and 5.2, the Corporation may, at its sole option, exchange, out of funds legally available therefor, each of the shares of Series L Preferred Stock, in whole but not in part, for Senior Subordinated Debentures having an aggregate principal amount equal to the Liquidation Preference on the Series L Preferred Stock plus Accrued Dividends thereon. Notwithstanding the foregoing, the Corporation may not exercise such exchange option unless all Accumulated Dividends in respect of shares of Series L Preferred Stock surrendered to the Corporation upon exchange shall have been paid either in cash or, in respect of Accumulated Dividends relating to any Dividend Payment Date prior to July 1, 2006, at the option of the Corporation, in cash, additional shares of Series L Preferred Stock or Senior Subordinated Debentures having a principal amount equal to such amount. 5.2 No Debt Exchange shall be effected unless the Corporation shall have obtained a Rating Confirmation with respect to the Debt Exchange. 5.3 Upon the Debt Exchange, the Corporation shall issue Senior Subordinated Debentures only in denominations of $1,000 and integral 8 multiples thereof and shall pay cash in lieu of issuing Senior Subordinated Debentures in principal amounts of less than $1,000. 5.4 Prior to giving notice of its intention to effect the Debt Exchange, the Corporation shall execute and deliver with a bank or trust company selected by the Corporation, the Senior Subordinated Indenture. 6. Procedure for Redemption or Exchange. 6.1 In the event the Corporation shall elect or be required to redeem or exchange shares of Series L Preferred Stock pursuant to Sections 3, 4 or 5 hereof, notice of such redemption or exchange shall be given by first-class mail, not less than 30 nor more than 60 days prior to the redemption or exchange date, to each record holder of the shares to be redeemed or exchanged, at such holder's address as the same appears on the books of the Corporation. Each such notice shall state: (i) whether the redemption or exchange is pursuant to Section 3, 4 or 5 hereof; (ii) the time and date as of which the redemption or exchange shall occur; (iii) the total number of shares of Series L Preferred Stock to be redeemed or exchanged and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iv) in the case of a redemption, the redemption price; (v) the place or places where certificates for such shares are to be surrendered for payment of the redemption price in the case of a redemption, or for delivery of Senior Subordinated Debentures in the case of the Debt Exchange; (vi) that dividends on the shares to be redeemed will cease to accrue on such redemption or exchange date unless the Corporation defaults in the payment of the redemption price or fails to satisfy its exchange obligation; and (vii) in the case of redemption, the name of any bank or trust company, if any, performing the duties referred to in Section 6.3. 6.2 On or before any redemption or exchange date, each holder of shares of Series L Preferred Stock to be redeemed or exchanged shall surrender the certificate or certificates representing such shares of Series L Preferred Stock to the Corporation, in the manner and at the place designated in the notice of redemption or exchange, and on the redemption or exchange date, the full redemption price or Senior Subordinated Debentures in the principal amount specified in Section 5.1, as the case may be, for such shares of Series L Preferred Stock shall be paid or delivered to the Person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be returned to authorized but unissued shares. Upon surrender (in accordance with the notice of redemption or exchange) of the certificate or certificates representing any shares to be so redeemed or exchanged (properly endorsed or assigned for transfer, if the Corporation shall so require and the notice of redemption or exchange shall so state), such shares shall be redeemed by the Corporation at the redemption price or exchanged by the Corporation for Senior Subordinated Debentures in the principal amount specified in Section 5.1. If fewer than all the shares represented by any such certificate are to be redeemed, a 9 new certificate shall be issued representing the unredeemed shares, without cost to the holder thereof, together with the amount of cash, if any, in lieu of fractional shares. 6.3 If a notice of redemption or exchange shall have been given as provided in Section 6.1, dividends on the shares of Series L Preferred Stock so called for redemption or exchange shall cease to accrue, such shares shall no longer be deemed to be outstanding, and all rights of the holders thereof as stockholders of the Corporation with respect to shares so called for redemption or exchange (except the right to receive from the Corporation the redemption price or the Senior Subordinated Debentures without interest) shall cease (including any right to receive dividends otherwise payable on any Dividend Payment Date that would have occurred after the time and date of redemption or exchange) either (i) from and after the time and date fixed in the notice of redemption or exchange as the time and date of redemption or exchange (unless the Corporation shall default in the payment of the redemption price or shall fail to satisfy its exchange obligation, in which case such rights shall not terminate at such time and date) or (ii) if the Corporation shall so elect and state in the notice of redemption, from and after the time and date (which date shall be the date fixed for redemption or an earlier date not less than 30 days after the date of mailing of the redemption notice) on which the Corporation shall irrevocably deposit in trust for the holders of the shares to be redeemed with a designated bank or trust company doing business in the Borough of Manhattan, City and State of New York, as paying agent, money sufficient to pay at the office of such paying agent, on the redemption date, the redemption price. Any money so deposited with any such paying agent which shall not be required for such redemption shall be returned to the Corporation forthwith. Subject to applicable escheat laws, any moneys so set aside by the Corporation and unclaimed at the end of one year from the redemption date shall revert to the general funds of the Corporation, after which reversion the holders of such shares so called for redemption shall look only to the general funds of the Corporation for the payment of the redemption price without interest. Any interest accrued on funds so deposited shall be paid to the Corporation from time to time. 6.4 In the event that fewer than all the outstanding shares of Series L Preferred Stock are to be redeemed, the shares to be redeemed shall be determined pro rata or by lot, as determined by the Corporation, except that the Corporation may redeem such shares held by any holder of fewer than 100 shares (or shares held by holders who would hold fewer than 100 shares as a result of such redemption), as may be determined by the Corporation. 7. Change of Control. 7.1 Upon the occurrence of a Change of Control of the Corporation, the Corporation shall make an offer (the "Change of Control Offer") to each holder of Series L Preferred Stock to repurchase, out of funds legally available therefor, all or any part of such holder's Series L Preferred Stock at a purchase price per share in cash equal to 101% of the Liquidation Preference thereof, plus an 10 amount equal to all Accumulated Dividends and Accrued Dividends thereon to the date of purchase. The Change of Control Offer must be made within 30 days following a Change of Control, shall remain open for at least 30 and not more than 40 days and shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other applicable securities laws and regulations. 7.2 In the event the Corporation shall be required to make a Change of Control Offer pursuant to Section 7.1 hereof, notice of such Change of Control Offer shall be given by first-class mail, to each record holder of shares of Series L Preferred Stock, at such holder's address as the same appears on the books of the Corporation. Each such notice shall state: (i) that a Change of Control has occurred; (ii) the last day on which the Change of Control Offer may be accepted (the "Expiration Date"); (iii) the repurchase price; (iv) the name and address of the paying agent; and (v) the procedures that holders must follow to accept the Change of Control Offer. 7.3 On or before the Expiration Date, each holder of shares of Series L Preferred Stock wishing to accept the Change of Control Offer shall surrender the certificate or certificates representing such shares of Series L Preferred Stock that such holder wishes to have repurchased to the Corporation, in the manner and at the place designated in the notice described in Section 7.2, and on the repurchase date, the full repurchase price for such shares of Series L Preferred Stock shall be payable to the Person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be returned to authorized but unissued shares. Upon surrender (in accordance with the notice described in Section 7.2) of the certificate or certificates representing any shares to be so repurchased (properly endorsed or assigned for transfer, if the Corporation shall so require and the notice of a Change of Control Offer shall so state), such shares shall be repurchased by the Corporation at the repurchase price. In case fewer than all the shares represented by any such certificate are to be repurchased, a new certificate shall be issued representing the non-repurchased shares, without cost to the holder thereof, together with the amount of cash, if any, in lieu of fractional shares. 8. Voting. 8.1 The shares of Series L Preferred Stock shall have no voting rights except as required by law or as set forth below: (a) If and whenever at any time or times, a Voting Rights Triggering Event occurs, then the number of directors constituting the Board of Directors shall be increased by two (without duplication of any such increase in directorships required under the terms of any other Parity Stock) and the holders of shares of Series L Preferred Stock, voting or consenting, as the case may be, together as a class with the holders of any shares of Parity Stock entitled to vote thereon and as to which (i) dividends are in arrears or unpaid in an aggregate amount equal to or exceeding the amount of dividends payable thereon for six quarterly dividend periods 11 or (ii) redemption or exchange obligations have not been satisfied (together with the Series L Preferred Stock, the "Voting Rights Class"), will be entitled to elect two directors of the Corporation to fill the newly created directorships. (b) Such voting rights may be exercised initially either by written consent or at a special meeting of the holders of the shares of the Voting Rights Class, called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing directors, and thereafter at each such annual meeting until such time as all dividends in arrears on the shares of this Series shall have been paid in full and/or all redemption or exchange obligations have been satisfied, as applicable, at which time or times such voting rights and the term of the directors elected pursuant to Section 8.1(a) shall terminate. (c) At any time when such voting rights shall have vested in holders of shares of the Voting Rights Class described in Section 8.1(a), and if such rights shall not already have been exercised by written consent, a proper officer of the Corporation may call, and, upon the written request of the record holders of shares representing twenty-five percent (25%) of the voting power of the shares then outstanding of the Voting Rights Class, addressed to the Secretary of the Corporation, shall call a special meeting of the holders of shares of Voting Rights Class. Such meeting shall be held at the earliest practicable date upon the notice required for annual meetings of stockholders at the place for holding annual meetings of stockholders of the Corporation, or, if none, at a place designated by the Board of Directors. Notwithstanding the provisions of this Section 8.1(c), no such special meeting shall be called during a period within the 60 days immediately preceding the date fixed for the next annual meeting of stockholders. (d) At any meeting held for the purpose of electing directors at which the holders of the Voting Rights Class shall have the right to elect directors as provided herein, the presence in person or by proxy of the holders of shares representing more than fifty percent (50%) in voting power of the then outstanding shares of the Voting Rights Class shall be required and shall be sufficient to constitute a quorum of such class for the election of directors by such class. (e) Any director elected pursuant to the voting rights created under this Section 8.1 shall hold office until the next annual meeting of stockholders (unless such term has previously terminated pursuant to Section 8.1(b)) and any vacancy in respect of any such director shall be filled only by vote of the remaining director so elected by holders of the Voting Rights Class, or if there be no such remaining director, by the holders of shares of the Voting Rights Class by written consent or at a special meeting called in accordance with the procedures set forth in this Section 8, or, if no such special meeting is called or written consent executed, at the next annual meeting of stockholders. Upon any termination of such voting rights, the term of office of all directors elected pursuant to this Section 8 shall terminate. 12 (f) So long as any shares of Series L Preferred Stock remain outstanding, unless a greater percentage shall then be required by law, the Corporation shall not, without the affirmative vote at a meeting or the written consent with or without a meeting of the holders of shares of Series L Preferred Stock representing at least a majority of the outstanding shares of Series L Preferred Stock voting or consenting, as the case may be, separately as one class, (i) create, authorize or issue any Senior Stock or (ii) amend the Certificate of Designation or the Certificate of Incorporation so as to affect adversely the specified rights, preferences, privileges or voting rights of holders of shares of Series L Preferred Stock. The holders of at least a majority of the outstanding shares of Series L Preferred Stock, voting or consenting, as the case may be, separately as one class, may waive compliance with any provision of the Certificate of Designation. (g) In exercising the voting rights set forth in this Section 8.1, each share of Series L Preferred Stock shall have a number of votes equal to its Liquidation Preference. 8.2 Except as set forth in Section 8.1, the Corporation may (a) create, authorize or issue any shares of Junior Stock or Parity Stock or (b) increase or decrease the amount of authorized capital stock of any class, including any preferred stock, without the consent of the holders of Series L Preferred Stock, voting or consenting separately as a class, and in taking the actions specified in (a) and (b) the Corporation shall not be deemed to have affected adversely the rights, preferences, privileges or voting rights of holders of shares of Series L Preferred Stock. 9. Liquidation Rights. 9.1 In the event of any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, the holders of the shares of Series L Preferred Stock shall be entitled to receive out of the assets of the Corporation available for distribution to stockholders up to their Liquidation Preference of $1,000 per share plus Accumulated Dividends and Accrued Dividends thereon in preference to the holders of, and before any distribution is made on, any Junior Stock, including, without limitation on any Common Stock. 9.2 Neither the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all the property and assets of the Corporation nor the merger or consolidation of the Corporation into or with any other corporation, or the merger or consolidation of any other corporation into or with the Corporation, shall be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, for the purposes of this Section 9. 9.3 After the payment to the holders of the shares of Series L Preferred Stock of full preferential amounts provided for in this Section 9, the holders 13 of Series L Preferred Stock as such shall have no right or claim to any of the remaining assets of the Corporation. 9.4 In the event the assets of the Corporation available for distribution to the holders of shares of Series L Preferred Stock upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to Section 9.1, no such distribution shall be made on account of any shares of any Parity Stock upon such liquidation, dissolution or winding up unless proportionate distributable amounts shall be paid on account of the shares of Series L Preferred Stock, ratably, in proportion to the full distributable amounts for which holders of all Parity Stock are entitled upon such liquidation, dissolution or winding up. 10. Merger, Consolidation and Sale of Assets. Subject to the next sentence, without the affirmative vote or consent of the holders of at least a majority of the outstanding shares of Series L Preferred Stock, voting or consenting, as the case may be, separately as one class, the Corporation may not consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, any Person unless: (a) the Person formed by such consolidation or merger (if other than the Corporation) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made shall be a corporation organized or existing under the laws of the United States or any State thereof or the District of Columbia; (b) each share of Series L Preferred Stock shall be converted into or exchanged for and shall become a share of such successor, transferee or resulting corporation or a parent corporation of such corporation, having in respect of such successor, transferee or resulting corporation or parent corporation substantially the same powers, preferences and relative participating, optional or other special rights, and the qualifications, limitations or restrictions thereon, that the Series L Preferred Stock had immediately prior to such transaction; and (c) immediately after giving effect to such transaction, no Voting Rights Triggering Event shall have occurred or be continuing. The consummation of the TBS Transaction pursuant to the TBS Merger Agreement will not require the affirmative vote or consent of the holders of shares of the Series L Preferred Stock. 11. Transfer Agent and Registrar. The transfer agent and registrar (the "Transfer Agent") for Series L Preferred Stock shall be _______________. The Corporation may, in its sole discretion, remove the Transfer Agent with 10 days' prior written notice to the Transfer Agent and appoint a successor Transfer Agent prior to such removal. 12. Covenant to Report. Notwithstanding that the Corporation may not be subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act, the Corporation will provide the Transfer Agent and the holders of Series L Preferred Stock with all information, documents and reports specified in Section 13 and Section 15(d) of the Exchange Act. 14 13. Other Provisions. 13.1 With respect to any notice to a holder of shares of Series L Preferred Stock required to be provided hereunder, neither failure to mail such notice, nor any defect therein or in the mailing thereof, to any particular holder shall affect the sufficiency of the notice or the validity of the proceedings referred to in such notice with respect to the other holders or affect the legality or validity of any distribution, right, warrant, reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up, or the vote upon any such action. Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the holder receives the notice. 13.2 Shares of Series L Preferred Stock issued and reacquired will, upon compliance with the applicable requirements of Delaware law, have the status of authorized but unissued shares of Preferred Stock of the Corporation undesignated as to series and may with any and all other authorized but unissued shares of Preferred Stock of the Corporation be designated or redesignated and issued or reissued, as the case may be, as part of any series of Preferred Stock of the Corporation, except that any issuance or reissuance of shares of Series L Preferred Stock must be in compliance with the Certificate of Designation. 13.3 The shares of Series L Preferred Stock shall be issuable in whole shares. 13.4 The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the holder of shares of Series L Preferred Stock for all purposes. 15 13.5 All notice periods referred to herein shall commence on the date of the mailing of the applicable notice. IN WITNESS WHEREOF, Time Warner Inc. has caused this certificate to be signed and attested this ______ day of ____________ , _____. TIME WARNER INC. By: --------------------------------------- Name: Title: Attest: - ------------------------ Name: Title: 16 EX-4 3 EXHIBIT 4.5 Exhibit 4.5 SPECIMEN STOCK CERTIFICATE SERIES M SERIES M EXCHANGEABLE PREFERRED EXCHANGEABLE PREFERRED NUMBER SHARES NMI - ------ ------- THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE REGISTRATION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE CORPORATION OR AN AFFILIATE OF THE CORPORATION WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE CORPORATION, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF SUBPARAGRAPHS (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE HAVING AN AGGREGATE LIQUIDATION PREFERENCE OF NOT LESS THAN $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, PROVIDED THAT AN INITIAL INVESTOR THAT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" PURCHASING AS DESCRIBED IN CLAUSE (E) ABOVE SHALL NOT BE PERMITTED TO TRANSFER THIS SECURITY TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPHS (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT; AND SUBJECT TO THE CORPORATION'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO IT, AND IN THE CASE OF ANY OF THE FOREGOING CLAUSES (A)-(F), A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE CORPORATION. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. TIME WARNER INC. THIS CERTIFICATE IS TRANSFERABLE IN NEW YORK, NEW YORK INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS OF THE STATE OF DELAWARE CUSIP___________________ This Certifies that_____________________________________________________________ is the owner of_________________________________________________________________ 2 FULLY PAID AND NON-ASSESSABLE SHARES OF SERIES M EXCHANGEABLE PREFERRED STOCK OF THE PAR VALUE OF $1.00 PER SHARE OF TIME WARNER INC., transferable on the books of the Corporation by said owner in person or by a duly authorized attorney upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Certificate of Incorporation and By-Laws of the Corporation, as amended, to which reference is hereby made with the same effect as if it were herein set forth in full. A copy of said Certificate of Incorporation and By-Laws, as amended, is on file in the office of the Transfer Agent of the Corporation. This certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. In Witness Whereof the Corporation has caused this certificate to be signed by its proper officers and its corporate seal to be hereunto affixed. Dated__________________________ COUNTERSIGNED AND REGISTERED: TIME WARNER INC. CORPORATE SEAL DELAWARE 1983 CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C. TRANSFER AGENT AND REGISTRAR BY __________________________________________ AUTHORIZED OFFICER /s/ Gerald M. Levin - ------------------------------------------------- Chairman of the Board and Chief Executive Officer /s/ Peter R. Haje - ------------------------------------------------- Secretary 3 TIME WARNER INC. THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER UPON REQUEST AND WITHOUT CHARGE, A FULL STATEMENT OF THE DESIGNATION, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND/OR OTHER SPECIAL RIGHTS OF EACH CLASS OF CAPITAL STOCK OR SERIES THEREOF AUTHORIZED TO BE ISSUED AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS, SO FAR AS THE SAME HAVE BEEN FIXED, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DESIGNATE AND FIX THE RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF SERIES OF PREFERRED STOCK. SUCH REQUEST MAY BE MADE EITHER TO THE CORPORATION OR TO THE TRANSFER AGENT. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT - ____________________Custodian____________________ (Cust) (Minor) under Uniform Gifts to Minors Act --------------------- (State) Additional abbreviations may also be used though not in the above list. For value received _____ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE____________________________________________ - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- __________________________________________________________________________Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint _____________________________________Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated ________________________________ ----------------------------------------------------------------------- NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. SPECIMEN STOCK CERTIFICATE SERIES M SERIES M EXCHANGEABLE PREFERRED EXCHANGEABLE PREFERRED NUMBER SHARES NMG - ------ ------ Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Corporation or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL in as much as the registered owner hereof, Cede & Co., has an interest herein. Unless and until it is exchanged in whole or in part for Preferred Stock in definitive registered form, this certificate may not be transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC or any such nominee to a successor Depository or a nominee of such successor Depository. THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE REGISTRATION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE CORPORATION OR AN AFFILIATE OF THE CORPORATION WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE CORPORATION, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF SUBPARAGRAPHS (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE HAVING AN AGGREGATE LIQUIDATION PREFERENCE OF NOT LESS THAN $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, PROVIDED THAT AN INITIAL INVESTOR THAT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" PURCHASING AS DESCRIBED IN CLAUSE (E) ABOVE SHALL NOT BE PERMITTED TO TRANSFER THIS SECURITY TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPHS (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT; AND SUBJECT TO THE CORPORATION'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO IT, AND IN THE CASE OF ANY OF THE FOREGOING CLAUSES (A)-(F), A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE CORPORATION. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. TIME WARNER INC. THIS CERTIFICATE IS TRANSFERABLE IN NEW YORK, NEW YORK INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS OF THE STATE OF DELAWARE CUSIP__________________ This Certifies that_____________________________________________________________ 2 is the owner of_________________________________________________________________ FULLY PAID AND NON-ASSESSABLE SHARES OF SERIES M EXCHANGEABLE PREFERRED STOCK OF THE PAR VALUE OF $1.00 PER SHARE OF TIME WARNER INC., transferable on the books of the Corporation by said owner in person or by a duly authorized attorney upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Certificate of Incorporation and By-Laws of the Corporation, as amended, to which reference is hereby made with the same effect as if it were herein set forth in full. A copy of said Certificate of Incorporation and By-Laws, as amended, is on file in the office of the Transfer Agent of the Corporation. This certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. In Witness Whereof the Corporation has caused this certificate to be signed by its proper officers and its corporate seal to be hereunto affixed. Dated _____________________________ COUNTERSIGNED AND REGISTERED: TIME WARNER INC. CORPORATE SEAL DELAWARE 1983 CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C. TRANSFER AGENT AND REGISTRAR BY____________________________________________ AUTHORIZED OFFICER /s/ Gerald M. Levin - ------------------------------------------------- Chairman of the Board and Chief Executive Officer /s/ Peter R. Haje - ------------------------------------------------- Secretary 3 TIME WARNER INC. THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER UPON REQUEST AND WITHOUT CHARGE, A FULL STATEMENT OF THE DESIGNATION, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND/OR OTHER SPECIAL RIGHTS OF EACH CLASS OF CAPITAL STOCK OR SERIES THEREOF AUTHORIZED TO BE ISSUED AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS, SO FAR AS THE SAME HAVE BEEN FIXED, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DESIGNATE AND FIX THE RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF SERIES OF PREFERRED STOCK. SUCH REQUEST MAY BE MADE EITHER TO THE CORPORATION OR TO THE TRANSFER AGENT. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common. UNIF GIFT MIN ACT - ____________________Custodian____________________ (Cust) (Minor) under Uniform Gifts to Minors Act --------------------- (State) Additional abbreviations may be used though not i the above list. For value received _____ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE________________________________________________________________________ - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- __________________________________________________________________________Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint______________________________________Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated_____________________________________ -------------------------------------------------------------------- NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. SPECIMEN STOCK CERTIFICATE SERIES M SERIES M EXCHANGEABLE PREFERRED EXCHANGEABLE PREFERRED NUMBER SHARES NMS - ------ ------ THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE REGISTRATION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE CORPORATION OR AN AFFILIATE OF THE CORPORATION WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE CORPORATION, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF SUBPARAGRAPHS (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE HAVING AN AGGREGATE LIQUIDATION PREFERENCE OF NOT LESS THAN $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, PROVIDED THAT AN INITIAL INVESTOR THAT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" PURCHASING AS DESCRIBED IN CLAUSE (E) ABOVE SHALL NOT BE PERMITTED TO TRANSFER THIS SECURITY TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPHS (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT; AND SUBJECT TO THE CORPORATION'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO IT, AND IN THE CASE OF ANY OF THE FOREGOING CLAUSES (A)-(F), A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE CORPORATION. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. TIME WARNER INC. THIS CERTIFICATE IS TRANSFERABLE IN NEW YORK, NEW YORK INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS OF THE STATE OF DELAWARE CUSIP__________________ This Certifies that ____________________________________________________________ is the owner of ________________________________________________________________ FULLY PAID AND NON-ASSESSABLE SHARES OF SERIES M EXCHANGEABLE PREFERRED STOCK OF THE PAR VALUE OF $1.00 PER SHARE OF TIME WARNER INC., transferable on the books of the Corporation by said owner in person or by a duly authorized attorney upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Certificate of Incorporation and By-Laws of the Corporation, as amended, to which 2 reference is hereby made with the same effect as if it were herein set forth in full. A copy of said Certificate of Incorporation and By-Laws, as amended, is on file in the office of the Transfer Agent of the Corporation. This certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. In Witness Whereof the Corporation has caused this certificate to be signed by its proper officers and its corporate seal to be hereunto affixed. Dated__________________________________ COUNTERSIGNED AND REGISTERED: TIME WARNER INC. CORPORATE SEAL DELAWARE 1983 CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C. TRANSFER AGENT AND REGISTRAR BY_____________________________________________ AUTHORIZED OFFICER /s/ Gerald M. Levin - -------------------------------------------------- Chairman of the Board and Chief Executive Officer /s/ Peter R. Haje - -------------------------------------------------- Secretary 3 TIME WARNER INC. THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER UPON REQUEST AND WITHOUT CHARGE, A FULL STATEMENT OF THE DESIGNATION, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND/OR OTHER SPECIAL RIGHTS OF EACH CLASS OF CAPITAL STOCK OR SERIES THEREOF AUTHORIZED TO BE ISSUED AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS, SO FAR AS THE SAME HAVE BEEN FIXED, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DESIGNATE AND FIX THE RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF SERIES OF PREFERRED STOCK. SUCH REQUEST MAY BE MADE EITHER TO THE CORPORATION OR TO THE TRANSFER AGENT. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common. UNIF GIFT MIN ACT - ____________________Custodian____________________ (Cust) (Minor) under Uniform Gifts to Minors Act --------------------- (State) Additional abbreviations may also be used though not in the above list. For value received _____ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE________________________________________________________________________ - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- __________________________________________________________________________Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint______________________________________Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated______________________________________ -------------------------------------------------------------------- NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. EX-4 4 EXHIBIT 4.6 Exhibit 4.6 SPECIMEN STOCK CERTIFICATE SERIES L SERIES L EXCHANGEABLE PREFERRED EXCHANGEABLE PREFERRED NUMBER SHARES NLI - ------ ------ THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE REGISTRATION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE CORPORATION OR AN AFFILIATE OF THE CORPORATION WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE CORPORATION, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF SUBPARAGRAPHS (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE HAVING AN AGGREGATE LIQUIDATION PREFERENCE OF NOT LESS THAN $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, PROVIDED THAT AN INITIAL INVESTOR THAT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" PURCHASING AS DESCRIBED IN CLAUSE (E) ABOVE SHALL NOT BE PERMITTED TO TRANSFER THIS SECURITY TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPHS (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT; AND SUBJECT TO THE CORPORATION'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO IT, AND IN THE CASE OF ANY OF THE FOREGOING CLAUSES (A)-(F), A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE CORPORATION. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. TIME WARNER INC. THIS CERTIFICATE IS TRANSFERABLE IN NEW YORK, NEW YORK INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS OF THE STATE OF DELAWARE CUSIP__________________ This Certifies that_____________________________________________________________ is the owner of_________________________________________________________________ FULLY PAID AND NON-ASSESSABLE SHARES OF SERIES L EXCHANGEABLE PREFERRED STOCK OF THE PAR VALUE OF $1.00 PER SHARE OF TIME WARNER INC., transferable on the books of the Corporation by said owner in person or by a duly authorized attorney upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Certificate of Incorporation and By-Laws of the Corporation, as amended, to which 2 reference is hereby made with the same effect as if it were herein set forth in full. A copy of said Certificate of Incorporation and By-Laws, as amended, is on file in the office of the Transfer Agent of the Corporation. This certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. In Witness Whereof the Corporation has caused this certificate to be signed by its proper officers and its corporate seal to be hereunto affixed. Dated______________________________ COUNTERSIGNED AND REGISTERED: TIME WARNER INC. CORPORATE SEAL DELAWARE 1983 CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C. TRANSFER AGENT AND REGISTRAR BY_____________________________________________ AUTHORIZED OFFICER /s/ Gerald M. Levin - -------------------------------------------------- Chairman of the Board and Chief Executive Officer /s/ Peter R. Haje - -------------------------------------------------- Secretary 3 TIME WARNER INC. THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER UPON REQUEST AND WITHOUT CHARGE, A FULL STATEMENT OF THE DESIGNATION, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND/OR OTHER SPECIAL RIGHTS OF EACH CLASS OF CAPITAL STOCK OR SERIES THEREOF AUTHORIZED TO BE ISSUED AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS, SO FAR AS THE SAME HAVE BEEN FIXED, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DESIGNATE AND FIX THE RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF SERIES OF PREFERRED STOCK. SUCH REQUEST MAY BE MADE EITHER TO THE CORPORATION OR TO THE TRANSFER AGENT. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common. UNIF GIFT MIN ACT - ____________________Custodian____________________ (Cust) (Minor) under Uniform Gifts to Minors Act --------------------- (State) Additional abbreviations may also be used though not in the above list. For value received _____ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE________________________________________________________________________ - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- __________________________________________________________________________Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint______________________________________Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated _______________________________ -------------------------------------------------------------------- NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. SPECIMEN STOCK CERTIFICATE SERIES L SERIES L EXCHANGEABLE PREFERRED EXCHANGEABLE PREFERRED NUMBER SHARES NLG - ------ ------ Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Corporation or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL in as much as the registered owner hereof, Cede & Co., has an interest herein. Unless and until it is exchanged in whole or in part for Preferred Stock in definitive registered form, this certificate may not be transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC or any such nominee to a successor Depository or a nominee of such successor Depository. THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE REGISTRATION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE CORPORATION OR AN AFFILIATE OF THE CORPORATION WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE CORPORATION, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF SUBPARAGRAPHS (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE HAVING AN AGGREGATE LIQUIDATION PREFERENCE OF NOT LESS THAN $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, PROVIDED THAT AN INITIAL INVESTOR THAT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" PURCHASING AS DESCRIBED IN CLAUSE (E) ABOVE SHALL NOT BE PERMITTED TO TRANSFER THIS SECURITY TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPHS (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT; AND SUBJECT TO THE CORPORATION'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO IT, AND IN THE CASE OF ANY OF THE FOREGOING CLAUSES (A)-(F), A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE CORPORATION. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. TIME WARNER INC. THIS CERTIFICATE IS TRANSFERABLE IN NEW YORK, NEW YORK INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS OF THE STATE OF DELAWARE CUSIP__________________ This Certifies that ____________________________________________________________ 2 is the owner of ________________________________________________________________ FULLY PAID AND NON-ASSESSABLE SHARES OF SERIES L EXCHANGEABLE PREFERRED STOCK OF THE PAR VALUE OF $1.00 PER SHARE OF TIME WARNER INC., transferable on the books of the Corporation by said owner in person or by a duly authorized attorney upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Certificate of Incorporation and By-Laws of the Corporation, as amended, to which reference is hereby made with the same effect as if it were herein set forth in full. A copy of said Certificate of Incorporation and By-Laws, as amended, is on file in the office of the Transfer Agent of the Corporation. This certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. In Witness Whereof the Corporation has caused this certificate to be signed by its proper officers and its corporate seal to be hereunto affixed. Dated ____________________________________ COUNTERSIGNED AND REGISTERED: TIME WARNER INC. CORPORATE SEAL DELAWARE 1983 CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C. TRANSFER AGENT AND REGISTRAR BY __________________________________________ AUTHORIZED OFFICER /s/ Gerald M. Levin - ------------------------------------------------- Chairman of the Board and Chief Executive Officer /s/ Peter R. Haje - ------------------------------------------------- Secretary 3 TIME WARNER INC. THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER UPON REQUEST AND WITHOUT CHARGE, A FULL STATEMENT OF THE DESIGNATION, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND/OR OTHER SPECIAL RIGHTS OF EACH CLASS OF CAPITAL STOCK OR SERIES THEREOF AUTHORIZED TO BE ISSUED AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS, SO FAR AS THE SAME HAVE BEEN FIXED, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DESIGNATE AND FIX THE RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF SERIES OF PREFERRED STOCK. SUCH REQUEST MAY BE MADE EITHER TO THE CORPORATION OR TO THE TRANSFER AGENT. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common. UNIF GIFT MIN ACT - ____________________Custodian____________________ (Cust) (Minor) under Uniform Gifts to Minors Act --------------------- (State) Additional abbreviations may be used though not i the above list. For value received _____ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE________________________________________________________________________ - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- __________________________________________________________________________Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint______________________________________Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated __________________________________ -------------------------------------------------------------------- NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. SPECIMEN STOCK CERTIFICATE SERIES L SERIES L EXCHANGEABLE PREFERRED EXCHANGEABLE PREFERRED NUMBER SHARES NLS - ------ ------ THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE REGISTRATION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE CORPORATION OR AN AFFILIATE OF THE CORPORATION WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE CORPORATION, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF SUBPARAGRAPHS (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE HAVING AN AGGREGATE LIQUIDATION PREFERENCE OF NOT LESS THAN $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, PROVIDED THAT AN INITIAL INVESTOR THAT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" PURCHASING AS DESCRIBED IN CLAUSE (E) ABOVE SHALL NOT BE PERMITTED TO TRANSFER THIS SECURITY TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPHS (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT; AND SUBJECT TO THE CORPORATION'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO IT, AND IN THE CASE OF ANY OF THE FOREGOING CLAUSES (A)-(F), A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE CORPORATION. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. TIME WARNER INC. THIS CERTIFICATE IS TRANSFERABLE IN NEW YORK, NEW YORK INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS OF THE STATE OF DELAWARE CUSIP _________________ This Certifies that ____________________________________________________________ is the owner of ________________________________________________________________ 2 FULLY PAID AND NON-ASSESSABLE SHARES OF SERIES L EXCHANGEABLE PREFERRED STOCK OF THE PAR VALUE OF $1.00 PER SHARE OF TIME WARNER INC., transferable on the books of the Corporation by said owner in person or by a duly authorized attorney upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Certificate of Incorporation and By-Laws of the Corporation, as amended, to which reference is hereby made with the same effect as if it were herein set forth in full. A copy of said Certificate of Incorporation and By-Laws, as amended, is on file in the office of the Transfer Agent of the Corporation. This certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. In Witness Whereof the Corporation has caused this certificate to be signed by its proper officers and its corporate seal to be hereunto affixed. Dated _______________________________ COUNTERSIGNED AND REGISTERED: TIME WARNER INC. CORPORATE SEAL DELAWARE 1983 CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C. TRANSFER AGENT AND REGISTRAR BY__________________________________________________ AUTHORIZED OFFICER /s/ Gerald M. Levin - ---------------------------------------------------- Chairman of the Board and Chief Executive Officer /s/ Peter R. Haje - ---------------------------------------------------- Secretary 3 TIME WARNER INC. THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER UPON REQUEST AND WITHOUT CHARGE, A FULL STATEMENT OF THE DESIGNATION, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND/OR OTHER SPECIAL RIGHTS OF EACH CLASS OF CAPITAL STOCK OR SERIES THEREOF AUTHORIZED TO BE ISSUED AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS, SO FAR AS THE SAME HAVE BEEN FIXED, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DESIGNATE AND FIX THE RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF SERIES OF PREFERRED STOCK. SUCH REQUEST MAY BE MADE EITHER TO THE CORPORATION OR TO THE TRANSFER AGENT. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT - ____________________Custodian____________________ (Cust) (Minor) under Uniform Gifts to Minors Act --------------------- (State) Additional abbreviations may also be used though not in the above list. For value received _____ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE________________________________________________________________________ - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- __________________________________________________________________________Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint______________________________________Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated____________________________________ -------------------------------------------------------------------- NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. EX-5 5 EXHIBIT 5 May 22, 1996 Time Warner Inc. 75 Rockefeller Plaza New York, NY 10019 Ladies & Gentlemen: In connection with the Registration Statement on Form S-4 (the "Registration Statement") filed by Time Warner Inc., a Delaware corporation (the "Company"), with the Securities and Exchange Commission on May 22, 1996 pursuant to the Securities Act of 1933, as amended (the "Act"), and the rules and regulations thereunder, we have been requested to render our opinion as to the legality of the securities being registered thereunder. The Registration Statement relates to: (i) shares (the "Series M Preferred Shares") of the Company's 10 1/4% Series M Exchangeable Preferred Stock, par value $1.00 per share (the "Series M Preferred Stock"); (ii) shares (the "Series L Preferred Shares") of the Company's 10 1/4% Series L Exchangeable Preferred Stock, par value $1.00 per share (the "Series L Preferred Stock"), which are issuable in certain circumstances in exchange for the Series M Preferred Shares; and (iii) the Company's 10 1/4% Senior Subordinated Debentures due 2011 (the "Debentures"), which are issuable in certain circumstances in exchange for the Series L Preferred Shares pursuant to an indenture (the "Indenture"), between the Company and a trustee (the "Trustee"). The Series M Preferred Stock, the Series L Preferred Stock and the Debentures are herein collectively referred to as the "Securities." Capitalized terms used herein and not Time Warner Inc. 2 otherwise defined herein shall have the respective meanings ascribed thereto in the Registration Statement. In connection with this opinion, we have examined originals, or copies certified or otherwise identified to our satisfaction, of (i) the form of Certificate of Designation of the Series M Preferred Stock (the "Series M Certificate of Designation"); (ii) the form of Certificate of Designation of the Series L Preferred Stock annexed as Exhibit A to the Series M Certificate of Designation (the "Series L Certificate of Designation"); (iii) the form of the Indenture annexed as Exhibit 4.2 to the April 11, 1996 8-K; (iv) the Certificate of Incorporation and the By-Laws of the Company, each as amended to date; and (v) records of certain of the Company's proceedings relating to, among other things, the issuance and sale of the Securities. In addition, we have made such other examinations of law and facts as we considered necessary in order to form a basis for the opinions hereunder expressed. In our examination of the aforesaid documents, we have assumed, without independent investigation, the genuineness of all signatures, the enforceability of the documents against each party thereto other than the Company, the authenticity of all documents submitted to us as originals, the conformity to the original documents of all documents submitted to us as certified, photostatic, reproduced or conformed copies of validly existing agreements or other documents, the authenticity of all such latter documents and the legal capacity of all individuals who have executed any of such documents. The opinions set forth herein assume that the Company takes no corporate action following the date hereof inconsistent with its obligations under the Registration Rights Agreement or the Securities. In expressing the opinions set forth herein, we have relied upon the factual matters provided to us by officers of the Company and upon certificates of public officials. Based upon the foregoing, and subject to the assumptions, exceptions and qualifications set forth herein, we are of the opinion that: (1) The Series M Preferred Shares have been duly authorized and, assuming the Series M Certificate of Designation is duly filed with the Secretary of State of the State of Delaware, when the Series M Preferred Shares are issued and delivered in accordance with the terms of the Series M Certificate of Designation, the Registration Rights Agreement and the Registration Statement, the Series M Preferred Shares will be legally issued, fully paid and non-assessable. Time Warner Inc. 3 (2) The Series L Preferred Shares have been duly authorized and, assuming the Series L Certificate of Designation is duly filed with the Secretary of State of the State of Delaware, when the Series L Preferred Shares are issued and delivered in accordance with the terms of the Series L Certificate of Designation, the Series M Certificate of Designation, the Registration Rights Agreement and the Registration Statement, the Series L Preferred Shares will be legally issued, fully paid and non-assessable. (3) The Indenture and the Debentures have been duly authorized by the Company. When the Indenture is duly authorized, executed and delivered by the Company and the Trustee and the Debentures are duly issued, authenticated and delivered in accordance with the terms of the Indenture, the Debentures will constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium, and similar laws affecting creditors' rights generally and by general principles of equity (regardless whether enforcement is considered in the proceeding in equity or at law). The foregoing opinion is limited to the federal laws of the United States, the laws of the State of New York and the General Corporation Law of the State of Delaware. Our opinion is rendered only with respect to the laws, and the rules, regulations and orders thereunder, which are currently in effect. Please be advised that no member of this firm is admitted to practice law in the State of Delaware. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us under the heading "Legal Opinion" in the Prospectus. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act. Very truly yours, PAUL, WEISS, RIFKIND, WHARTON & GARRISON EX-12 6 EXHIBIT 12.1 EXHIBIT 12.1 TIME WARNER RATIO OF EARNINGS TO FIXED CHARGES (IN MILLIONS, EXCEPT RATIOS)
PRO FORMA --------------------------------------------------- THREE MONTHS ENDED YEAR ENDED MARCH 31, 1996 DECEMBER 31, 1995 ------------------------ ------------------------ (1) (2) (1) (2) COMPANY COMPANY COMPANY COMPANY PRE-TBS(a) POST-TBS(a) PRE-TBS(a) POST-TBS(a) ---------- ----------- ---------- ----------- EARNINGS: Net income (loss) before income taxes and extraordinary item $(81) $(144) $ (169) $ (234) Interest expense 240 291 982 1,196 Amortization of capitalized interest -- 4 4 15 Portion of rents representative of an interest factor 14 22 60 91 Preferred stock dividend requirements of majority-owned subs 18 18 67 67 Adjustment for partially owned subsidiaries and 50% owned companies 148 148 649 649 Undistributed losses of less than 50% owned companies 18 9 117 104 --- --- ----- ----- Total earnings $357 $ 348 $1,710 $1,888 --- --- ----- ----- --- --- ----- ----- Fixed Charges: Interest expense $240 $ 291 $ 982 $ 1,196 Capitalized interest 1 5 6 21 Portion of rents representative of an interest factor 14 22 60 91 Preferred stock dividend requirements of majority-owned subs 18 18 67 67 Adjustment for partially owned subsidiaries and 50% owned companies 153 153 655 655 --- --- ----- ----- Total fixed charges $426 $ 489 $1,770 $2,030 --- --- ----- ----- --- --- ----- ----- Ratio of earnings to fixed charges (deficiency in the coverage of fixed charges by earnings before fixed charges) $(69) $(141) $ (60) $ (142) --- --- ----- ----- --- --- ----- ----- HISTORICAL --------------------------------------------------------- THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, ------------ ------------------------------------------ 1996 1995 1995 1994 1993 1992 1991 ------ ---- ------ ------ ------ ------ ------ EARNINGS: Net income (loss) before income taxes and extraordinary item $ (88) $(15) $ 2 $ 89 $ 81 $ 320 $ 52 Interest expense 247 210 877 769 698 729 912 Amortization of capitalized interest -- -- 2 2 -- 19 23 Portion of rents representative of an interest factor 14 13 57 52 54 85 78 Preferred stock dividend requirements of majority-owned subs 18 -- 11 -- -- -- -- Adjustment for partially owned subsidiaries and 50% owned companies 148 180 691 665 663 97 73 Undistributed losses of less than 50% owned companies 18 17 117 82 47 56 56 ------ ---- ------ ------ ------ ------ ------ Total earnings $ 357 $405 $1,757 $1,659 $1,543 $1,306 $1,194 ------ ---- ------ ------ ------ ------ ------ ------ ---- ------ ------ ------ ------ ------ Fixed Charges: Interest expense $ 247 $210 $ 877 $ 769 $ 698 $ 729 $ 912 Capitalized interest 1 -- 4 2 -- 15 17 Portion of rents representative of an interest factor 14 13 57 52 54 85 78 Preferred stock dividend requirements of majority-owned subs 18 -- 11 -- -- -- -- Adjustment for partially owned subsidiaries and 50% owned companies 153 180 697 668 664 81 45 ------ ---- ------ ------ ------ ------ ------ Total fixed charges $ 433 $403 $1,646 $1,491 $1,416 $ 910 $1,052 ------ ---- ------ ------ ------ ------ ------ ------ ---- ------ ------ ------ ------ ------ Ratio of earnings to fixed charges (deficiency in the coverage of fixed charges by earnings before fixed charges) $ (76) 1.0x 1.1x 1.1x 1.1x 1.4x 1.1x ------ ---- ------ ------ ------ ------ ------ ------ ---- ------ ------ ------ ------ ------
(a) The pro forma ratio of earnings to fixed charges of the Company for the three months ended March 31, 1996 gives effect in column (1) to the 1996 Convertible Debt Refinancing and in column (2) to such transaction and the TBS Transaction, in each case as if the transactions occurred at the beginning of such period. The pro forma ratio of earnings to fixed charges of the Company for the year ended December 31, 1995 gives effect in column (1) to the ITOCHU/Toshiba Transaction, the Cable Transactions, the Debt Refinancings and the Asset Sale Transactions and in column (2) to each of such transactions and the TBS Transaction, in each case as if the transactions occurred at the beginning of such period. EX-12 7 EXHIBIT 12.2 EXHIBIT 12.2 TIME WARNER RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (IN MILLIONS, EXCEPT RATIOS)
PRO FORMA ------------------------------------------------ THREE MONTHS ENDED YEAR ENDED MARCH 31, 1996 DECEMBER 31, 1995 ----------------------- ----------------------- (1) (2) (1) (2) COMPANY COMPANY COMPANY COMPANY PRE-TBS(a) POST-TBS(a) PRE-TBS(a) POST-TBS(a) ---------- ----------- ---------- ----------- Earnings: Net income (loss) before income taxes and extraordinary item $(81) $(144) $ (169) $ (234) Interest expense 240 291 982 1,196 Amortization of capitalized interest -- 4 4 15 Portion of rents representative of an interest factor 14 21 60 91 Preferred stock dividend requirements of majority- owned subs 18 18 67 67 Adjustment for partially owned subsidiaries and 50% owned companies 149 149 649 649 Undistributed losses of less than 50% owned companies 15 6 117 104 ---- ----- ------ ------- Total earnings $355 $ 345 $1,710 $ 1,888 ---- ----- ------ ------- ---- ----- ------ ------- Fixed Charges: Interest expense $240 $ 291 $ 982 $ 1,196 Capitalized interest 1 5 6 21 Portion of rents representative of an interest factor 14 21 60 91 Preferred stock dividend requirements of majority- owned subs 18 18 67 67 Adjustment for partially owned subsidiaries and 50% owned companies 153 153 655 655 Pretax income necessary to cover preferred stock dividend requirements 55 55 198 198 ---- ----- ------ ------- Total combined fixed charges and preferred stock dividends $481 $ 543 $1,968 $ 2,228 ---- ----- ------ ------- ---- ----- ------ ------- Ratio of earnings to combined fixed charges and preferred stock dividend requirements (deficiency in the coverage of combined fixed charges and preferred stock dividends by earnings before fixed charges and preferred stock dividends) $(126) $(198) $ (258) $ (340) ----- ----- ---------- ----------- ----- ----- ---------- ----------- HISTORICAL ----------------------------------------------------- THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, ------------ --------------------------------------- 1996 1995 1995 1994 1993 1992 1991 ------ ---- ------ ------ ------ ------ ------- Earnings: Net income (loss) before income taxes and extraordinary item $ (88) $(15) $ 2 $ 89 $ 81 $ 320 $ 52 Interest expense 247 210 877 769 698 729 912 Amortization of capitalized interest -- -- 2 2 -- 19 23 Portion of rents representative of an interest factor 14 13 57 52 54 85 78 Preferred stock dividend requirements of majority- owned subs 18 -- 11 -- -- -- -- Adjustment for partially owned subsidiaries and 50% owned companies 148 180 691 665 663 97 73 Undistributed losses of less than 50% owned companies 18 17 117 82 47 56 56 ------ ---- ------ ------ ------ ------ ------- Total earnings $ 357 $405 $1,757 $1,659 $1,543 $1,306 $ 1,194 ------ ---- ------ ------ ------ ------ ------- ------ ---- ------ ------ ------ ------ ------- Fixed Charges: Interest expense $ 247 $210 $ 877 $ 769 $ 698 $ 729 $ 912 Capitalized interest 1 -- 4 2 -- 15 17 Portion of rents representative of an interest factor 14 13 57 52 54 85 78 Preferred stock dividend requirements of majority- owned subs 18 -- 11 -- -- -- -- Adjustment for partially owned subsidiaries and 50% owned companies 153 180 697 668 664 81 45 Pretax income necessary to cover preferred stock dividend requirements 55 5 72 20 218 905 1,382 ------ ---- ------ ------ ------ ------ ------- Total combined fixed charges and preferred stock dividends $ 488 $408 $1,718 $1,511 $1,634 $1,815 $ 2,434 ------ ---- ------ ------ ------ ------ ------- ------ ---- ------ ------ ------ ------ ------- Ratio of earnings to combined fixed charges and preferred stock dividend requirements (deficiency in the coverage of combined fixed charges and preferred stock dividends by earnings before fixed charges and preferred stock dividends) $ (131) $ (3) 1.0x 1.1x (91) $ (509) $(1,240) ------ ---- ------ ------ ------ ------ ------- ------ ---- ------ ------ ------ ------ -------
- ------------ (a) The pro forma ratio of earnings to fixed charges and preferred stock dividends of the Company for the three months ended March 31, 1996 gives effect in column (1) to the 1996 Convertible Debt Refinancing and in column (2) to such transaction and the TBS Transaction, in each case as if the transactions occurred at the beginning of such period. The pro forma ratio of earnings to fixed charges of the Company for the year ended December 31, 1995 gives effect in column (1) to the ITOCHU/Toshiba Transaction, the Cable Transactions, the Debt Refinancings and the Asset Sale Transactions and in column (2) to each of such transactions and the TBS Transaction, in each case as if the transactions occurred at the beginning of such period. EX-12 8 EXHIBIT 12.3 EXHIBIT 12.3 TWE RATIO OF EARNINGS TO FIXED CHARGES (IN MILLIONS, EXCEPT RATIOS)
HISTORICAL ---------------------------------------------------- THREE PRO FORMA MONTHS YEAR ENDED ENDED MARCH 31, YEAR ENDED DECEMBER 31, DECEMBER 31, ----------- --------------------------------------- 1995 1996 1995 1995 1994 1993 1992 1991 ------------ ----- ---- ------ ------ ------ ------ ------- Earnings: Net income before income taxes and extraordinary item $ 255 $ 112 $ 15 $ 183 $ 201 $ 272 $ 210 $ 132 Interest expense 528 122 150 571 563 573 436 479 Amortization of capitalized interest 33 8 7 33 25 19 18 22 Portion of rents representative of an interest factor 58 15 13 58 47 39 33 27 Adjustment for partially owned subsidiaries and 50% owned companies 221 65 7 175 24 22 80 30 Undistributed losses of less than 50% owned companies 64 5 8 76 58 14 40 58 ------ ----- ---- ------ ------ ------ ------ ------- Total earnings $1,159 $ 327 $200 $1,096 $ 918 $ 939 $ 817 $ 748 ------ ----- ---- ------ ------ ------ ------ ------- ------ ----- ---- ------ ------ ------ ------ ------- Fixed Charges: Interest expense $ 528 $ 122 $150 $ 571 $ 563 $ 573 $ 436 $ 479 Capitalized interest 33 8 7 33 25 20 15 17 Portion of rents representative of an interest factor 58 15 13 58 47 39 33 27 Adjustment for partially owned subsidiaries and 50% owned companies 34 7 7 27 24 22 80 31 ------ ----- ---- ------ ------ ------ ------ ------- Total fixed charges $ 653 $ 152 $177 $ 689 $ 659 $ 654 $ 564 $ 554 ------ ----- ---- ------ ------ ------ ------ ------- ------ ----- ---- ------ ------ ------ ------ ------- Ratio of earnings to fixed charges 1.8x 2.2x 1.1x 1.6x 1.4x 1.4x 1.4x 1.4x ------ ----- ---- ------ ------ ------ ------ ------- ------ ----- ---- ------ ------ ------ ------ -------
EX-23 9 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the references to our firm under the caption 'Experts' in the Registration Statement (Form S-4) and related Prospectus of Time Warner Inc. ('Time Warner') for the registration of 10 1/4% Series M Exchangeable Preferred Stock ('Series M Preferred Stock'), 10 1/4% Series L Exchangeable Preferred Stock and 10 1/4% Senior Subordinated Debentures due 2011, and for the exchange of all outstanding shares of 10 1/4% Series K Exchangeable Preferred Stock for shares of Series M Preferred Stock and to the incorporation by reference therein of (i) our reports dated February 6, 1996, with respect to the consolidated financial statements and schedules of Time Warner and Time Warner Entertainment Company, L.P., and our report dated March 3, 1995 with respect to the combined financial statements of the Time Warner Service Partnerships, incorporated by reference from Time Warner's Annual Report on Form 10-K for the year ended December 31, 1995, and (ii) our report dated March 8, 1996, with respect to the consolidated financial statements and schedule of Cablevision Industries Corporation and Subsidiaries, and our reports dated July 28, 1995, with respect to the financial statements of Newhouse Broadcasting Cable Division of Newhouse Broadcasting Corporation and Subsidiaries and Vision Cable Division of Vision Cable Communications, Inc. and Subsidiaries, incorporated by reference from Time Warner's Current Report on Form 8-K dated May 15, 1996, filed with the Securities and Exchange Commission. ERNST & YOUNG LLP New York, New York May 21, 1996 EX-23 10 EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of this Registration Statement on Form S-4 of Time Warner Inc. of our report dated February 5, 1996, which appears on page 53 of Turner Broadcasting System, Inc.'s 1995 Annual Report to Shareholders, which is incorporated by reference in Turner Broadcasting System, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1995, which is incorporated by reference in the Current Report on Form 8-K of Time Warner Inc. dated May 15, 1996, which is incorporated by reference in the Prospectus. We also consent to the reference to us under the heading Experts in such Prospectus. PRICE WATERHOUSE LLP Atlanta, Georgia May 21, 1996 EX-23 11 EXHIBIT 23.4 EXHIBIT 23.4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports and to all references to our Firm included in or made a part of this Registration Statement on Form S-4 for Time Warner Inc. ARTHUR ANDERSEN LLP Stamford, Connecticut May 21, 1996 EX-23 12 EXHIBIT 23.5 EXHIBIT 23.5 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of Time Warner Inc. on Form S-4 dated May 22, 1996 of our report dated April 20, 1995, with respect to the consolidated financial statements of KBLCOM Incorporated appearing in the Form 8-K of Time Warner Inc. dated May 15, 1996 and to the reference to us under the heading "Experts" in the Prospectus, which is part of such Registration Statement. DELOITTE & TOUCHE LLP Houston, Texas May 21, 1996 EX-23 13 EXHIBIT 23.6 EXHIBIT 23.6 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of this Registration Statement on Form S-4 of Time Warner Inc., relating to the exchange of Series K Preferred Stock for Series M Preferred Stock, of our report on the Paragon Communications financial statements and schedule dated January 19, 1995, except as to Note 6, which is as of January 27, 1995, which appears on page F-82 of the Annual Report on Form 10-K of Time Warner Entertainment Company, L.P. for the year ended December 31, 1994, which is incorporated by reference in the Time Warner Inc. Annual Report on Form 10-K for the year ended December 31, 1994. We also consent to the reference to us under the heading "Experts" in such Prospectus. PRICE WATERHOUSE LLP Denver, Colorado May 21, 1996 EX-24 14 EXHIBIT 24.1 Exhibit 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and directors of TIME WARNER INC., a Delaware corporation (the "Corporation"), hereby constitutes and appoints RICHARD J. BRESSLER, PETER R. HAJE, JOHN A. LABARCA, GERALD M. LEVIN, PHILIP R. LOCHNER, JR. AND RICHARD D. PARSONS, and each of them, his or her true and lawful attorneys-in-fact and agents with full power to act without the others, for him or her and in his or her name, place and stead, in any and all capacities, to sign a Registration Statement on Form S-4 or other appropriate form and any and all amendments to any such Registration Statement (including post-effective amendments) to be filed by the Corporation with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Securities Act"), in connection with the registration under the provisions of the Securities Act of (a) (i) 1,600,000 shares of the Corporation's 10 1/4% Series M Exchangeable Preferred Stock, par value $1.00 per share (the "Series M Preferred Stock"), issuable in exchange for outstanding shares of the Corporation's 10 1/4% Series K Exchangeable Preferred Stock, (ii) additional shares of Series M Preferred Stock issuable in exchange for shares of Series K Preferred Stock issued as dividends on the shares of Series K Preferred Stock and (iii) additional shares of Series M Preferred Stock issuable as dividends payable on shares of Series M Preferred Stock, (b) an indeterminate number of shares of 10 1/4% Series L Preferred Stock, par value $1.00 per share (the "Series L Preferred Stock"), issuable in exchange for shares of Series M Preferred Stock and as dividends payable on shares of Series L Preferred Stock, and (c) an indeterminate principal amount of 10 1/4% Senior Subordinated Debentures due 2011 issuable in exchange for shares of Series L Preferred Stock and as interest payable on such debentures, with power where appropriate to affix thereto the corporate seal of the Corporation and to attest said seal, and to file such Registration Statement, including a form of prospectus, and any and all amendments and post-effective amendments to such Registration Statement, with all exhibits thereto, and any and all documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. 2 IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her name as of the 16th day of May, 1996. (i) Principal Executive Officers: /s/ Gerald M. Levin /s/ Richard D. Parsons - --------------------------------------- ----------------------------------- Gerald M. Levin Richard D. Parsons Director, Chairman of the Board Director and President and Chief Executive Officer (ii) Principal Financial Officer: (iii) Principal Accounting Officer: /s/ Richard J. Bressler /s/ John A. LaBarca - --------------------------------------- ----------------------------------- Richard J. Bressler, John A. LaBarca, Senior Vice President and Vice President and Controller Chief Financial Officer (iv): Directors: /s/ Merv Adelson /s/ Michael A. Miles - --------------------------------------- ----------------------------------- Merv Adelson, Michael A. Miles, Director Director /s/ Carla A. Hills /s/ J. Richard Munro - --------------------------------------- ----------------------------------- Carla A. Hills, J. Richard Munro, Director Director /s/ Lawrence B. Buttenwieser /s/ Donald S. Perkins - --------------------------------------- ----------------------------------- Lawrence B. Buttenwieser, Donald S. Perkins, Director Director /s/ David T. Kearns /s/ Raymond S. Troubh - --------------------------------------- ----------------------------------- David T. Kearns, Raymond S. Troubh, Director Director /s/ Beverly Sills Greenough /s/ Francis T. Vincent, Jr. - --------------------------------------- ----------------------------------- Beverly Sills Greenough, Francis T. Vincent, Jr., Director Director /s/ Reuben Mark - --------------------------------------- Reuben Mark, Director EX-99 15 EXHIBIT 99.1 REGISTRATION RIGHTS AGREEMENT Dated April 11, 1996 among TIME WARNER INC. and BEAR, STEARNS & CO. INC. and MORGAN STANLEY & CO. INCORPORATED REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered into April 11, 1996, among TIME WARNER INC., a Delaware corporation (the "Company"), BEAR, STEARNS & CO. INC. and MORGAN STANLEY & CO. INCORPORATED (each a "Purchaser" and collectively the "Purchasers"). This Agreement is made pursuant to the Purchase Agreement, dated as of April 2, 1996, among the Company and the Purchasers (the "Purchase Agreement"), which provides for the sale by the Company to the Purchasers of 1,500,000 shares of 10 1/4% Series K Exchangeable Preferred Stock (together with (i) any such shares sold pursuant to the option provided to the Purchasers in Section 2 of the Purchase Agreement and (ii) any such shares issued in satisfaction of dividends thereon, the "Series K Preferred Shares"). In order to induce the Purchasers to enter into the Purchase Agreement, the Company has agreed to provide to the Purchasers and their direct and indirect transferees the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the closing under the Purchase Agreement. In consideration of the foregoing, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following capitalized defined terms shall have the following meanings: "1933 Act" shall mean the Securities Act of 1933, as amended from time to time. "1934 Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Closing Time" shall mean the Closing Time as defined in the Purchase Agreement. "Company" shall have the meaning set forth in the preamble and shall also include the Company's successors; provided, however, that such term shall refer to New Time Warner upon consummation of the TBS Transaction, but only to the extent that New Time Warner is the issuer of the Securities. "Exchange Offer" shall mean the exchange offer by the Obligor of Exchange Securities for Registrable Securities pursuant to Section 2(a) hereof. 2 "Exchange Offer Registration" shall mean a registration under the 1933 Act effected pursuant to an Exchange Offer Registration Statement. "Exchange Offer Registration Statement" shall mean an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form) and all amendments and supplements to such registration statement, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Exchange Securities" (i) shall mean the 10 1/4% Series M Exchangeable Preferred Stock of the Company containing terms identical to the Series K Preferred Shares (except that dividends thereon shall accumulate from the last date on which dividends were paid on the Series K Preferred Shares or, if no such dividends have been paid, from April 11, 1996, and except that such Exchange Securities shall bear no legend with respect to, and shall be free from, restrictions on transfer), to be offered to Holders of Series K Preferred Shares in exchange for Series K Preferred Shares pursuant to the Exchange Offer, or (ii) if the shares of 10 1/4% Series L Exchangeable Preferred Stock of the Company (together with any such shares issued in satisfaction of dividends thereon, the "Series L Preferred Shares") have been issued prior to the consummation of the Exchange Offer hereunder, shall mean shares of exchangeable preferred stock of the Company containing terms identical to the Series L Preferred Shares (except that dividends thereon shall accumulate from the last date on which dividends were paid on the Series K Preferred Shares or on Series L Preferred Shares, whichever is later or, if no such dividends have been paid, from the date on which the Series L Preferred Shares are issued, and except that such Exchange Securities shall bear no legend with respect to, and shall be free from, restrictions on transfer), to be offered to Holders of Series L Preferred Shares in exchange for Series L Preferred Shares pursuant to the Exchange Offer, or (iii) if the 10 1/4% Senior Subordinated Debentures due 2011 of the Company (together with any such debentures issued in satisfaction of interest thereon, the "Senior Subordinated Debentures") have been issued prior to the consummation of the Exchange Offer hereunder, shall mean senior subordinated debentures of the Company containing terms identical to the Senior Subordinated Debentures (except that interest thereon shall accrue from the last date on which (x) interest was paid on the Senior Subordinated Debentures or (y) if no such interest has been paid, from the date on which the Senior Subordinated Debentures are issued, and except that such Exchange Securities shall bear no legend with respect to, and shall be free from, restrictions on transfer), to be offered to Holders of Senior Subordinated Debentures in exchange for Senior Subordinated Debentures pursuant to the Exchange Offer. 3 "Holder" shall mean any Purchaser, for so long as it owns any Registrable Securities, and each of its successors, assigns and direct and indirect transferees who become registered owners of Registrable Securities. "Indenture" shall mean the Indenture relating to the Senior Subordinated Debentures, between the Company and a trustee to be designated by the Company, as supplemented by the First Supplemental Indenture thereto between the Company and a trustee to be designated by the Company, and as the same may be amended from time to time in accordance with the terms thereof. "Majority Holders" shall mean the Holders of a majority of the aggregate liquidation preference or principal amount, as the case may be, of outstanding Registrable Securities. "New Time Warner" shall mean Holdco as defined in the Amended and Restated Merger Agreement dated as of September 22, 1995 among the Company, certain of its subsidiaries and Turner Broadcasting System, Inc. "Obligor" shall mean and refer to the Company, provided, however, that such term shall refer to New Time Warner upon consummation of the TBS Transaction, but only to the extent that New Time Warner is the issuer of the Securities. "Person" shall mean an individual, partnership, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof. "Prospectus" shall mean the prospectus included in a Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including a prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Shelf Registration Statement, and by all other amendments and supplements to a prospectus, including post-effective amendments, and in each case including all material incorporated by reference therein. "Purchase Agreement" shall have the meaning set forth in the preamble. "Purchaser" shall have the meaning set forth in the preamble. "Registrable Securities" shall mean the Securities; provided, however, that the Securities shall cease to be Registrable Securities when (i) a Registration Statement with respect to such Securities shall have been declared effective under the 1933 Act and such Securities shall have been disposed of pursuant to such Registration 4 Statement, (ii) such Securities have been sold to the public pursuant to Rule 144(k) (or any similar provision then in force, but not Rule 144A) under the 1933 Act, (iii) such Securities shall have ceased to be outstanding or (iv) upon the consummation of the Exchange Offer but only with respect to Securities held by a Holder that is eligible to receive freely tradeable Exchange Securities in connection with the Exchange Offer. "Registration Expenses" shall mean any and all expenses incident to performance of or compliance by the Company with this Agreement, including without limitation: (i) all SEC, stock exchange or National Association of Securities Dealers, Inc. registration and filing fees, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws (including reasonable fees and disbursements of counsel for any underwriters or Holders in connection with blue sky qualification of any of the Exchange Securities or Registrable Securities), (iii) all expenses of any Persons in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus, any amendments or supplements thereto, any underwriting agreements, securities sales agreements and other documents relating to the performance of and compliance with this Agreement, (iv) all rating agency fees and (v) the fees and disbursements of counsel for the Company and of the independent public accountants of the Company, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, but excluding fees of counsel to the underwriters or the Holders and underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Holder; provided, however, that the Company will pay the reasonable fees and disbursements of one counsel for the Purchasers and Holders with respect to all Shelf Registration Statements. "Registration Statement" shall mean any registration statement of the Obligor which covers any of the Exchange Securities or Registrable Securities pursuant to the provisions of this Agreement and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "SEC" shall mean the Securities and Exchange Commission. "Securities" shall mean the Series K Preferred Shares, or, if issued, the Series L Preferred Shares or the Senior Subordinated Debentures, provided, however, that such term shall refer to the substantially equivalent securities to be issued by New Time Warner upon consummation of the TBS Transaction as more fully described in the Offering Memorandum of the Company dated April 2, 1996. 5 "Shelf Registration" shall mean a registration effected pursuant to a Shelf Registration Statement. "Shelf Registration Statement" shall mean a "shelf" registration statement of the Obligor which covers Registrable Securities on an appropriate form under Rule 415 under the 1933 Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein; and, in the event that the Obligor is not eligible to file a "shelf" registration statement under Rule 415 to register Registrable Securities held by any Holder who is ineligible to receive freely tradeable Exchange Securities in the Exchange Offer, "Shelf Registration Statement" shall mean any Registration Statement with respect to such Registrable Securities on an appropriate form, including an Exchange Offer Registration Statement. "Trustee" shall mean the trustee with respect to the Senior Subordinated Debentures under the Indenture. 2. Registration Under the 1933 Act. (a) Exchange Offer Registration. To the extent not prohibited by any applicable law or applicable interpretation of the Staff of the SEC, the Obligor shall use its best efforts to cause to be filed with the SEC within 45 days after the date hereof the Exchange Offer Registration Statement covering the offer by the Obligor to the Holders to exchange Registrable Securities (other than Registrable Securities held by any affiliate of the Obligor or by a Purchaser or other distribution participant constituting an unsold allotment) for Exchange Securities, and shall use its best efforts to have such Exchange Offer Registration Statement declared effective by the SEC within 180 days after the date hereof and to have such Exchange Offer Registration Statement remain effective until the closing of the Exchange Offer. The Obligor shall commence the Exchange Offer promptly after the Exchange Offer Registration Statement has been declared effective by the SEC by mailing the related exchange offer Prospectus and accompanying documents to each Holder stating, in addition to such other disclosures as are required by applicable law: (i) that the Exchange Offer is being made pursuant to this Registration Rights Agreement and that all Registrable Securities validly tendered will be accepted for exchange; (ii) the date of acceptance for exchange (which shall be a period of at least 60 days from the date such notice is mailed, or longer if required by applicable law) (the "Exchange Date"); 6 (iii) that any Registrable Security not tendered will remain outstanding and continue to accrue dividends or interest, as the case may be, but will not retain any rights under this Registration Rights Agreement; (iv) that Holders electing to have a Registrable Security exchanged pursuant to the Exchange Offer will be required to surrender such Registrable Security, together with the enclosed letters of transmittal, to the institution and at the address (located in the Borough of Manhattan, The City of New York) specified in the notice prior to the close of business on the Exchange Date; and (v) that Holders will be entitled to withdraw their election, not later than the close of business on the Exchange Date, by sending to the institution and at the address (located in the Borough of Manhattan, The City of New York) specified in the notice a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the aggregate liquidation preference or principal amount, as the case may be, of Registrable Securities delivered for exchange and a statement that such Holder is withdrawing his election to have such Registrable Securities exchanged. As soon as practicable after the Exchange Date, the Obligor shall: (i) accept for exchange Registrable Securities or portions thereof tendered and not validly withdrawn pursuant to the Exchange Offer; and (ii) deliver, or cause to be delivered, to the Transfer Agent or the Trustee, as the case may be, for cancellation all Registrable Securities or portions thereof so accepted for exchange by the Obligor and issue, and cause the Transfer Agent or the Trustee, as the case may be, to promptly authenticate and mail to each Holder, a new Exchange Security, as the case may be, equal in principal amount or liquidation preference, as the case may be, to the principal amount or liquidation preference, as the case may be, of the Registrable Securities surrendered by such Holder. The Obligor shall use its best efforts to complete the Exchange Offer as provided above and shall comply with the applicable requirements of the 1933 Act, the 1934 Act and other applicable laws in connection with the Exchange Offer. The Exchange Offer shall not be subject to any conditions, other than that (i) the Exchange Offer does not violate applicable law or any applicable interpretation of the Staff of the SEC and (ii) there is no injunction, order or decree issued by any court or any governmental agency that would prohibit, prevent or otherwise materially impair the ability of the Company to proceed with the Exchange Offer. The Obligor shall inform the Purchasers of the names and addresses of the Holders to whom the Exchange Offer is made, and the Purchasers shall have the right to contact such Holders and otherwise facilitate the tender of Registrable Securities in the Exchange Offer. 7 For a period of 90 days after the Exchange Date, the Obligor shall also use its best efforts to make available a prospectus meeting the requirements of the 1933 Act which may be the Prospectus contained in the Exchange Offer Registration Statement or the Prospectus contained in a Shelf Registration Statement, as such Registration Statements may be amended or supplemented from time to time, to holders which are broker-dealers (and which identify themselves as such) in connection with resales of Exchange Securities received in exchange for Registrable Securities, where such Registrable Securities were acquired by such broker-dealers as a result of market-making or other trading activities; provided that each holder which is a broker-dealer agrees that, upon receipt of notice from the Company of the occurrence of any event which makes any statement in the Prospectus untrue in any material respect or which requires the making of any changes in the Prospectus in order to make the statements therein not misleading (which notice the Company agrees to deliver promptly to such broker-dealer), such broker-dealer will suspend use of the Prospectus until the Company has amended or supplemented the Prospectus to correct such misstatement or omission and has furnished copies of the amended or supplemented Prospectus to such broker-dealer. If the Company shall give any such notice to suspend the use of the Prospectus, it shall extend the 90-day period referred to above by the number of days during the period from and including the date of the giving of such notice to and including the date when broker-dealers shall have received copies of the supplemented or amended Prospectus necessary to permit resales of the Exchange Securities. In the event that, at the Exchange Date, any of the Purchasers shall not have sold all of the Registrable Securities initially purchased from the Company by such Purchasers to unaffiliated investors, upon such Purchasers' request (made within 10 days after the Exchange Date), the Company will use its best efforts to file promptly, or if so requested by the Purchasers, on a later date (which date shall not exceed the date that is six months after the Exchange Date), a Shelf Registration Statement or a post-effective amendment to the Exchange Offer Registration Statement, if acceptable to the SEC, to register all such Registrable Securities for all such Purchasers. The Company will keep such Shelf Registration Statement or other Registration Statement effective and make available to such Purchasers a Prospectus meeting the requirements of the 1933 Act for a period of 120 days, provided that each Purchaser agrees that, upon receipt of notice from the Company of the happening of any event which makes any statement in the Prospectus untrue in any material respect or which requires the making of any changes in the Prospectus in order to make the statements therein not misleading (which notice the Company agrees to deliver promptly to such Purchasers), such Purchasers will suspend use of the Prospectus until the Company has amended or supplemented the Prospectus to correct such misstatement or omission and has furnished copies of the amended or supplemented Prospectus to such Purchasers. If the Company shall give any such notice to suspend the use of the Prospectus, it shall extend the 120-day period referred to above by the number of days during the period from and including the date of the giving of such notice to and including the date when 8 Purchasers shall have received copies of the supplemented or amended Prospectus necessary to permit sales of their Securities. (b) Shelf Registration. In the event that the Obligor determines that the Exchange Offer Registration provided in Section 2(a) above is not available or may not be consummated because it would violate applicable law or the applicable interpretations of the Staff of the SEC, or in the event the Exchange Offer is not for any other reason consummated within 240 days from the date hereof, the Obligor shall use its best efforts to cause to be filed as soon as practicable after such determination or date, as the case may be, a Shelf Registration Statement providing for the sale by all Holders of all of the Registrable Securities (including sales or resales by broker-dealers of Registrable Securities acquired by such broker-dealers as a result of market-making or other trading activities, and sales or resales by the Purchasers of Registrable Securities initially purchased from the Company by such Purchasers and not previously sold to unaffiliated investors) and to have such Shelf Registration Statement declared effective by the SEC. The Obligor agrees to use its best efforts to keep the Shelf Registration Statement continuously effective until the third anniversary of the date such Shelf Registration Statement is declared effective by the SEC or such shorter period which will terminate when all of the Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement. The Obligor further agrees, if necessary, to supplement or amend the Shelf Registration Statement, if required by the rules, regulations or instructions applicable to the registration form used by the Obligor for such Shelf Registration Statement or by the 1933 Act or by any other rules and regulations thereunder for shelf registration, and the Obligor agrees to furnish to the Holders of Registrable Securities copies of any such supplement or amendment promptly after its being used or filed with the SEC. (c) Expenses. The Obligor shall pay all Registration Expenses in connection with the registration pursuant to Section 2(a) or Section 2(b), except that the Purchasers shall pay any registration fee required in connection with the registration of Registrable Securities which constitute an unsold allotment, and except that each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to a Shelf Registration Statement, and each Holder shall pay all expenses of its counsel; provided, however, that the Company will pay the reasonable fees and disbursements of one counsel for the Purchasers and Holders with respect to all Shelf Registration Statements. (d) Effective Registration Statement. An Exchange Offer Registration Statement pursuant to Section 2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will not be deemed to have become effective unless it has been declared effective by the SEC; provided, however, that, if, after it has been declared effective, the offering of Registrable Securities pursuant to a Shelf Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any other 9 governmental agency or court, such Registration Statement will be deemed not to have become effective during the period of such interference until the offering of Registrable Securities pursuant to such Registration Statement may legally resume. In the event that the Exchange Offer is not consummated or a Shelf Registration Statement is not declared effective by the SEC within 240 days from the date hereof, the annual dividend or interest rate, as the case may be, on the Securities will immediately increase by .50 percent per annum until such date as the Exchange Offer is consummated or a Shelf Registration Statement is declared effective by the SEC; provided, however, that if the Company had also failed to file with the SEC the Exchange Offer Registration Statement within 45 days from the date hereof, the annual dividend or interest rate, as the case may be, on the Securities will increase by 1.00% (instead of .50%) until such date as the Exchange Offer is consummated or a Shelf Registration Statement is declared effective by the SEC. Upon the consummation of the Exchange Offer or the effectiveness of a Shelf Registration Statement, as the case may be, the annual dividend or interest rate, as the case may be, borne by the Securities will be reduced to the original dividend or interest rate, as the case may be. 3. Registration Procedures. In connection with the obligations of the Obligor with respect to the Registration Statements pursuant to Sections 2(a) and 2(b) hereof, the Obligor shall: (a) prepare and file with the SEC a Registration Statement on the appropriate form under the 1933 Act, which form shall (x) be selected by the Obligor, (y) in the case of a Shelf Registration, be available for the sale of the Registrable Securities by the applicable selling Holders under Section 2(a) or Section 2(b), as the case may be, and (z) comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the SEC to be filed therewith and use its best efforts to cause such Registration Statement to become effective and remain effective in accordance with Section 2 hereof; (b) prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement effective for the applicable period, cause each Prospectus to be supplemented by any required prospectus supplement and, as so supplemented, to be filed pursuant to Rule 424 under the 1933 Act; (c) in the case of a Shelf Registration, furnish to the applicable selling Holders of Registrable Securities under Section 2(a) or Section 2(b), as the case may be, and to the underwriters of an underwritten offering of Registrable Securities, if any, without charge, as many copies of each Prospectus, including each preliminary Prospectus, and any amendment or supplement thereto and such other documents as 10 each such Holder or underwriter may reasonably request, in order to facilitate the public sale or other disposition of the Registrable Securities; (d) use its best efforts to register or qualify the Registrable Securities under all applicable state securities or "blue sky" laws of such jurisdictions as any Holder of Registrable Securities covered by a Registration Statement shall reasonably request in writing by the time the applicable Registration Statement is declared effective by the SEC, and do any and all other acts and things which may be reasonably necessary or advisable to enable such Holder to consummate the disposition in each such jurisdiction of such Registrable Securities owned by such Holder; provided, however, that the Company shall not be required to (i) qualify as a foreign partnership, or corporation, as the case may be, or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (ii) file any general consent to service of process or (iii) subject itself to taxation in any such jurisdiction if it is not so subject; (e) in the case of a Shelf Registration, notify the applicable selling Holders of Registrable Securities promptly and, if requested by such Holder, confirm such advice in writing (i) when a Registration Statement has become effective and when any post-effective amendments and supplements thereto become effective, (ii) of any request by the SEC or any state securities authority for amendments and supplements to a Registration Statement and Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any formal proceedings for that purpose, (iv) if, between the effective date of a Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company contained in any underwriting agreement, securities sales agreement or other similar agreement, if any, in each case relating to the offering or the registration thereof, cease to be true and correct in all material respects or if the Obligor receives any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose and (v) of the happening of any event during the period a Shelf Registration Statement is effective which makes any statement made in such Shelf Registration Statement or the related Prospectus untrue in any material respect or which requires the making of any changes in such Registration Statement or Prospectus in order to make the statements therein not misleading; (f) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible moment; 11 (g) in the case of a Shelf Registration (other than a Shelf Registration to permit Holders which are broker-dealers to deliver a Prospectus in connection with any resale of Exchange Securities), furnish to each Holder of Registrable Securities, without charge, at least one conformed copy of each Registration Statement and any post-effective amendment thereto (without documents incorporated therein by reference or exhibits thereto, unless requested); (h) in the case of a Shelf Registration (other than a Shelf Registration to permit Holders which are broker-dealers to deliver a Prospectus in connection with any resale of Exchange Securities), or a post-effective amendment to an Exchange Offer Registration Statement or other Registration Statement covering a sale by the Purchasers of any unsold allotment, cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation, exchange and delivery of certificates representing Registrable Securities to be sold and not bearing any legends with respect to transfer restrictions and enable such Registrable Securities to be in such denominations (consistent with the provisions of the Indenture or applicable Certificate of Designation, as the case may be) and registered in such names as the selling Holders may reasonably request at least two business days prior to the closing of any sale of Registrable Securities; (i) in the case of a Shelf Registration, upon the occurrence of any event contemplated by Section 3(e)(v) hereof, use its best efforts to prepare a supplement or post-effective amendment to a Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided that the Obligor shall not be required to amend or supplement the Shelf Registration Statement, any related Prospectus or any document incorporated therein by reference in the event that, and for so long as, (A) an event occurs and is continuing as a result of which the Shelf Registration Statement, any related Prospectus or any document incorporated therein by reference as then amended or supplemented would, in the Obligor's good faith judgment, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in light of the circumstances under which they are made, and (B) the Obligor determines in its good faith judgment that the disclosure of such event at such time would materially adversely affect the interests of the Obligor. The Obligor agrees to notify you to suspend use of the Prospectus as promptly as practicable after the occurrence of such an event, and you hereby agree to suspend use of the Prospectus until the Obligor has amended or supplemented the Prospectus to correct such misstatement or omission. At such time as such public disclosure is otherwise made or the Obligor determines in 12 its good faith judgment that the disclosure in the Prospectus of an event described above would no longer materially adversely affect the Obligor or its equityholders or that such disclosure is not necessary, the Obligor agrees promptly to notify you of such determination, to amend or supplement the Prospectus if necessary to correct any untrue statement or omission therein and to furnish you such numbers of copies of the Prospectus as so amended or supplemented as you may reasonably request; (j) in the case of a Shelf Registration, or a post-effective amendment to an Exchange Offer Registration Statement or other Registration Statement covering a sale by the Purchasers of any unsold allotment, (x) a reasonable time prior to the filing in the case of any Registration Statement, any Prospectus, any amendment to a Registration Statement or amendment or supplement to a Prospectus or upon filing in the case of any document which is to be incorporated by reference into a Registration Statement or a Prospectus after initial filing of a Registration Statement, provide copies of such document to the Purchasers on behalf of the Holders or to the Purchasers on their own behalf, as the case may be, and make such of the representatives of the Obligor as shall be reasonably requested by the Holders of Registrable Securities in the case of a Shelf Registration pursuant to Section 2(b), or the Purchasers on behalf of the Holders or to the Purchasers on their own behalf, as the case may be, available for discussion of such document and (y) use its best efforts to provide the Purchasers, if the Purchasers so request, with a "comfort letter" from Ernst and Young (or such other independent auditors of the Company at such time) and other appropriate accountants, dated the effective date of any Shelf Registration Statement or of any post-effective amendment (other than an Exchange Offer Registration Statement) covering such matters and in such form as is consistent with market practice with respect to underwriters' "comfort letters" at such time; (k) obtain a CUSIP number and, if applicable, a CINS number for all Exchange Securities, or Registrable Securities, as the case may be, not later than the effective date of a Registration Statement; and (l) prior to the issuance of the Senior Subordinated Debentures, cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended (the "TIA"), in connection with the registration of the Exchange Securities, or Registrable Securities, as the case may be, cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA and execute, and use its best efforts to cause the Trustee to execute, all document as may be required to effect such changes and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner. 13 In the case of a Shelf Registration Statement, the Obligor may (as a condition to such Holder's participation in the Shelf Registration) require each Holder of Registrable Securities to furnish to the Obligor such information regarding the Holder and the proposed distribution by such Holder of such Registrable Securities as the Obligor may from time to time reasonably request in writing. In the case of a Shelf Registration Statement, each Holder (as a condition to such Holder's participation in such Shelf Registration) agrees that, upon receipt of any notice from the Obligor of the happening of any event of the kind described in Section 3(e)(v) hereof, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to a Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(i) hereof, and, if so directed by the Obligor, such Holder will deliver to the Obligor (at its expense) all copies in its possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. If the Obligor shall give any such notice to suspend the disposition of Registrable Securities pursuant to a Registration Statement, the Obligor shall extend the period during which the Registration Statement shall be maintained effective pursuant to this Agreement by the number of days during the period from and including the date of the giving of such notice to and including the date when the Holders shall have received copies of the supplemented or amended Prospectus necessary to resume such dispositions. 4. Indemnification; Contribution. (a) The Company shall indemnify and hold harmless each of the Purchasers, each Holder and each Person, if any, who controls any Holder within the meaning of Section 15 of the 1933 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) pursuant to which Exchange Securities or Registrable Securities were registered under the 1933 Act, including all documents incorporated therein by reference, or by the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (other than in connection with a settlement described in Section 4(a)(ii) below); 14 (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and (iii) against any and all expenses whatsoever, as incurred (including, subject to the provisions of subsection (c), reasonable fees and disbursements of counsel chosen by any Holder or any underwriter), reasonably incurred in investigating, preparing or defending against any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expenses are not paid under subparagraph (i) or subparagraph (ii) above; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by the Purchasers, such Holder or underwriter expressly for use in the Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto). (b) The Purchasers and (as a condition to such Holder's participation in such registration) each Holder severally agrees to indemnify and hold harmless the Company, the Purchasers, each underwriter and the other selling Holders, and each of their respective directors and officers (including each officer of the Company (and any guarantor of the Securities or the Registrable Securities) who signed the Registration Statement), and each Person, if any, who controls the Company, the Purchasers, any underwriter or any other selling Holder within the meaning of Section 15 of the 1933 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in Section 4(a) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in any Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by the Purchasers or such selling Holder expressly for use in such Registration Statement (or any amendment thereto) or such Prospectus (or any amendment or supplement thereto). (c) Each indemnified party shall give reasonably prompt notice to each indemnifying party of any action or proceeding commenced against it in respect of which indemnity may be sought hereunder, but failure so to notify an indemnifying party shall not relieve it from any liability which it may have otherwise than under this indemnity 15 agreement. An indemnifying party may participate at its own expense in the defense of such action. In no event shall the indemnifying parties be liable for the fees and expenses of more than one counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. (d) In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in this Section 4 is for any reason held to be unenforceable although applicable in accordance with its terms, the Company, the Purchasers and the Holders shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement incurred by the Company, the Purchasers and the Holders; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. As between the Company, the Purchasers and the Holders, such parties shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement in such proportion as shall be appropriate to reflect (i) the relative benefits received by the Company on the one hand and the Purchasers and the Holders on the other hand, from the offering of the Exchange Securities or Registrable Securities included in such offering and (ii) the relative fault of the Company on the one hand and the Purchasers and the Holders on the other, with respect to the statements or omissions which resulted in such loss, liability, claim, damage or expense, or action in respect thereof, as well as any other relevant equitable considerations. The Company, the Purchasers and the Holders of the Registrable Securities agree that it would not be just and equitable if contribution pursuant to this Section 4 were to be determined by pro rata allocation or by any other method of allocation which does not take into account the relevant equitable considerations. For purposes of this Section 4, each Person, if any, who controls the Purchasers or a Holder within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Purchasers or such Holder, and each director of the Company, each officer of the Obligor who signed a Registration Statement, and each Person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Company. 5. Miscellaneous. (a) No Inconsistent Agreements. The Company has not entered into nor will the Company on or after the date of this Agreement enter into any agreement which is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's other issued and outstanding securities under any such agreements. 16 (b) Amendments and Waivers. The provisions of this Agreement, excluding the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of at least a majority in aggregate principal amount of the outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or departure; provided, however, that no amendment, modification or supplement or waiver or consents to the departure with respect to the provisions of Section 4 hereof shall be effective as against any Holder of Registrable Securities unless consented to in writing by such Holder of Registrable Securities. (c) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telex, telecopier, or any courier guaranteeing overnight delivery (i) if to a Holder, at the most current address given by such Holder to the Company by means of a notice given in accordance with the provisions of this Section 5(c), which address initially is, with respect to the Purchasers, the address set forth in the Purchase Agreement; and (ii) if to the Company, initially at the Company's address set forth in the Purchase Agreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 5(c). All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next business day if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands, or other communications shall be concurrently delivered by the person giving the same to the Trustee or the Transfer Agent, as the case may be. (d) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders; provided that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Purchase Agreement. If any transferee of any Holder shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such Person shall be entitled to receive the benefits hereof. 17 (e) Third Party Beneficiary. The Purchasers shall be third party beneficiaries to the agreements made hereunder between the Company, on the one hand, and the Holders, on the other hand, and shall have the right to enforce such agreements directly to the extent they deem such enforcement necessary or advisable to protect their rights or the rights of Holders hereunder. (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. (i) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. 18 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. TIME WARNER INC. By ______________________________ Name: Title: Confirmed and accepted as of the date first above written: BEAR, STEARNS & CO. INC. MORGAN STANLEY & CO. INCORPORATED By: Bear, Stearns & Co. Inc. By ___________________________ Name: Title: EX-99 16 EXHIBIT 99.2 Exhibit 99.2 LETTER OF TRANSMITTAL TIME WARNER INC. Offer to Exchange its 10 1/4% Series M Exchangeable Preferred Stock (the "Series M Preferred Stock") which have been registered under the Securities Act of 1933 for any and all of its outstanding 10 1/4% Series K Exchangeable Preferred Stock (the "Series K Preferred Stock") Pursuant to the Prospectus, dated ______ __, 1996 - ----------------------------------------------------------------------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1996 OR SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFER MAY BE EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO THE EXPIRATION DATE. - ----------------------------------------------------------------------------- To: CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C., Exchange Agent By Mail: By Hand or Overnight Delivery: Attention: Attention: By Facsimile: Confirm by Telephone: DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING ANY BOX BELOW ------------------------------------ 2 List below the shares of Series K Preferred Stock to which this Letter of Transmittal relates. If the space provided below is inadequate, certificate numbers and number of shares of Series K Preferred Stock represented thereby should be listed on a separate signed schedule affixed hereto.
Description of Shares of Series K Preferred Stock (1) (2) (3) Number of Shares of Number Series K of Shares of Preferred Stock Name(s) and Address(es) of Registered Holder(s) Certificate Series K Tendered (Please fill in, if blank) Number(s)*/ Preferred Stock (if less than all)**/
*/ Need not be completed by book-entry holders. **/ Unless otherwise indicated, the holder will be deemed to have tendered the full number of shares represented by such certificates of Series K Preferred Stock. 3 The undersigned acknowledges that he or she has received and reviewed the Prospectus, dated ______________, 1996 (the "Prospectus"), of Time Warner Inc., a Delaware corporation (the "Company"), and this Letter of Transmittal (the "Letter"), which together constitute the Company's offer (the "Exchange Offer") to exchange shares of 10 1/4% Exchangeable Series M Preferred Stock (the "Series M Preferred Stock") of the Company for any and all shares of the Company's issued and outstanding 10 1/4% Exchangeable Series K Preferred Stock (the "Series K Preferred Stock"), respectively, from the holders thereof. The undersigned has completed the appropriate boxes above and below and signed this letter to indicate the action the undersigned desires to take with respect to the Exchange Offer. This Letter is to be used either if certificates representing shares of Series K Preferred Stock are to be forwarded herewith or if delivery of shares of Series K Preferred Stock is to be made by book-entry transfer to an account maintained by the Exchange Agent at The Depository Trust Company, pursuant to the procedures set forth in "The Exchange Offer--Procedures for Tendering Series K Preferred Stock" in the Prospectus. Delivery of this Letter and any other required documents should be made to the Exchange Agent. Delivery of documents to a book-entry transfer facility does not constitute delivery to the Exchange Agent. Holders whose shares of Series K Preferred Stock are not immediately available or who cannot deliver their shares of Series K Preferred Stock and all other documents required hereby to the Exchange Agent on or prior to the Expiration Date must tender their shares of Series K Preferred Stock according to the guaranteed delivery procedure set forth in the Prospectus under the caption "The Exchange Offer--Procedures for Tendering Series K Preferred Stock." See Instruction 1. [ ] CHECK HERE IF SHARES OF SERIES K PREFERRED STOCK ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH A BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution ___________________[ ]The Depository Trust Company Account Number _________________________________________________________________ Transaction Code Number_________________________________________________________ [ ] CHECK HERE IF SHARES OF SERIES K PREFERRED STOCK ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING: Name of Registered Holder(s) ___________________________________________________ Name of Eligible Institution that Guaranteed Delivery __________________________ If delivered by book-entry transfer: Name of Tendering Institution __________________________________________________ Account Number _________________________________________________________________ Transaction Code Number ________________________________________________________ [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name ___________________________________________________________________________ Address ________________________________________________________________________ ________________________________________________________________________ 4 PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company the number of shares of Series K Preferred Stock indicated above. Subject to, and effective upon, the acceptance for exchange of the shares of Series K Preferred Stock tendered hereby, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to such shares of Series K Preferred Stock as are being tendered hereby. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the shares of Series K Preferred Stock tendered hereby and that the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim when the same are accepted by the Company. The undersigned will, upon request, execute and deliver any additional documents deemed by the Company or the Exchange Agent to be necessary or desirable to complete the sale, assignment and transfer of the shares of Series K Preferred Stock tendered hereby. The undersigned also acknowledges that this Exchange Offer is being made in reliance on the Company's belief, based on no-action letters issued by the staff of the Securities and Exchange Commission (the "SEC") to third parties, that the shares of Series M Preferred Stock issued in exchange for the shares of Series K Preferred Stock pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by holders thereof (other than (i) a broker-dealer who purchases such shares of Series M Preferred Stock directly from the Company to resell pursuant to Rule 144A or any other exemption under the Securities Act of 1933, as amended (the "Securities Act"), or (ii) a person that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such shares of Series M Preferred Stock are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in the distribution of such shares of Series M Preferred Stock. If the undersigned is not a broker-dealer or is a broker-dealer but will not receive shares of Series M Preferred Stock for its own account in exchange for shares of Series K Preferred Stock, the undersigned represents that (i) the shares of Series M Preferred Stock acquired pursuant to the Exchange Offer are being obtained in the ordinary course of such holder's business, (ii) such holder has no arrangements with any person to participate in the distribution of such shares of Series M Preferred Stock, and (iii) such holder is not an "affiliate" of the Company, as defined in Rule 405 under the Securities Act or, if such holder is an affiliate, that such holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If the undersigned is a broker-dealer that will receive shares of Series M Preferred Stock for its own account in exchange for shares of Series K Preferred Stock that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such shares of Series M Preferred Stock; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. By acceptance of the Exchange Offer, each broker-dealer that receives shares of Series M Preferred Stock pursuant to the Exchange Offer hereby acknowledges and agrees that, upon receipt of notice by the Company of the happening of any event which makes any statement in the Prospectus untrue in any material respect or which requires the making of any changes in the Prospectus in order to make the statements therein not misleading (which notice the Company agrees to deliver promptly to such broker-dealer), such broker-dealer will suspend use of the Prospectus until the Company has amended or supplemented the Prospectus to correct such misstatement or omission and has furnished copies of the amended or supplemented prospectus to such broker-dealer. The undersigned, if a California resident, hereby further represents and warrants that the undersigned (or the beneficial owner of the shares of Series K Preferred Stock tendered hereby, if not the undersigned) (i) is a bank, savings and loan association, trust company, insurance company, investment company registered under the Investment Company Act of 1940, pension or profit-sharing trust (other than a pension or profit-sharing trust of the Company, a self-employed individual retirement plan, or individual retirement account), or a corporation which has a net worth on a consolidated basis according to its most recent audited financial statements of not less than $14,000,000, and (ii) is acquiring the shares of Series M Preferred Stock for its own account for investment purposes (or for the account of the beneficial owner of such shares of Series M Preferred Stock for investment purposes). 5 All authority conferred or agreed to be conferred in this Letter and every obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. This tender may be withdrawn only in accordance with the procedures set forth in the instructions contained in this Letter. The undersigned understands that tenders of the shares of Series K Preferred Stock pursuant to any one of the procedures described under "The Exchange Offer--Procedures for Tendering Series K Preferred Stock" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company in accordance with the terms and subject to the conditions of the Exchange Offer. The undersigned recognizes that, under certain circumstances set forth in the Prospectus under "The Exchange Offer--Certain Conditions to the Exchange Offer," the Company may not be required to accept for exchange any of the shares of Series K Preferred Stock tendered. Shares of Series K Preferred Stock not accepted for exchange or withdrawn will be returned to the undersigned at the address set forth below unless otherwise indicated under "Special Delivery Instructions" below. Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" below, the undersigned hereby requests that the shares of Series M Preferred Stock (and, if applicable, substitute certificates representing shares of Series K Preferred Stock for any shares of Series K Preferred Stock not exchanged) be issued in the name of the undersigned. Similarly, unless otherwise indicated under the box entitled "Special Delivery Instructions" below, the undersigned hereby requests that the shares of Series M Preferred Stock (and, if applicable, substitute certificates representing shares of Series K Preferred Stock for any shares of Series K Preferred Stock not exchanged) be sent to the undersigned at the address shown above in the box entitled "Description of Shares of Series K Preferred Stock." THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF SHARES OF SERIES K PREFERRED STOCK" ABOVE AND SIGNING THIS LETTER AND DELIVERING SUCH SHARES AND THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE SHARES OF SERIES K PREFERRED STOCK AS SET FORTH IN SUCH BOX ABOVE. 6 PLEASE SIGN HERE (TO BE COMPLETED BY ALL TENDERING HOLDERS) (Complete Accompanying Substitute Form W-9) X ....................................... .................................. X ....................................... .................................. Signature(s) of Owner(s) Date Area Code and Telephone Number ..................... If a holder is tendering any shares of Series K Preferred Stock, this Letter must be signed by the registered holder(s) as the name(s) appear(s) on the certificate(s) for the shares of Series K Preferred Stock or by any person(s) authorized to become registered holder(s) by endorsements and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please indicate such capacity below. See Instruction 3. Name(s): ..................................................................... ..................................................................... (Please Type or Print) Capacity: ...................................................................... Address: ...................................................................... ...................................................................... (Include Zip Code) SIGNATURE GUARANTEE (If required by Instruction 3) Signature(s) Guaranteed by an Eligible Institution:........................................................ (Authorized Signature) ................................................................................ (Title) ................................................................................ (Name of Firm) Dated:.......................................................................... 7 SPECIAL ISSUANCE INSTRUCTIONS (See Instructions 3 and 4) To be completed ONLY if shares of Series M Preferred Stock (and if applicable shares of Series K Preferred Stock not exchanged) are to be issued in the name of and sent to someone other than the person or persons whose signature(s) appear on this Letter above. Issue shares of Series M Preferred Stock (and if applicable shares of Series K Preferred Stock not exchanged) to: Name(s):................................ (Please Type or Print) ................................ (Please Type or Print) Address:................................ ................................ (Include Zip Code) (Complete Substitute Form W-9) SPECIAL DELIVERY INSTRUCTIONS (See Instructions 3 and 4) To be completed ONLY if shares of Series M Preferred Stock (and if applicable shares of Series K Preferred Stock not exchanged) are to be sent to someone other than the person or persons whose signature(s) appear(s) on this Letter above or to such person or persons at an address other than shown in the box entitled "Description of Shares of Series K Preferred Stock" on this Letter above. Mail shares of Series M Preferred Stock (and if applicable shares of Series K Preferred Stock not exchanged) to: Name(s):................................ (Please Type or Print) ................................ (Please Type or Print) Address:................................ ................................ (Include Zip Code) IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH, THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATE(S) FOR SHARES OF SERIES K PREFERRED STOCK OR A CONFIRMATION OF BOOK-ENTRY TRANSFER OF SHARES OF SERIES K PREFERRED STOCK AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE. 8 INSTRUCTIONS Forming Part of the Terms and Conditions of the Exchange Offer 1. Delivery of this Letter and Shares of Series K Preferred Stock; Guaranteed Delivery Procedure This Letter is to be used to forward, and must accompany, all shares of Series K Preferred Stock tendered pursuant to the Exchange Offer. Certificates representing the shares of Series K Preferred Stock in proper form for transfer (or a confirmation of book-entry transfer of such shares of Series K Preferred Stock into the Exchange Agent's account at the book-entry transfer facility) as well as a properly completed and duly executed copy of this Letter and all other documents required by this Letter, must be received by the Exchange Agent at its address set forth herein on or before the Expiration Date. The method of delivery of this Letter, the shares of Series K Preferred Stock and all other required documents is at the election and risk of the tendering holders. Delivery will be deemed made only when actually received or confirmed by the Exchange Agent. If such delivery is by mail, it is recommended that registered mail properly insured, with return receipt requested, be used. In all cases, sufficient time should be allowed to permit timely delivery. If a holder desires to tender shares of Series K Preferred Stock and the certificates representing such holder's shares of Series K Preferred Stock are not immediately available or time will not permit such holder's Letter of Transmittal, certificates representing shares of Series K Preferred Stock (or a confirmation of book-entry transfer of shares of Series K Preferred Stock into the Exchange Agent's account at the book-entry transfer facility) or other required documents to reach the Exchange Agent on or before the Expiration Date, such holder may nevertheless tender shares of Series K Preferred Stock if: (a) such tender is made by or through an Eligible Institution (as defined below); (b) on or prior to the Expiration Date, the Exchange Agent has received a telegram, facsimile or letter from such Eligible Institution setting forth the name and address of the holder of such shares of Series K Preferred Stock and the number of shares of Series K Preferred Stock tendered and stating that the tender is being made thereby and guaranteeing that, within three business days after the Expiration Date, a duly executed Letter of Transmittal, or facsimile thereof, together with the shares of Series K Preferred Stock (or a confirmation of book-entry transfer of such shares of Series K Preferred Stock into the Exchange Agent's account at the book-entry transfer facility), and any other documents required by this Letter and the instructions hereto, will be deposited by such Eligible Institution with the Exchange Agent; and (c) this Letter, or a facsimile hereof, and shares of Series K Preferred Stock in proper form for transfer (or a confirmation of book-entry transfer of such Shares of Series K Preferred Stock into the Exchange Agent's account at the book-entry transfer facility) and all other required documents are received by the Exchange Agent within three business days after the Expiration Date. See "The Exchange Offer" in the Prospectus. 2. Withdrawals Any holder who has tendered shares of Series K Preferred Stock may withdraw the tender by delivering written notice of withdrawal to the Exchange Agent prior to the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent at its address set forth herein. Any such notice of withdrawal must (i) specify the name of the person having tendered the shares of Series K Preferred Stock to be withdrawn (the "Depositor"), (ii) identify the shares of Series K Preferred Stock to be withdrawn (including the certificate number or numbers, and number of shares of Series K Preferred Stock), (iii) be signed by the holder in the same manner as the original signature on this Letter by which such shares of Series K Preferred Stock were tendered or as otherwise 9 set forth in Instruction 3 below (including any required signature guarantees), or be accompanied by documents of transfer sufficient to have the Transfer Agent (as defined in the Prospectus) register the transfer of such shares of Series K Preferred Stock into the name of the person withdrawing the tender and (iv) specify the name in which any such shares of Series K Preferred Stock are to be registered, if different from that of the Depositor. If shares of Series K Preferred Stock have been tendered pursuant to the procedure for book-entry transfer, any notice of withdrawal must specify the name and number of the account at the book-entry transfer facility to be credited with the withdrawn shares of Series K Preferred Stock or otherwise comply with the book-entry transfer facility's procedures. See "The Exchange Offer--Withdrawal Rights" in the Prospectus. 3. Signatures on this Letter; Bond Powers and Endorsements; Guarantee of Signatures If this Letter is signed by the registered holder of the shares of Series K Preferred Stock tendered hereby, the signature must correspond exactly with the name as written on the face of the certificates without any change whatsoever. If any tendered shares of Series K Preferred Stock are owned of record by two or more joint owners, all such owners must sign this Letter. If any tendered shares of Series K Preferred Stock are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter as there are different registrations of certificates. If this Letter or any shares of Series K Preferred Stock or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should indicate when signing, and unless waived by the Company, proper evidence satisfactory to the Company of their authority so to act must be submitted. The signatures on this Letter or a notice of withdrawal, as the case may be, must be guaranteed unless the shares of Series K Preferred Stock surrendered for exchange pursuant thereto are tendered (i) by a registered holder of the shares of Series K Preferred Stock who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" in this Letter or (ii) for the account of an Eligible Institution. In the event that the signatures in this Letter or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc., or by a commercial bank or trust company having an office or correspondent in the United States (collectively, "Eligible Institutions"). If shares of Series K Preferred Stock are registered in the name of a person other than the signer of this Letter, the shares of Series K Preferred Stock surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Company in its sole discretion, duly executed by the registered holder with the signature thereon guaranteed by an Eligible Institution. 4. Special Issuance and Delivery Instructions Tendering holders of shares of Series K Preferred Stock should indicate in the applicable box the name and address to which shares of Series M Preferred Stock issued pursuant to the Exchange Offer are to be issued or sent, if different from the name or address of the person signing this Letter. In the case of issuance in a different name, the employer identification or social security number of the person named must also be indicated. If no such instructions are given, any shares of Series M Preferred Stock will be issued in the name of, and delivered to, the name or address of the person signing this Letter and any shares of Series K Preferred Stock not accepted for exchange will be returned to the name or address of the person signing his Letter. 10 5. Backup Federal Income Tax Withholding and Substitute Form W-9 Under the federal income tax laws, payments that may be made by the Company on account of shares of Series M Preferred Stock issued pursuant to the Exchange Offer may be subject to backup withholding at the rate of 31%. In order to avoid such backup withholding, each tendering holder should complete and sign the Substitute Form W-9 included in this Letter and either (a) provide the correct taxpayer identification number ("TIN") and certify, under penalties of perjury, that the TIN provided is correct and that (i) the holder has not been notified by the Internal Revenue Service (the "IRS") that the holder is subject to backup withholding as a result of failure to report all interest or dividends or (ii) the IRS has notified the holder that the holder is no longer subject to backup withholding; or (b) provide an adequate basis for exemption. If the tendering holder has not been issued a TIN and has applied for one, or intends to apply for one in the near future, such holder should write "Applied For" in the space provided for the TIN in Part I of the Substitute Form W-9, sign and date the Substitute Form W-9 and sign the Certificate of Payee Awaiting Taxpayer Identification Number. If "Applied For" is written in Part I, the Company (or the Transfer Agent for the shares of Series M Preferred Stock) shall retain 31% of payments made to the tendering holder during the sixty (60) day period following the date of the Substitute Form W-9. If the holder furnishes the Exchange Agent or the Company with its TIN within sixty (60) days after the date of the Substitute Form W-9, the Company (or the Paying Agent) shall remit such amounts retained during the sixty (60) day period to the holder and no further amounts shall be retained or withheld from payments made to the holder thereafter. If, however, the holder has not provided the Exchange Agent or the Company with its TIN within such sixty (60) day period, the Company (or the Paying Agent) shall remit such previously retained amounts to the IRS as backup withholding. In general, if a holder is an individual, the taxpayer identification number is the Social Security number of such individual. If the Exchange Agent or the Company is not provided with the correct taxpayer identification number, the holder may be subject to a $50 penalty imposed by the IRS. Certain holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, such holder must submit a statement (generally, IRS Form W-8), signed under penalties of perjury, attesting to that individual's exempt status. Such statements can be obtained from the Exchange Agent. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how to obtain a taxpayer identification number if you do not have one and how to complete the Substitute Form W-9 if shares of Series K Preferred Stock are registered in more than one name), consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. Failure to complete the Substitute Form W-9 will not, by itself, cause shares of Series K Preferred Stock to be deemed invalidly tendered, but may require the Company (or the Paying Agent) to withhold 31% of the amount of any payments made on account of the shares of Series M Preferred Stock. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. 6. Transfer Taxes The Company will pay all transfer taxes, if any, applicable to the transfer of shares of Series K Preferred Stock to it or its order pursuant to the Exchange Offer. If, however, shares of Series M Preferred Stock and/or substitute shares of Series K Preferred Stock not exchanged are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the shares of Series K Preferred Stock tendered hereby, or if tendered shares of Series K Preferred Stock are registered in the name of any person other than the person signing this Letter, or if a transfer tax is imposed for any reason other than the transfer of shares of Series K Preferred Stock to the Company or its order pursuant to the Exchange Offer, the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted herewith, the amount of such transfer taxes will be billed directly to such tendering holder. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the shares of Series K Preferred Stock specified in this Letter. 11 7. Waiver of Conditions The Company reserves the absolute right to waive satisfaction of any or all conditions enumerated in the Prospectus. 8. No Conditional Tenders No alternative, conditional, irregular or contingent tenders will be accepted. All tendering holders of shares of Series K Preferred Stock, by execution of this Letter, shall waive any right to receive notice of the acceptance of their shares of Series K Preferred Stock for exchange. Neither the Company nor any other person is obligated to give notice of defects or irregularities in any tender, nor shall any of them incur any liability for failure to give any such notice. 9. Inadequate Space If the space provided herein is inadequate, the number of shares of Series K Preferred Stock being tendered and the certificate number or numbers (if available) should be listed on a separate schedule attached hereto and separately signed by all parties required to sign this Letter. 10. Mutilated, Lost, Stolen or Destroyed Shares of Series K Preferred Stock Any holder whose certificates representing shares of Series K Preferred Stock have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated above for further instructions. 11. Requests for Assistance or Additional Copies Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus and this Letter, may be directed to the Exchange Agent at the address and telephone number indicated above. 12 TO BE COMPLETED BY ALL TENDERING HOLDERS (See Instruction 5) PAYER'S NAME: TIME WARNER ENTERTAINMENT COMPANY, L.P. SUBSTITUTE Part I--Taxpayer Identification Number Form W-9 ______________________________ Department of the Treasury Enter your taxpayer identification number in Social Security Number Internal Revenue Service the appropriate box. For most individuals, this is your social security number. If you OR do not have a number, see how to obtain a "TIN" in the enclosed Guidelines. ______________________________ Employer Identification Number NOTE: If the account is in more than one name, see the chart on page 2 of the enclosed Guidelines to determine what number to give. Part II--For Payees Exempt From Backup Withholding (see enclosed Guidelines) Payer's Request for Taxpayer CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT: Identification Number (TIN) (1) the number shown on this form is my correct Taxpayer Identification Number (or I am and Certification waiting for a number to be issued to me), and (2) I am not subject to backup withholding either because I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends or the IRS has notified me that I am no longer subject to backup withholding. SIGNATURE______________________________________ DATE____________________
Certification Guidelines -- You must cross out item (2) of the above certification if you have been notified by the IRS that you are subject to backup withholding because of underreporting of interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2). CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER I certify, under penalties of perjury, that a Taxpayer Identification Number has not been issued to me, and that I mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service Center or Social Security Administration Office (or I intend to mail or deliver an application in the near future). I understand that if I do not provide a Taxpayer Identification Number to the payer, 31 percent of all payments made to me on account of the shares of Series M Preferred Stock shall be retained until I provide a Taxpayer Identification Number to the payer and that, if I do not provide my Taxpayer Identification Number within sixty (60) days, such retained amounts shall be remitted to the Internal Revenue Service as backup withholding and 31 percent of all reportable payments made to me thereafter will be withheld and remitted to the Internal Revenue Service until I provide a Taxpayer Identification Number. SIGNATURE__________________________________ DATE_________________________ NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE SHARES OF SERIES M PREFERRED STOCK. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. 13 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Guidelines for Determining the Proper Identification Number to Give the Payer.--Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer.
- ------------------------------------------------------------------ Give the For this type of account: SOCIAL SECURITY number of-- - ------------------------------------------------------------------ 1. An individual's account The individual 2. Two or more individuals The actual owner of the (joint account) account or, if combined funds, any one of the individuals(1)/ 3. Husband and wife (joint The actual owner of the account) account or, if joint funds, either person(1)/ 4. Custodian account of a The minor(2)/ minor (Uniform Gift to Minors Act) 5. Adult and minor (joint The adult or, if the minor is account) the only contributor, the minor(1)/ 6. Account in the name of The ward, minor, or guardian or committee for a incompetent person(3)/ designated ward, minor, or incompetent person 7. a. The usual revocable The grantor-trustee(1)/ savings trust account (grantor is also trustee) b. So-called trust account The actual owner(1)/ that is not a legal or valid trust under State law 8. Sole proprietorship account The owner(4)/ - --------------------------------------------------------------- - --------------------------------------------------------------- Give the EMPLOYER For this type of account: IDENTIFICATION number of-- - --------------------------------------------------------------- 9. A valid trust, estate or The Legal entity (Do not pension trust furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5)/ 10. Corporate account The corporation 11. Religious, charitable, or The organization educational organization account 12. Partnership account held The partnership in the name of the business 13. Association, club, or The organization other tax-exempt organization 14. A broker or registered The broker or nominee nominee 15. Account with the The public entity Department of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments 16. Sole proprietorship The owner(4)/ account - ---------------------------------------------------------------
(1)/ List first and circle the name of the person whose number you furnish. (2)/ Circle the minor's name and furnish the minor's social security number. (3)/ Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4)/ Show the name of the owner. See item 8 or 16. You may also enter your business name. (5)/ List first and circle the name of the legal trust, estate, or pension trust. Note: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. 14 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Obtaining a Number If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. Payees Exempt from Backup Withholding Payees specifically exempted from backup withholding on ALL payments include the following: A corporation. A financial institution. An organization exempt from tax under section 501(a), or an individual retirement plan. The United States or any agency or instrumentality thereof. A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. An international organization or any agency, or instrumentality thereof. A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. A real estate investment trust. A common trust fund operated by a bank under section 584(a). An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). An entity registered at all times under the Investment Company Act of 1940. A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: Payment to nonresident aliens subject to withholding under section 1441. Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. Payments of patronage dividends where the amount received is not paid in money. Payments made by certain foreign organizations. Payments made to a nominee. Payments of interest not generally subject to backup with holding include the following: Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $500 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. Payments of tax-exempt interest (including exempt-interest dividends under section 852). Payments described in section 6049(b)(5) to nonresident aliens. Payments on tax-free covenant bonds under section 1451. Payments made by certain foreign organizations. Payments made to a nominee. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. Certain payments other than interest, dividends, and patronage dividends that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(a), 6045, and 6050A. Privacy Act Notice.--Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. Penalties (1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) Civil Penalty for False Information With Respect to Withholding.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) Criminal Penalty for Falsifying Information.-- Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE EX-99 17 EXHIBIT 99.3 Exhibit 99.3 NOTICE OF GUARANTEED DELIVERY for Tender of 10 1/4% Series K Exchangeable Preferred Stock (the "Series K Preferred Stock") of TIME WARNER INC. This form, or one substantially equivalent hereto, must be used to tender shares of Series K Preferred Stock pursuant to the Exchange Offer described in the Prospectus dated ___________ __, 1996 (the "Prospectus") of Time Warner Inc., a Delaware corporation (the "Company"), if a holder of shares of Series K Preferred Stock cannot deliver a Letter of Transmittal to the Exchange Agent listed below (the "Exchange Agent") or cannot either deliver the certificates representing the shares of Series K Preferred Stock to be tendered or complete the procedure for book-entry transfer at or prior to 5:00 P.M., New York City time, on ___________________, 1996 or such later date and time to which the Exchange Offer may be extended (the "Expiration Date"). This form, or one substantially equivalent hereto, must be delivered by hand or sent by telegram, facsimile transmission or mail to the Exchange Agent, and must be received by the Exchange Agent on or prior to the Expiration Date. See "The Exchange Offer--Procedure for Tendering Series K Preferred Stock" in the Prospectus. Capitalized terms used herein and not defined herein shall have the meanings ascribed thereto in the Prospectus. To: Chemical Mellon Shareholder Services, L.L.C., Exchange Agent By Mail: By Hand or Overnight Delivery: Attention: Attention: By Facsimile: Confirm by Telephone: DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. Ladies and Gentlemen: The undersigned hereby represents that he or she is the holder of the shares of Series K Preferred Stock indicated below and that the Letter of Transmittal cannot be delivered to the Exchange Agent and/or either the certificates representing such shares of Series K Preferred Stock cannot be delivered to the Exchange Agent or the procedure for book-entry transfer cannot be completed on or before the Expiration Date. The undersigned hereby tenders the shares of Series K Preferred Stock indicated below pursuant to the guaranteed delivery procedures set forth in the Prospectus and the Letter of Transmittal, receipt of which is hereby acknowledged. Name(s) of Tendering Holder(s): ------------------------------------------------ Please Type or Print - -------------------------------------------------------------------------------- Signatures Address(es): -------------------------------------------------------------------- - -------------------------------------------------------------------------------- Telephone Number(s): ------------------------------------------------------------ Name(s) in which shares of Series K Preferred Stock are registered: ------------- Certificate No(s). Number of Shares (if available)*/ Tendered ---------------- ----------------- - ------------------------------------ ----------------------------------- - ------------------------------------ ----------------------------------- - ------------------------------------ ----------------------------------- - ------------------------------------ ----------------------------------- - ------------------------------------ ----------------------------------- - -------------- */ Need not be completed by book-entry holders. GUARANTEE OF DELIVERY (Not to be used for signature guarantee) The undersigned, a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or a correspondent in the United States, hereby guarantees that the undersigned will deliver to the Exchange Agent the certificates representing the shares of Series K Preferred Stock being tendered hereby in proper form for transfer (or a confirmation of book-entry transfer of such shares of Series K Preferred Stock into the Exchange Agent's account at the book-entry transfer facility), with any required signature guarantees and any other required documents, all within three business days after the Expiration Date. - ----------------------------------- --------------------------------------- Firm Authorized Signature - ----------------------------------- Name: Address ---------------------------------- Please Type or Print - ----------------------------------- Title: Zip Code --------------------------------- - ----------------------------------- Dated: , 1996 Telephone No. -------------------------- The institution that completes this form must communicate the guarantee to the Exchange Agent and must deliver the certificates representing any shares of Series K Preferred Stock (or a confirmation of book-entry transfer of such shares of Series K Preferred Stock into the Exchange Agent's account at the book-entry transfer facility) and the Letter of Transmittal to the Exchange Agent within the time period shown herein. Failure to do so could result in a financial loss to such institution. EX-99 18 EXHIBIT 99.4 Exhibit 99.4 EXCHANGE AGENCY AGREEMENT __________, 1996 [Chemical] Ladies and Gentlemen: Time Warner Inc., a Delaware corporation (the "Company"), intends to make an offer (the "Exchange Offer") to exchange its Series M Exchangeable Preferred Stock, par value $1.00 per share (the "Series M Preferred Stock"), for its outstanding Series K Preferred Stock, par value $1.00 per share (the "Series K Preferred Stock"). The terms and conditions of the Exchange Offer as currently contemplated are set forth in a prospectus, dated ____________, 1996 (the "Prospectus"), distributed to all record holders of the Series K Preferred Stock. The Series K Preferred Stock and the Series M Preferred Stock are collectively referred to herein as the "Preferred Stock." The Company hereby appoints [Chemical] to act as exchange agent (the "Exchange Agent") in connection with the Exchange Offer. References hereinafter to "you" shall refer to [Chemical]. The Exchange Offer is expected to be commenced by the Company on or about _______________, 1996. The Letter of Transmittal accompanying the Prospectus is to be used by the holders of the Series K Preferred Stock to accept the Exchange Offer, and contains instructions with respect to the delivery of certificates representing the shares of Series K Preferred Stock tendered. The Exchange Offer shall expire at 5:00 P.M., New York City time, on the 60th day following its commencement or on such later date or time to which the Company may extend the Exchange Offer (the "Expiration Date"). Subject to the terms and conditions set forth in the Prospectus, the Company expressly reserves the right to extend the Exchange Offer from time to time and may extend the Exchange Offer by giving oral (confirmed in writing) or written notice to you before 9:00 A.M., New York City time, on the business day following the previously scheduled Expiration Date. 2 In carrying out your duties as Exchange Agent, you are to act in accordance with the following instructions: 1. You will perform such duties and only such duties as are specifically set forth in the section of the Prospectus captioned "The Exchange Offer" or as specifically set forth herein; provided, however, that in no way will your general duty to act in good faith be discharged by the foregoing. 2. You are to examine each of the Letters of Transmittal and certificates representing shares of Series K Preferred Stock and any other documents delivered or mailed to you by or for holders of the Series K Preferred Stock to ascertain whether: (i) the Letters of Transmittal and any such other documents are duly executed and properly completed in accordance with the instructions set forth therein and (ii) the shares of Series K Preferred Stock have otherwise been properly tendered. In each case where the Letter of Transmittal or any other document has been improperly completed or executed or any of the certificates representing shares of Series K Preferred Stock are not in proper form for transfer or some other irregularity in connection with the acceptance of the Exchange Offer exists, you will endeavor to inform the presenters of the need for fulfillment of all requirements and to take any other action as may be necessary or advisable to cause such irregularity to be corrected. 3. With the approval of the President, Senior Vice President, Executive Vice President, or any Vice President of the Company, or of counsel to the Company (such approval, if given orally, to be confirmed in writing) or any other party designated by such an officer, you are authorized to waive any irregularities in connection with any tender of shares of Series K Preferred Stock pursuant to the Exchange Offer. 4. Tenders of shares of Series K Preferred Stock may be made only as set forth in the Letter of Transmittal and in the section of the Prospectus captioned "The Exchange Offer -- Procedures for Tendering Series K Preferred Stock," and shares of Series K Preferred Stock shall be considered properly tendered to you only when tendered in accordance with the procedures set forth therein. Notwithstanding the provisions of this paragraph 4, shares of Series K Preferred Stock that the President, Senior Vice President, Executive Vice President, or any Vice President of the Company shall approve as having been properly tendered shall be considered to be properly tendered. 5. You shall advise the Company with respect to any shares of Series K Preferred Stock received subsequent to the Expiration Date and accept its instructions with respect to disposition of such shares of Series K Preferred Stock. 3 6. You shall accept tenders: (a) in cases where the shares of Series K Preferred Stock are registered in two or more names only if signed by all named holders; (b) in cases where the signing person (as indicated on the Letter of Transmittal) is acting in a fiduciary or a representative capacity only when proper evidence of his or her authority so to act is submitted; and (c) from persons other than the registered holder of shares of Series K Preferred Stock provided that customary transfer requirements, including payment of any applicable transfer taxes, have been satisfied. You shall accept partial tenders of shares of Series K Preferred Stock where so indicated and as permitted in the Letter of Transmittal and deliver certificates representing shares of Series K Preferred Stock to the transfer agent for split-up and return any untendered shares of Series K Preferred Stock to the holder (or such other person as may be designated in the Letter of Transmittal) as promptly as practicable. 7. The Company will exchange shares of Series K Preferred Stock duly tendered for shares of Series M Preferred Stock on the terms and subject to the conditions set forth in the Prospectus and the Letter of Transmittal. Delivery of shares of Series M Preferred Stock will be made on behalf of the Company by you at the rate of one share of Series M Preferred Stock for each share of Series K Preferred Stock tendered as soon as practicable after notice (such notice if given orally, to be confirmed in writing) of acceptance of said shares of Series K Preferred Stock by the Company; provided, however, that in all cases, shares of Series K Preferred Stock tendered pursuant to the Exchange Offer will be exchanged only after timely receipt by you of certificates representing such shares of Series K Preferred Stock, a properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantees and any other required documents. Unless otherwise instructed by the Company, you shall issue only whole shares of Series M Preferred Stock. 8. Tenders pursuant to the Exchange Offer are irrevocable, except that, subject to the terms and upon the conditions set forth in the Prospectus and the Letter of Transmittal, shares of Series K Preferred Stock tendered pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. 9. The Company shall not be required to exchange any shares of Series K Preferred Stock tendered if any of the conditions set forth in the Exchange Offer are not met. Notice of any decision by the Company not to exchange any shares of Series K Preferred Stock tendered shall be given (and confirmed in writing) by the Company to you. 4 10. If, pursuant to the Exchange Offer, the Company does not accept for exchange all or part of the shares of Series K Preferred Stock tendered because of an invalid tender, the occurrence of certain other events set forth in the Prospectus under the caption "The Exchange Offer -- Certain Conditions to the Exchange Offer" or otherwise, you shall as soon as practicable after the expiration or termination of the Exchange Offer return those certificates representing unaccepted shares of Series K Preferred Stock (or effect appropriate book-entry transfer), together with any related required documents and the Letters of Transmittal relating thereto that are in your possession, to the persons who deposited them. 11. All certificates representing reissued shares of Series K Preferred Stock, unaccepted shares of Series K Preferred Stock or shares of Series M Preferred Stock shall be forwarded by (a) first-class certified mail, return receipt requested under a blanket surety bond protecting you and the Company from loss or liability arising out of the non-receipt or non-delivery of such certificates or (b) by registered mail insured separately for the replacement value of each of such certificates. 12. You are not authorized to pay or offer to pay any concessions, commissions or solicitation fees to any broker, dealer, bank or other persons or to engage or utilize any person to solicit tenders. 13. As Exchange Agent hereunder you: (a) shall have no duties or obligations other than those specifically set forth herein or as may be subsequently agreed to in writing by you and the Company; (b) will be regarded as making no representations and having no responsibilities as to the validity, sufficiency, value or genuineness of any of the certificates or the shares of Series K Preferred Stock represented thereby deposited with you pursuant to the Exchange Offer, and will not be required to and will make no representation as to the validity, value or genuineness of the Exchange Offer; provided, however, that in no way will your general duty to act in good faith be discharged by the foregoing; (c) shall not be obligated to take any legal action hereunder which might in your reasonable judgment involve any expense or liability, unless you shall have been furnished with reasonable indemnity; (d) may reasonably rely on and shall be protected in acting in reliance upon any certificate, instrument, opinion, notice, letter, telegram or other document or security delivered to you and reasonably believed by you to be genuine and to have been signed by the proper party or parties; 5 (e) may reasonably act upon any tender, statement, request, comment, agreement or other instrument whatsoever not only as to its due execution and validity and effectiveness of its provisions, but also as to the truth and accuracy of any information contained therein, which you shall in good faith believe to be genuine or to have been signed or represented by a proper person or persons; (f) may rely on and shall be protected in acting upon written or oral instructions from any officer of the Company; (g) may consult with your counsel with respect to any questions relating to your duties and responsibilities and the written opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted to be taken by you hereunder in good faith and in accordance with the written opinion of such counsel; and (h) shall not advise any person tendering shares of Series K Preferred Stock pursuant to the Exchange Offer as to the wisdom of making such tender or as to the market value or decline or appreciation in market value of any shares of Series K Preferred Stock. 14. You shall take such action as may from time to time be requested by the Company (and such other action as you may reasonably deem appropriate) to furnish copies of the Prospectus, Letter of Transmittal and the Notice of Guaranteed Delivery or such other forms as may be approved from time to time by the Company, to all persons requesting such documents and to accept and comply with telephone requests for information relating to the Exchange Offer, provided that such information shall relate only to the procedures for accepting (or withdrawing from) the Exchange Offer. The Company will furnish you with copies of such documents at your request. 15. You shall advise by cable, telex, facsimile transmission or telephone, and promptly thereafter confirm in writing to the Company and such other person or persons as it may request, daily (and more frequently during the week immediately preceding the Expiration Date and if otherwise requested) up to and including the Expiration Date, as to the number of shares of Series K Preferred Stock that have been tendered pursuant to the Exchange Offer and the items received by you pursuant to this Agreement, separately reporting and giving cumulative totals as to items properly received and items improperly received. In addition, you will also inform, and cooperate in making available to, the Company or any such other person or persons upon oral request made from time to time prior to the Expiration Date such other information as it or he reasonably requests. Such cooperation shall include, without limitation, the granting by you to the Company and such person as the Company may request of access to those persons on your staff who are responsible for receiving tenders, in order to ensure that immediately prior to the Expiration Date the Company shall have received information in sufficient detail to 6 enable it to decide whether to extend the Exchange Offer. You shall prepare a final list of all persons whose tenders were accepted, the aggregate number of shares of Series K Preferred Stock tendered, the aggregate number of shares of Series K Preferred Stock accepted and deliver said list to the Company. 16. Letters of Transmittal and Notices of Guaranteed Delivery shall be stamped by you as to the date and the time of receipt thereof and shall be preserved by you for a period of time at least equal to the period of time you preserve other records pertaining to the transfer of securities. You shall dispose of unused Letters of Transmittal and other surplus materials by returning them to the Company. 17. You hereby expressly waive any lien, encumbrance or right of set-off whatsoever that you may have with respect to funds deposited with you for the payment of transfer taxes by reasons of amounts, if any, borrowed by the Company, or any of its subsidiaries or affiliates pursuant to any loan or credit agreement with you or for compensation owed to you hereunder. 18. For services rendered as Exchange Agent hereunder, you shall be entitled to such compensation as set forth on Schedule I attached hereto. 19. You hereby acknowledge receipt of the Prospectus and the Letter of Transmittal and further acknowledge that you have examined each of them. Any inconsistency between this Agreement, on the one hand, and the Prospectus and the Letter of Transmittal (as they may be amended from time to time), on the other hand, shall be resolved in favor of the latter two documents, except with respect to the duties, liabilities and indemnification of you as Exchange Agent which shall be controlled by this Agreement. 20. The Company covenants and agrees to indemnify and hold you in your capacity as Exchange Agent hereunder harmless against any loss, liability, cost or expense, including reasonable attorneys' fees arising out of or in connection with any act, omission, delay or refusal made by you in reasonable reliance upon any signature, endorsement, assignment, certificate, order, request, notice, instruction or other instrument or document reasonably believed by you to be valid, genuine and sufficient and in accepting any tender or effecting any transfer of shares of Series K Preferred Stock reasonably believed by you in good faith to be authorized, and in delaying or refusing in good faith to accept any tenders or effect any transfer of shares of Series K Preferred Stock; provided, however, that the Company shall not be liable for indemnification or otherwise for any loss, liability, cost or expense to the extent arising out of your gross negligence, willful misconduct or bad faith. In no case shall the Company be liable under this indemnity with respect to any claim against you unless the Company shall be notified by you, by letter or cable or by telex confirmed by letter, of the written assertion of a claim against you or of any other action commenced against you, promptly after you shall have received any such written assertion or shall have been served with a summons in connection therewith. 7 In addition, the Company shall not be liable for any loss, liability, cost or expense resulting from a settlement entered into without its consent. The Company shall be entitled to participate at its own expense in the defense of any such claim or other action, and, if the Company so elects, the Company shall assume the defense of any suit brought to enforce any such claim. In the event that the Company shall assume the defense of any such suit, the Company shall not be liable for the fees and expenses of any additional counsel thereafter retained by you, so long as the Company shall retain counsel reasonably satisfactory to you to defend such suit. 21. You shall arrange to comply with all requirements under the tax laws of the United States, including those relating to missing Tax Identification Numbers, and shall file any appropriate reports with the Internal Revenue Service. The Company understands that you are required to deduct 31% on payments to holders who have not supplied their correct Taxpayer Identification Number or required certification. Such funds will be turned over to the Internal Revenue Service. 22. You shall deliver or cause to be delivered, in a timely manner to each governmental authority to which any transfer taxes are payable in respect of the exchange of shares of Series K Preferred Stock, your check in the amount of all transfer taxes so payable, and the Company shall reimburse you for the amount of any and all transfer taxes payable in respect of the exchange of shares of Series K Preferred Stock; provided, however, that you shall reimburse the Company for amounts refunded to you in respect of your payment of any such transfer taxes, at such time as such refund is received by you. 23. This Agreement and your appointment as Exchange Agent hereunder shall be construed and enforced in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within such state, and shall inure to the benefit of, and the obligations created hereby shall be binding upon, the successors and assigns of each of the parties hereto. This Agreement may not be modified orally. 24. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 25. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 26. This Agreement shall not be deemed or construed to be modified, amended, rescinded, cancelled or waived, in whole or in part, except by a written instrument signed by a duly authorized representative of the party to be charged. 8 27. Unless otherwise provided herein, all notices, requests and other communications to any party hereunder shall be in writing (including telecopy or similar writing) and shall be given to such party, addressed to it, at its address or telecopy number set forth below: If to the Company: Time Warner Inc. 75 Rockefeller Plaza New York, New York 10019 Facsimile: (212) 956-7281 Attention: General Counsel If to the Exchange Agent: [Chemical] 28. Unless terminated earlier by the parties hereto, this Agreement shall terminate 90 days following the Expiration Date. Upon any termination of this Agreement, you shall promptly deliver to the Company any certificates, funds or property then held by you as Exchange Agent under this Agreement. 29. This Agreement shall be binding and effective as of the date hereof. 9 Please acknowledge receipt of this Agreement and confirm the arrangements herein provided by signing and returning the enclosed copy. TIME WARNER INC. By:___________________________ Name: Title: Accepted as of the date first above written. [CHEMICAL] By:________________________ Name: Title: -----END PRIVACY-ENHANCED MESSAGE-----